Development Finance Glossary

A 

• Arrears 

Refers to missed or overdue payments on a bridging loan, typically involving monthly interest payments where not retained or rolled up. Arrears indicate that the borrower has failed to meet the agreed repayment schedule, which may trigger default provisions under the loan agreement. 

• Amortisation  

Refers to the process of gradually repaying a loan over tiem through fixed, periodic payments that over both capital and interest.  

• Assured Shorthold Tenancy (AST) 

The most common type of residential tenancy agreement in the UK, typically used when a private landlord lets a property to an individual as their primary residence. It provides the landlord with a legal right to repossess the property at the end of the fixed term, subject to proper notice. 

• Auction Purchase  

The acquisition of a property through a public auction, where the contract becomes legally binding immediately upon the fall of the hammer. In the context of bridging finance, auction purchases are a common use case due to the short completion deadlines typically required; most commonly 28 days.  

B 

• Bank of England Base Rate (BoE) 

The Bank of England Base Rate is the official interest rate set by the Bank of England’s Monetary Policy Committee. While bridging loans typically have fixed or interest rates, some lenders may price their loans as a margin above the base rate. 

• Broken Chain  

Occurs when a property transaction fails within a chain of dependent sales and purchases, causing delays or collapse of linked transactions. Bridging Loans are often used to resolve broken chains, typically enabling a buyer to proceed with a purchase whilst waiting for their own sale to complete.  

• Brownfield Site  

Land that has been previously developed and is now available for re-development.   

C 

• Capital Stack  

A useful way to represent a commercial real estate deal’s financial structure and the balance between different types of capital used to finance a property, the three key portions usually include senior debt, junior (mezzanine) debt and equity.  

• Charges: 

• • First Charge 
    The primary legal claim over an asset, giving the holder priority over others if the asset is sold or repossessed. 

• • Second Charge                                                                                                                                                                                                      A secondary legal claim over an asset, ranking behind the first charge. 

• • Third Party Charge 
    A legal claim over an asset owned by someone who is not the borrower, used to secure a loan or obligation. 

• Conditions Precedent (CPs)

Specific requirements that must be satisfied before a loan can be drawn down. 

• Contingency Allowance 

A portion of the project budget that is set aside to cover unexpected costs associated with delays, material price increases or other unforeseen issues.  

• Conveyancing  

The legal process of transferring property ownership. It involves tasks such as preparing documents, conducting searches, and ensuring a smooth and legal transaction. A solicitor or licensed conveyancer is required for this work. 

• Corporate Guarantee

A commitment from a separate company to cover the borrower’s debt if the borrower defaults. 

• County Court Judgement (CCJ) 

A formal legal decision issued by a county court in England, Wales, or Northern Ireland following a creditor’s successful claim against an individual or company for non-payment of a debt. The judgment legally confirms that the debtor owes the stated amount and outlines the terms under which repayment must be made. 

• Cross-Collateralisation 

When more than one property or asset is used as security for a single loan or multiple loans, allowing lenders to claim against multiple assets in the event of default. 

D 

• Decision-in-Principle (DIP) 

A lender’s initial confirmation that they are willing to lend, subject to further due diligence and underwriting. 

• Deed of Priority 

A legal agreement between two or more lenders that sets out the order in which they will be repaid if the borrower defaults, protecting the position of the senior lender. 

• Deferred Consideration 

An agreement where part of the purchase price is paid later, rather than at completion. 

• Desktop Valuation 

A valuation carried out remotely using market data, comparable evidence, and online tools, without an in-person site visit. 

• Design & Build Contract  

A construction agreement where the main contractor is responsible for both the design and construction of the project.  

• Development Appraisal  

A detailed financial analysis to determine the feasibility of a project, including various costs and GDV, used to predict profit.  

• Drawdowns  

The release of funds from a development loan, typically in pre-agreed stages, subject to QS approval of construction spend and progress.  

E 

• Early Repayment Charge (ERCs) 

A fee that may be charged if a bridging loan is repaid before a minimum term or outside agreed conditions. While ERCs are not commonly applied in bridging finance, some lenders may include them, particularly where a minimum interest period has been agreed to ensure a basic return on the loan. 

• Enabling Works  

Preliminary works required before main construction can begin, such as site clearance and access.  

• Energy Performance Certificate (EPC) 

A document that provides an assessment of a property’s energy efficiency and environmental impact, rating it from A (most efficient) to G (least efficient). The minimum EPC rating for rented properties is currently E, with the UK government planning to raise the minimum to C by 2030.  

• Environmental Report  

A due diligence report that assesses the environmental risks of a site, such as contamination or flood risk.  

