Development Finance Rates

Property Development

Development Finance Rates, Costs and How to Apply

8 min read

Development finance is priced differently from every other property loan. The rate is just one part of the cost, the lending structure is built around your project not your income, and the application process requires documentation that most developers underestimate. This guide covers what rates look like in 2026, how lenders calculate what they will lend, what fees to budget for, and what you need to prepare before you approach a lender.

How development finance rates are structured in 2026

Development finance is priced monthly rather than annually, in the same way as bridging finance. In 2026, rates for residential ground-up schemes by established developers typically sit between 0.65% and 0.90% per month. Schemes with higher leverage, less experienced developers, or more complex structures can reach 1.10% per month or above. For reference, 0.75% per month is 9% per annum.

Rates are not published as standard products. Every development finance facility is individually underwritten, and the rate offered reflects the lender's assessment of the specific project and borrower. Two developers applying for the same loan amount on adjacent sites with different track records and different LTGDVs will receive different terms.

The main variables that move your rate are as follows.

Interest on development finance is almost always rolled up, meaning it accrues during the build and is repaid alongside the capital at the end of the facility. You do not make monthly interest payments during construction. This preserves cashflow during the build but means the total interest cost depends heavily on how long the facility is drawn, not just the rate.

How lending is calculated: LTGDV, LTC and the day one position

Development finance is sized using three overlapping calculations. Understanding all three is essential before approaching a lender, because the tightest constraint determines your actual loan.

Loan to gross development value (LTGDV). This is the primary cap. Most lenders advance up to 65% of the GDV of the completed scheme. Some will go to 70% for stronger applications. GDV is the projected open market value of all completed units, supported by a RICS valuation and local comparable evidence. On a scheme with a £2,000,000 GDV, 65% LTGDV means a maximum gross facility of £1,300,000.

Loan to cost (LTC). The total facility is also capped as a percentage of total project costs, which include land, build, professional fees, finance costs, and contingency. Most lenders will advance up to 85% to 90% of total cost, subject to the LTGDV cap taking precedence. This means the developer must fund at least 10% to 15% of costs from equity.

The day one position. The amount released at land purchase is capped separately, typically at 60% to 70% of the site value. The remaining facility is then drawn in staged tranches as construction progresses. A developer purchasing a site for £500,000 should expect an initial drawdown of £300,000 to £350,000, with the balance of the facility drawn against build progress.

The full cost of development finance: beyond the rate

The monthly rate is the most visible cost but not the only one. A complete development finance appraisal needs to account for all of the following.

Arrangement fee. Charged by the lender for setting up the facility. Typically 1% to 2% of the gross loan amount. On a £1,000,000 facility at 1.5%, this is £15,000. The arrangement fee is usually added to the facility and repaid at exit rather than paid upfront, so it forms part of the rolled-up cost.

Exit fee. Some lenders charge an exit fee of 0.5% to 1.5% of the loan on repayment. Not all lenders charge this, and it is a negotiating point. Always confirm whether an exit fee applies and what it is calculated on, as some apply it to the original facility, others to the balance at redemption.

Valuation fee. An independent RICS valuation is required by the lender. For development finance, the valuer must assess both the current site value and the projected GDV, which makes this more complex and more expensive than a standard mortgage valuation. Budget £3,000 to £8,000 depending on scheme size, paid upfront and not recoverable if the loan does not proceed.

Monitoring surveyor (IMS) fees. The lender appoints an independent monitoring surveyor to certify each drawdown request during the build. The IMS visits the site at each drawdown stage and confirms that works have been completed to the standard described. Their fee is charged to the borrower at each visit, typically £750 to £1,500 per visit, and is added to the loan. On a 12-drawdown facility this can reach £10,000 to £18,000 over the life of the scheme.

Legal fees. Borrower's and lender's legal fees are both borne by the borrower. On a standard residential development loan, budget £5,000 to £12,000 in total depending on scheme complexity.

Taking all of these together, the total finance cost on a well-structured development facility typically runs to 8% to 12% of the gross loan amount over a 12-month term. On a £1,000,000 facility this means £80,000 to £120,000 in total finance costs. This figure needs to sit comfortably within the project appraisal before you commit to a site purchase.

Note that interest is calculated on the drawn balance at each stage, not the full facility from day one. If the £1,000,000 facility is drawn progressively over 12 months, the actual interest cost will be lower than the figure shown above. The table illustrates a fully drawn position and should be treated as a ceiling, not a precise forecast.

What lenders assess when reviewing your application

The project. Is the scheme viable? Is the planning position clean? Is the GDV supported by comparable evidence in the local market? Is the schedule of works realistic and costed accurately? Inflated GDV figures or undercosted build programmes are the most common reasons lenders decline at first review.

The developer. What is your track record? Have you delivered similar schemes before? If this is your first project, who is your professional team, and do they have the experience to compensate? First-time developers are not excluded but face a narrower lender panel and lower maximum LTVs.

The exit. How will the loan be repaid? For residential schemes the primary exit is unit sales, and lenders want to see comparable evidence supporting the sale prices in your appraisal. For schemes where the exit is a refinance onto a development exit facility or a buy-to-let mortgage, lenders want to see that the term finance is achievable at the values projected.

