Development Finance

Get the best rates to fund your one unit development or multi-unit scheme. 

What is Development Finance?

For the purposes of this content, we will define development finance as funding to build schemes out of the ground or conversion works to an existing building infrastructure where construction costs exceed 30% of the gross development value (GDV) of the scheme.  

The definition of development finance is multi-faceted and covers a very wide range of scenarios with differing requirements. The scale can vary from a single unit development with funding of around £150,000 to multi-unit schemes requiring several million pounds in development finance. 

The Borrower can be a limited company, partnership or individual borrower. If it is a company, the lender needs to know who the directors and shareholders are. The lender also needs a copy of the accounts if it is an existing entity. You can also borrow through a special purpose vehicle (SPV) company that has been set up for the sole purpose of the development in question.  

SPVs are generally the preferred structure for development finance transaction. 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. An SPV is preferred by borrowers, mainly for tax reasons. The SPV can offset any relevant expenses in running the company and the property as business expenses; this includes wages paid to directors and Mortgage interest. 

Development funding is provided by both UK clearing banks and specialist finance providers. Development finance facilities are mostly granted up to 36 months but can be longer on more significant schemes.  

Loan terms will be expressed differently by different lenders; however, it is the aggregate cost to the client that is the critical calculation, made up of interest, lender fees and third-party fees. Interest can be charged in multiple ways. For example, interest can be compounded and rolled up or deducted from each advance, fixed or linked to base rate or Sonia and may have a minimum payable amount in the event of early repayment.  

The interest rate is only one cost to consider, with fees often forming a much greater part of the total costs than other forms of finance. Currently, most lenders charge a 2% arrangement fee with varying fees on exit. At iBrokr we are flexible with our fees, putting you first when completing on the most favourable terms possible.  

Gross development value (GDV) is the value of the entire development scheme on completion of the works. This is predominantly assessed on the open market value.  

Gross Development costs are the total acquisition costs plus the total construction costs. Lenders have varying appetites which are reflected in Loan-to-GDV and Loan to Cost percentages. Currently, the top end of the market is limited at around 75% LTV, provided LTC does not exceed 85%. 

How do I get Development Finance?

Traditionally you can access development finance via a specialist broker or direct to lender. If you have extensive experience in property development, direct access might be suitable. However, it is suggested that a broker is used to provide access to the best lenders, comparison of varying lender terms and guidance through the process. iBrokr acts as a commercial mortgage broker to do just this. 

iBrokr’s Impact: 

iBrokr modernises the brokerage process by utilising technology to streamline the application process. Our brokers are still on hand to assist you through the process at any time. We look after our clients throughout the application and drawdown process but also during the lifetime of the loan and development project. Brokers often receive a procurement fee from the lender. This is factored into the loan facility. Some brokers might charge an additional fee on top of this directly to the borrower. iBrokr never does this and are flexible with procurement fees to ensure that each loan is as manageable as possible. 

Getting started is simple. iBrokr gives borrowers the flexibility to start and complete their loan application at their own pace, without endless back-and-forth with brokers. Our online application tool allows you to submit all key project details and supporting documents in one place, meaning everything needed to secure funding is ready from day one. Our specialist brokers remain available throughout, providing expert support and market knowledge whenever you need it. 

Once your application is submitted, one of our experienced brokers will review the details to assess project feasibility. With access to over 80 lenders, from high-street banks to private and specialist development finance providers, we match your project with only the most suitable lenders. 

Using iBrokr’s holistic application process, lenders can issue real-time decision-in-principle terms that are accurate and reliable, not vague estimates that change later. Unlike the traditional model, where offers often shift after key information is uncovered, iBrokr ensures the first terms you see are the ones you can trust. 

After selecting your preferred lender, we guide you through their due diligence process, keeping solicitors and valuers on track to complete swiftly. 

Once your finance is approved, funds are typically released in stages (drawdowns) aligned to your development milestones. Throughout your project, we remain on hand to help manage additional funding needs quickly and efficiently. 

Development Finance Requirements.