• Equity  

The developer’s own capital invested into the project. 

F 

• Facility Agreement 

The legally binding contract between the borrower and the lender that sets out the detailed terms of the loan, including repayment terms, security, and covenants. 

• Fees: 
   

• • Arrangement Fee 
    A fee charged by the lender for setting up the loan, usually a percentage of the gross loan amount. 

• • Exit Fee 
    A charge imposed by the lender when the loan is repaid, often calculated as a percentage of the loan amount. 

• • Procurement Fee 
    A fee paid by the lender to iBrokr for sourcing and arranging the loan on behalf of the borrower. 

• • Total Costs 
    The overall cost of borrowing, including all interest payments and associated fees. 

• Fixed Price Contract  

A construction contract where the price is agreed upfront and cannot change, regardless of actual costs incurred.  

• Forward Funding  

When the borrower purchases land from a vendor/developer entity and the developer will in turn contract with the borrower to carry out the development. Funds lent to the borrower will then be used by the borrower to pay development costs to the developer. 

• Forward Sale  

When the sale of a unit or full development is agreed before construction is complete.  

• Freehold  

Where the owner holds the title to both the property and the land it’s on indefinitely. 

G 

• Gearing  

A measure of how much of a project is financed by debt versus equity 

• Guarantees: 

• • Corporate Guarantee 
    A commitment from a separate company to cover the borrower’s debt if the borrower defaults. 

• • Personal Guarantee (PG) 
    A promise by an individual, usually a company director, to repay the loan if the borrowing company cannot.  

• Greenfield Site  

A plot of undeveloped land (usually in rural or semi-rural areas) with no prior construction. 

• Gross Development Value (GDV) 

The estimated total value of a property or development once it is completed and sold at market rates. 

• Ground Rent  

A regular payment made by a leaseholder to the freeholder, often on long leases. 

• Ground-up development 

The construction of a new building on a plot of land where no existing structure is present. You might use Development Finance to fund a project like this. 

H 

• House in Multiple Occupation (HMO) 

A residential property rented out by at least three unrelated people who share facilities such as a kitchen or bathroom. HMOs are common in student housing and shared accommodation and are a popular investment strategy.  

• Heads of Terms 

A non-binding document that outlines the key terms and conditions agreed upon by both parties before entering into a loan agreement.  

I 

• Interest:

• • Interest Rate 
    The percentage charged by a lender on the loan amount. 

• • Floating Interest 
    An interest rate that fluctuates based on an external benchmark. 

• • Retained Interest 
    Interest deducted upfront from the loan amount to cover the agreed loan term. 

• • Rolled-up Interest                                                                                                                                                                                          Rolled-up interest refers to the accumulation of unpaid interest over the term of a loan, where interest charges are periodically added to the principal balance rather than being paid as they accrue. The total accrued interest, combined with the principal, becomes due for repayment in full upon maturity or early settlement of the loan. 

• • Stepped Interest 
    A variable interest structure where the rate increases or decreases at predefined intervals during the loan term. 

• Interest Cover Ratio (ICR) 

A financial metric that measures a borrower’s ability to cover loan interest payments from the net rental income generated by the property. It is calculated by dividing the net rental income by the interest payable on the loan. While not commonly applied to short-term bridging loans, the ICR becomes important when a bridging facility is backed by rental income or where the exit strategy involves refinancing onto a buy-to-let or term loan. Lenders use ICR to ensure the property can support long-term borrowing.  

J  

• Join Contracts Tribunal (JCT) Contract 

A widely used form of construction contract in the UK, setting out the rights, responsibilities, and obligations of all parties involved in the build. 

• Joint Venture  

A business arrangement where two or more parties collaborate on a property project, typically sharing capital, risk, and profit.  

K 

• Know Your Customer (KYC) 

A compliance process where lenders or brokers verify the identity of a borrower to meet anti-money laundering (AML) regulations. IBrokr collects all the information required for a lender to complete KYC checks, saving valuable time and enabling swift completions. 

L 

• Loan Structures: 

• • Gross Loan

The total loan amount approved by the lender before any deductions, including interest, fees, and retained payments. 

• • Net Loan

The amount a borrower receives after deducting any fees, interest, or deductions from the gross loan.

• • Loan to Cost

The ratio of the loan amount to the total project costs, including land, build and fees.  

• • Loan to Value 

A ratio that compares the loan amount to the market value of the property being used as security. It is expressed as a percentage and is a key measure of risk for lenders. 

• Leasehold 

A type of property ownership where the buyer has the right to use and occupy the property for a specific period, usually subject to payment of ground rent to the freeholder.  