The contingency. Does the appraisal include adequate contingency? Most lenders expect a minimum 10% contingency on build costs for ground-up schemes, and 10% to 15% for conversions where hidden structural issues are more likely. A contingency below these levels is a red flag and will be raised during underwriting.

In most development finance cases we arrange, the biggest constraint is not the LTV. It is demonstrating a credible exit at the appraisal values. Applications with GDVs that rely on achieving the best comparable sale in the postcode, with no margin for slippage and no contingency in the cost plan, are not fundable at any rate. A well-stress-tested appraisal moves faster and attracts better terms than one the lender has to unpick at credit stage.

The application process: from enquiry to first drawdown

Development finance applications follow a consistent process. Knowing what happens at each stage helps you prepare and avoid delays.

Initial enquiry and terms. You provide the headline project details: site address, planning status, proposed scheme, GDV, total costs, and requested loan amount. The lender or broker responds with indicative terms, typically within 24 to 48 hours for straightforward cases. These terms are not binding but allow you to confirm the lending structure is workable before incurring any costs.

Formal application and credit-backed terms. Once you accept indicative terms, the lender requires a full application pack. This includes the development appraisal, full planning documentation, schedule of works, cost breakdown signed off by a quantity surveyor, developer CV and track record, statement of assets and liabilities, and evidence of equity contribution. The lender reviews this and issues credit-backed terms, which are binding subject to valuation and legal.

Valuation and monitoring surveyor appointment. The lender instructs a RICS-registered valuer to assess the site and produce a development appraisal confirming current value and projected GDV. They simultaneously appoint an independent monitoring surveyor who reviews the schedule of works and cost plan, and produces a report confirming the project is deliverable within the stated budget. Both reports take two to four weeks. Their fees are payable by you regardless of whether the loan proceeds.

Legal process. Once the valuation and IMS reports are satisfactory, solicitors are appointed. The lender's solicitors and your solicitors work through the loan agreement, security documentation, and any conditions precedent such as contractor appointment. A straightforward legal process takes three to four weeks. Complex title situations or disputed planning conditions extend this.

First drawdown. Once legal is complete, funds are released to purchase the site. Subsequent drawdowns are triggered by IMS sign-off at each construction milestone. The total process from initial enquiry to first drawdown typically runs six to ten weeks.

What to prepare before you approach a lender

The quality of your application pack is the single biggest factor in how quickly lenders respond and how competitive your terms are. These are the documents every lender will need.

A full development appraisal showing land cost, build cost with a detailed line-by-line schedule of works, professional fees, finance costs, contingency, and projected GDV with comparable evidence. A developer CV covering all previously completed schemes: scheme type, units, GDV, and completion date. A statement of personal assets and liabilities for all directors and guarantors. Planning documentation, including the decision notice, approved drawings, and any conditions that affect the build programme. Evidence of equity available to contribute to the project. A clear exit strategy narrative, whether that is unit sales with estate agent opinions of value, or a specific refinance product you intend to use.

Lenders receive numerous applications. A well-presented pack with accurate figures and clear documentation moves faster than one where the underwriter is chasing basic information. If your GDV looks optimistic against comparable evidence, address that in your submission rather than waiting for the lender to raise it.

FD Commercial arranges development finance for residential, commercial, and mixed-use schemes from £250,000. We work with developers from first project through to multi-site programmes, and we model the lending structure before you commit to any site purchase.

Common questions about development finance rates

What are current development finance rates in the UK?

Development finance rates in the UK in 2026 typically sit between 0.65% and 1.10% per month, or roughly 8% to 13% per annum. The rate you receive depends on your experience, the loan-to-GDV, the project type, and the lender's risk appetite. Well-structured residential schemes by experienced developers with a clear exit can access rates at the lower end of that range.

How is development finance different from a mortgage?

A mortgage is assessed on income and property value. Development finance is assessed on the projected gross development value of the completed scheme, the developer's track record, and the viability of the exit strategy. Funds are released in staged drawdowns against certified works rather than as a single lump sum, and interest is typically rolled up and repaid at the end of the facility.

What is the maximum loan available on development finance?

Most lenders will advance up to 65% of the gross development value (LTGDV). Some will go to 70% for well-structured schemes by experienced developers. Land is typically funded at 60% to 70% of site value and build costs at up to 100%, subject to the overall LTGDV cap. The day one loan, the amount released at land purchase, is usually limited to 65% of the site value.

Do I need planning permission to get development finance?

Full planning permission or permitted development rights must be in place before most lenders will release funds. A small number of lenders will consider pre-planning finance secured against the land, but options are limited and rates are higher. The majority of development finance transactions proceed once planning is granted.

How long does a development finance application take?

From initial enquiry to first drawdown, development finance typically takes six to ten weeks. The main variables are the time taken to instruct and receive the RICS valuation, the monitoring surveyor's report, and the legal process. Straightforward schemes with experienced solicitors can complete faster. Complex sites or incomplete planning documentation extend the timeline.

Can first-time developers get development finance?

Yes, though the lender panel is narrower and terms are less favourable than for experienced developers. First-time developers are typically restricted to smaller schemes of one to four units, required to use a professional main contractor, and may need to accept lower LTVs or higher rates. Partnering with an experienced project manager or development consultant can strengthen an application.