How development loans are structured: loan to cost, loan to GDV, staged drawdowns, monitoring and the exit.
- Published
- 16 June 2026
- Reading time
- 7 minutes
Development finance funds the purchase of a site and the cost of building out a scheme. Unlike a bridging loan, which is usually drawn in full at the outset, development finance is released in stages as the build progresses.
The two key ratios
Lenders size a development facility using two measures. Loan to cost (LTC) is the facility as a percentage of the total project cost: land, build, professional fees, contingency and finance costs. Loan to gross development value (LTGDV) is the facility as a percentage of what the completed scheme is expected to be worth. A lender will typically lend up to a maximum on each basis, and the lower of the two caps the loan.
What the total cost includes
- Site or property acquisition, including stamp duty and legal costs.
- Build costs, ideally supported by a quantity surveyor's cost report.
- Professional fees: architect, engineer, planning, project management.
- Contingency, usually a percentage of build cost.
- Finance costs: interest, arrangement fees, monitoring surveyor and legal fees.
How the facility is drawn
The land tranche is drawn at completion of the purchase. Build costs are then drawn monthly or at agreed stages, against a monitoring surveyor's report confirming that the certified works have been carried out. Interest is usually rolled up, so the developer is not servicing debt before the scheme produces income.
Profit and margin
Lenders look at the developer's profit as a percentage of cost and of GDV. A scheme with a thin margin has less room to absorb cost overruns or a softer sales market, and lenders are correspondingly more cautious. Sensible contingency and realistic GDV evidence strengthen the case.
The exit
Most development loans are repaid from sales. For a scheme retained as an investment, the exit is a refinance onto a term facility, and lenders will want to see that the refinance is affordable on the projected rental income. A development-exit bridge can also be used to refinance a completed scheme at a lower rate while units are sold.
What lenders want to see
- A development appraisal with realistic costs and GDV.
- Planning consent, or a clear route to it.
- Evidence of the developer's track record, or an experienced team around a first-time developer.
- A contractor, programme and professional team.
- The developer's own equity contribution.