M 

• Margin  

The interest rate charged by the lender minus the benchmark rate, when floating over a benchmark.   

• Maturity Date  

The final due date for repayment of a bridging loan, typically within 12 months.  

• Mezzanine Finance  

A type of second charge loan that ranks subordinate to senior debt but ahead of equity. It is typically used to bridge the gap between the main loan facility and the total funding required, enabling borrowers to achieve a higher loan-to-value (LTV). Mezzanine finance allows developers to raise additional capital without diluting equity, but due to the higher risk to the lender, it often carries higher interest rates and may include profit-sharing elements or exit fees.  

O 

• Open Market Value (OMV) 
  The estimated price a property would achieve in an open and competitive market under normal conditions. 

• Overage  

A type of contract clause where the original landowner will be paid extra by the buyer if specified events happen within a specified timescale. E.g. the seller would be entitled to a percentage of the value increase if the buyer decides to develop on the land.  

P 

• Planning Permissions 

• • Outlined Planning Permission  

Does not include specifics for the design but provides a ‘permission in principle’. It does not provide consent to commence works but is rather used by developers to explore whether a development would be viable.  

• • Detailed Planning Permission  

Provides consent for a development scheme based on a detailed design. This often includes pre-conditions attached to the approval that must be satisfied for the approval to be valid and formally discharged in writing by the local planning authority (LPA).   

• • Permitted Development Rights  

Are automatic grants of planning permission that allow certain building works and changes of use to be carried out on a property without having to make a full planning application. These rights cover householder improvements but will also encompass some development schemes such as the conversion of offices to residential use.  

• Professional Fees 

Professional fees are the costs paid to specialist advisors and service providers involved in a development project, such as architects, surveyors, solicitors, engineers, and project managers. 

• Profit on Cost  

A metric used to show the expected profit of a project, as a percentage of total costs. Lenders use Profit on Cost to assess the viability and resilience of a scheme. A typical benchmark is 20% or more, providing assurance that the project is not only profitable but also has a buffer to absorb cost overruns or market fluctuations. 

Q 

• Quantity Surveyor (QS) 

A construction professional who monitors build costs, valuations, and progress on a development project. In the case of a heavy refurbishment bridge, lenders might appoint a QS to verify drawdown stages, manage cost overruns, and report to the lender.  

R 

• Refinance  

The process of replacing an existing loan with a new facility, often to access better terms or raise capital. A common exit strategy for bridging loans, particularly when moving onto a term mortgage 

• Retention  

A portion of the loan that is withheld by the lender until certain conditions are met, such as completion of works or provision of documentation. 

• Revolving Debt Facility  

A revolving debt facility is a type of loan agreement that allows the borrower to borrow, repay, and borrow again up to a pre-approved credit limit during the term of the facility. 

S 

• S-Curve  

A graphical representation of the progress of a development project over time, showing how costs or work typically accelerate mid-project before slowing down toward completion. Often used to predict the schedule of works before a project has begun.  

• Senior Debt  

The primary loan facility secured against a property, typically holding the first legal charge. In bridging finance, this is the main facility repaid before any subordinated (mezzanine) loans. 

• Soft Costs  

Costs related to the development that are not directly associated with construction, such as planning, professional fees, and legal expenses. 

• Special Purpose Vehicle (SPV) 

A new entity with one purpose: to buy or develop property. For lenders, this makes assessing potential lending much less complicated, and they will place emphasis on the financial status of the SPV directors and their ability to service any borrowing. For borrowers an SPV provides greater tax efficiency.  

• Security  

The property being financed typically serves as the primary security for the loan, with the lender taking a legal charge over the property. If the borrower defaults, the lender has the right to repossess and sell the property. Additionally, other assets may be added as security to further reduce risk and enhance the lender’s position, depending on the loan terms and agreement. 

• Serviceability  

The borrower’s ability to afford interest payments, based on income or rental coverage. Often more relevant in regulated bridging or investment lending where monthly interest is serviced. 

T 

• Term Sheet 
  A non-binding summary of the key terms and conditions of a loan offer. 

• Title Deed  

Legal documentation that proves ownership of a property.  

U  

• Underwriting  

The process in which a lender assesses the risk of a loan application, including evaluating the borrower’s financial situation, the property value, and the exit strategy. 
 

V 

• Valuations: 
   

• • AVM Valuation 
    Uses data and algorithms to estimate a property’s value without a physical inspection. 

• • Desktop Valuation 
    A valuation carried out remotely using online tools and comparable data. 

• • Red Book Valuation 
    A formal, professional property valuation following RICS standards.