To secure development finance, lenders require you to submit some financial and personal information to get a better idea of who they are lending to. There are some general requirements that most lenders stick to, and information required includes. All the below details and documentation can be uploaded and stored on iBrokr. We break away from the traditional model, where borrowers and lenders would get lost in endless email chains.  

Credit Worthiness/Financial Strength 

Lenders will usually ask for proof of income and bank statements from the past 3 months. This is to ensure that you have the finances behind you to satisfy the costs associated with development finance.  

Additionally, lenders will evaluate your credit score and will need to be made aware of any adverse credit history. Although many lenders will not lend to those with adverse history, there are multiple lenders on the market that will take a holistic approach to loan underwriting and will allow borrowing if other aspects of the loan proposal. Are watertight.  

Borrower History:

As part of development finance application, lenders will carry out thorough due diligence on the borrower to assess risk. This includes a detailed review of your financial background, credit history, and any relevant experience with property projects. Transparency is key and any material information should be disclosed early to avoid delays. Traditionally this information is collated by a broker over email, which can prove to be quite a lengthy process. iBrokr provides a modern approach whereby you can upload vital information easily and even store it for future applications.  

Key areas lenders will expect to review include: 

  • Credit Profile: Any adverse credit, such as missed payments, defaults, or bankruptcies, should be declared upfront. Minor issues may not prevent approval, but they will affect terms. Some lenders are more flexible than others. 
  • CCJs: County Court Judgments (CCJs). A County Court Judgment (CCJ) is a legal ruling issued in England, Wales, or Northern Ireland when someone fails to repay money they owe. Any active or historic CCJs must be disclosed during the application process. Lenders will assess when the CCJ occurred, its value, and whether it has been satisfied. A single, resolved CCJ is often acceptable, but multiple or recent judgments may limit lender options.  
  • Some lenders are still open to adverse credit cases if there’s a strong exit strategy and full transparency. 
  • IVAs: An Individual Voluntary Arrangement (IVA) is a formal agreement between a person and their creditors to repay debts over time, usually across five or six years. It’s legally binding and must be set up by a licensed insolvency practitioner. Once in place, creditors can’t take further legal action, and interest is usually frozen, but having an IVA will significantly affect a person’s credit score and borrowing ability. It stays on the credit file for six years from the start date, even if paid off early. 
  • Existing Borrowing: A breakdown of your current debts, including mortgages, development finance, or other secured/unsecured borrowing, will help lenders understand your financial position. 
  • Past Projects: If you’re applying for finance to refurbish or develop property, a track record of similar projects, including type, scale, and outcomes will strengthen your case. Lenders may ask for photos, timelines, or evidence of profits from previous schemes. 
  • Previous Loan History: If you’ve previously used development finance, lenders may ask how those were repaid, via refinance or sale, and whether they were repaid on time. A strong repayment history can help secure better terms. 
  • Corporate Background (if applicable): If applying through a company or SPV, lenders may request information on the company’s structure, shareholders, and trading history. 

Lenders aren’t necessarily looking for a “perfect” borrower, but they do want clarity and a realistic exit strategy. Early disclosure of any issues allows your broker to position the application correctly and match you with the most suitable lender. 

Government Identification:

You will be asked to provide government identification (i.e. password or driving license) to confirm that you are who you say you are. This can also confirm that you are either a UK citizen or from a country that lenders are happy to lend to. This can vary but is often all those free of conflict or corruption.  

Project Details:

Development Appraisal:  

A detailed development appraisal is essential for securing development finance because it provides lenders with a clear, comprehensive understanding of a project’s financial viability and associated risks. It breaks down every aspect of the development, from land acquisition and construction costs to professional fees, contingencies, and projected sales values, offering a transparent view of the project’s profitability. 

Lenders rely on this level of detail to assess whether the project is financially sound and if the loan can be repaid within the agreed terms. A well-prepared appraisal demonstrates that the developer has a strong grasp of the project, has planned for uncertainties, and understands market conditions. This not only builds lender confidence but can also speed up the approval process and lead to more favourable lending terms. 

In short, a robust development appraisal isn’t just a financial formality, it’s a cornerstone of risk management and a key tool for gaining lender trust. 

Planning approval:  

To secure development finance, you’ll need to provide proof of full planning approval or confirmation that the project qualifies under permitted development rights. 

Lenders require this to ensure the scheme is legally viable and won’t face planning-related delays. Providing these early builds confidence in your project and can help speed up the approval process. Upload approval documents on iBrokr with ease, meaning lenders have evidence from the outset, avoiding any potential roadblocks.  

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. They include multiple restrictions so funders will require specific evidence that such schemes are PDR-compliant in a funding application or through the legal due diligence process.  

Full 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).  

Outline 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. A further application for ‘reserved matters’, which would include detailed matters of design, construction, appearance, landscaping and access, would need to be submitted for approval prior to works commencing. If these matters significantly deviate from the original outline permission application, a new detailed application may be requested. 

iBrokr allows schedule of works, planning permissions and any other supporting documents to be submitted seamlessly as part of an application

Representative example:

A property developer looking to build four residential units with a GDV of £2.5M could secure a £1.2M development finance loan over an 18-month term. The lender might provide 70% of the £500,000 land purchase price, requiring a £150,000 equity contribution from the borrower. The estimated £800,000 build cost could be fully funded through staged drawdowns, released as the project progresses and verified by a surveyor.

With an interest rate of 9.5% per annum, charged on the drawn balance and rolled up over the term, the total interest over a 14-month build period could amount to approximately £133,000. An arrangement fee of 2% (£24,000) would also apply, bringing the total repayment to around £1.357M. Repayment would typically be made upon the sale or refinance of the completed development. If the units sell for £2.5M, the borrower could exit with approximately £1.143M before taxes and fees.

How Much Does Development Finance Cost?

Interest: 

Interest is presented as an annual figure, usually over a base rate such as the bank of England base rate or SONIA. Typically, development finance rates are in the region of 5% and 9% over BoE, dependant on various factors affecting the level of risk the lender is taking on. Interest can be serviced in several ways. SONIA represents the average interest rate at which banks lend to each other overnight in British pounds, while the base rate is the interest rate the Bank of England uses to influence broader economic conditions. Lender’s preference between the two can vary.  

Serviced interest:  

You pay the interest monthly as it accrues. For example, if you borrow £100,000 at an annual rate of 6% above the Bank of England base rate, and the base rate is 4.5%, your total interest rate would be 10.5% per year. That’s approximately £875 per month in interest. The loan balance remains unchanged throughout the term, and you repay only the original amount at the end. This structure is well-suited to borrowers with consistent cash flow during the loan period. 

Rolled-up interest: 

You don’t make any monthly payments. Instead, interest is rolled up: added to your loan each month and repaid in full at the end. For example, if you borrow £100,000 for 6 months at an annual rate of 10.5% (6% over the 4.5% Bank of England base rate), you’ll owe around £105,250 at repayment. This method is useful if you don’t have cash available until the property is sold or refinanced. 

Retained interest: 

The lender calculates the interest for the agreed term upfront and deducts it from the loan. For example, if you borrow £100,000 for 6 months at an annual rate of 10.5% (6% over the 4.5% Bank of England base rate), around £5,250 in interest is retained, and you receive approximately £94,750. At the end of the term, you repay the full £100,000. This structure avoids monthly payments but reduces the initial amount you receive. 

Default interest:  

Default interest is a higher rate charged when a development finance loan isn’t repaid by the agreed term. Once the loan reaches the end of its term and the balance remains unpaid, the lender may apply this penalty rate. For example, if your original interest rate was 10.5% per annum (based on 6% over the 4.5% Bank of England base rate), the default rate could increase to 25% or even 25% per annum. This reflects the increased risk to the lender and can cause your borrowing costs to escalate quickly. 

The level of increase in default interest can vary massively depending on the situation, i.e. if the overruns are justified there may be only a slight increase. Some lenders are more flexible with loans that overrun. It’s always best to communicate early if you anticipate delays in repayment, the lender may be open to discussing options before applying default interest.  That said, having a robust and well-defined exit strategy is essential to avoid overruns and the significant costs associated with default charges. 

Extension Interest:  

Lenders may offer additional time to repay your development finance facility by formally extending the loan term. Extension interest is typically higher than your original rate, but not as steep as default interest. For example, if your original rate was 10.5% per annum (based on 6% over the 4.5% Bank of England base rate), the extension rate might increase to 13% or 15% per annum. This provides a structured grace period and helps you avoid default penalties, though it still increases the overall cost of borrowing. To prevent slipping into default, it’s wise to negotiate an extension before your term ends, or ideally, exit the loan on schedule. 

 Fees:  

There are also various fees associated with bridging loans.  

Arrangement Fee:  

Lenders typically charge an arrangement fee for setting up the loan, usually between 1% and 3% of the net loan amount. At present, it’s common for this fee to be set at 2% of the net loan amount. 

Exit Fee:  

Lenders may also charge an exit fee, which is charged at the end of the loan term. Like the arrangement fee, it’s usually calculated as a percentage of the net loan amount. While less common, exit fees are more likely to be charged when the lender is taking on higher risk. 

Redemption Fee:   

A redemption fee may be charged when the loan is repaid, typically to cover the administrative costs of closing the account. This fee is usually fixed rather than a percentage of the loan and is less significant than other charges. Not all lenders apply a redemption fee, but it’s worth checking the loan terms to avoid surprises at repayment. 

It’s more common for lenders to charge an early redemption fee, which applies if you repay the loan well before the end of the agreed term. This fee compensates the lender for the lost interest they expected to earn. However, this is something iBrokr typically tries to avoid for its clients, aiming to keep exit costs as low as possible. 

Valuation Fee:  

The lender will carry out a valuation of the main property and any additional security properties before the loan is drawn down. This ensures they have verified the value of the assets they are lending against. Valuation costs can vary depending on the type and location of the property but typically range from £500 to £1,000 per property.  

There are multiple types of valuation a lender might use, including:  

Automated Valuation Model (AVM): 

An AVM uses an automated system to calculate a property’s value based on a wide range of data sources such as recent sale prices, property tax records, and market trends. The process is fully automated and doesn’t involve any human intervention or physical inspection. AVMs are fast, cost-effective, and often used by lenders for quick valuations when time is crucial. However, AVMs can be less accurate for unique or unconventional properties, as they rely purely on available data and algorithms. 

Desktop Valuation:  

A desktop valuation is a type of property assessment that involves a human surveyor or valuer who remotely evaluates a property using available information, such as online property data and comparable sales, without conducting a physical inspection. It’s quick and low cost, typically used for lower risk loans or when time is critical. Lenders may accept this for standard residential properties with good comparable evidence.  

Red Book Valuation: 

 A Red Book valuation refers to a property assessment that follows the standards set by the Royal Institution of Chartered Surveyors (RICS) in the UK. This type of valuation involves a thorough inspection of the property, both inside and out, and is usually required for more complex or high-value properties. The Red Book guidelines ensure the valuation is conducted with the utmost accuracy, and consistency. It’s considered the most comprehensive and reliable form of valuation, commonly used for significant lending decisions. 

Admin Fee: 

Lenders will typically apply an administration fee upon drawdown of the loan, which is commonly in the region of £500. 

Solicitor Fee: 

You will need to instruct a solicitor to assist with reviewing and drafting loan agreements, as well as purchase agreements if required. Legal fees can vary depending on the complexity of the transaction but will typically be around £1,500. 

Procurement Fee: 

iBrokr is paid a procurement fee by the lender, which is added to the net loan amount and settled through the loan. Procurement fees typically range between 1% and 2% of the net loan amount. However, iBrokr remains flexible with fees to ensure each project runs smoothly and remains financially viable for the borrower. 

Broker Fee: 

In addition to the procurement fee, brokers may have the option to add a separate broker fee to the loan, payable by the borrower. However, iBrokr does not charge a broker fee, as we believe fees in the market are often excessive. We operate on a customer-centric model, focused on ensuring that every project remains financially viable and profitable for our clients

Have A Development Project That Needs Financing?

Contact us to get started today.