What Is Development Finance?
Development finance is short-term lending to fund a property project: a new build, a conversion, a major refurbishment or an extension. Unlike a mortgage, which is released in one sum against a finished property, development finance is usually released in stages as the work progresses. It is secured on the site and the project, and repaid from the sale of the finished units or by refinancing onto longer-term lending.
For a UK expat, it can be a way to build, convert or refurbish UK property without selling other assets, and without needing a UK income. Lenders judge the project: the site, the numbers, the team and the exit. They also look at you, and being overseas adds some extra questions about experience, structure and control of the build.
This guide explains how development finance works for expats, how much you can borrow, what it costs, what lenders expect, how to run a build from abroad, and what goes wrong. It is part of our guide to expat financing. It is general information, not advice. Last reviewed.
What Development Finance Can Fund
- Ground-up development. Building new homes or commercial units on a cleared site or on land.
- Conversions. Turning offices, shops, barns or other buildings into homes, or changing a building’s use.
- Heavy refurbishment. Major structural work, such as new layouts, roofs, extensions or full renovations.
- Light refurbishment. Cosmetic work, which a bridging loan may cover more simply. See bridging loans for expats.
- Commercial projects. Offices, retail, industrial or mixed-use schemes.
- Site purchase. Many lenders fund part of the land cost as well as the build.
You cannot usually use development finance for a property that will be your main home, unless the loan is regulated and the lender is set up for it. Most development lending is for projects to sell or let.
Types of Development Finance
| Type | What it is | Typical use |
|---|---|---|
| Senior debt | The main development loan, secured on the site with first charge | Most projects |
| Mezzanine finance | Extra borrowing that ranks behind senior debt, at a higher cost | Reducing the equity you must put in |
| Joint venture | A partner puts in money for a share of the profit | Little or no equity of your own |
| Heavy refurbishment loan | A shorter loan for major works to an existing building | Renovation and conversion |
| Bridging for development | Short-term funding to buy the site before the main loan | Fast site purchase |
| Development exit finance | A loan that replaces the development loan after works finish | Giving you time to sell the units |
Most smaller projects use a single senior loan, with the borrower funding the remaining costs from their own capital.
How the Money Is Released
The loan is not paid out in one go. A typical structure is:
- The lender funds part of the land purchase, or you buy the site with your own money or a bridge.
- You put in your own contribution first, so the lender sees you have money at stake.
- Build funds are released in stages, called drawdowns, against agreed milestones such as foundations, roof and first fix.
- Before each release, a monitoring surveyor inspects the site and confirms the work is done and the money is being used as planned.
- The final amount is held back until the project is complete.
- Interest usually builds up and is repaid at the end, not monthly.
The loan has a backstop date, typically three to six months after the expected end of the works, by which you must repay it. If the project overruns, extension fees and higher interest can apply.
How Much Can You Borrow?
Lenders set two limits and apply whichever is lower.
- Loan-to-cost (LTC). A share of the total project cost, covering land and build. A lender might fund up to around 70% of land and a higher share of construction, giving an overall LTC of about 70% to 80%.
- Loan-to-gross-development-value (LTGDV). A share of the projected value of the finished project. Senior lenders often cap this at about 60% to 70%, and mezzanine finance can take total borrowing to roughly 75% to 85%.
A worked example
The numbers below are invented to show the principle. They are not a quote and not typical of any lender.
| Amount | |
|---|---|
| Site purchase | £400,000 |
| Build costs | £600,000 |
| Total project cost | £1,000,000 |
| Gross development value (GDV) | £1,300,000 |
| Maximum by loan-to-cost (80%) | £800,000 |
| Maximum by loan-to-GDV (65%) | £845,000 |
| Loan offered (the lower of the two) | £800,000 |
| Equity you must provide | £200,000 |
The loan-to-cost limit is the one that bites here. If the GDV were lower, the loan-to-GDV limit might bite instead. Lenders also rely on their own independent valuation of both the site and the finished project, which can differ from yours.
How to present your appraisal to a lender
The appraisal is a short financial model of the project, and it is the first thing a lender reads. A good one shows the purchase price and costs, the build budget split by trade, professional fees, VAT where it applies, finance costs, sales costs and the expected sale price of each unit, with the evidence behind it. Use comparable sales from the last year or two, not asking prices. Show the profit as both a sum and a percentage of GDV and of cost. Add a sensitivity table: what happens to profit if costs rise 10%, if sale prices fall 10%, or if the project runs six months late. A lender who sees that you have stress-tested your own numbers is more likely to trust the rest.
Rates, Interest and the Full Cost
Development finance is priced monthly, and rates start from roughly 0.8% a month, which is about 10% a year, and can reach higher for riskier schemes or mezzanine funding. Some sources quote a range of about 7% to 15% a year. Interest is normally rolled up and added to the loan, then repaid on exit. Interest is charged only on the amount drawn, so it grows as the project draws down.
Worked example: the cost of finance
Using the loan above, the figures below are illustrative only.
| Item | Amount |
|---|---|
| Interest: average balance £500,000 for 14 months at 0.9% a month | £63,000 |
| Arrangement fee (2% of £800,000) | £16,000 |
| Exit fee (1% of £800,000) | £8,000 |
| Monitoring surveyor | £10,000 |
| Valuation and legal fees | £10,000 |
| Total cost of finance | £107,000 |
Now check whether the project still makes sense. GDV of £1,300,000, less sales costs of 2% (£26,000), less project costs of £1,000,000, less finance of £107,000, leaves about £167,000 before tax. That is around 13% of GDV. Lenders usually want to see a margin of 15% to 20% of GDV, or more, so this scheme would look tight. A small rise in costs, or a small fall in sale prices, would take much of it. Always run the numbers with a cushion.
A conversion, in outline
Take an expat who buys a vacant two-storey office building to convert into six flats. Planning is granted, the build is priced by a contractor on a fixed price, and a UK project manager is appointed. The lender funds part of the purchase and the works in stages, with a monitoring surveyor signing off each draw. The flats are sold off plan and on completion, and the loan is repaid from the sales. This is an illustration only, but it shows why lenders like schemes where planning is in place, costs are fixed, someone local is in charge and the exit is a market they can see. The same project with no planning, loose estimates and no one on site would struggle to be funded.
Fees to Expect
| Fee | Typical position |
|---|---|
| Arrangement fee | Often about 1% to 2% of the loan |
| Exit fee | 0% to about 1%, charged on repayment |
| Broker fee | Often about 0.75% to 1% of the loan, if a broker is used |
| Monitoring surveyor | Often several thousand pounds up to £15,000 on larger projects |
| Valuation | Depends on scheme size |
| Legal fees | Yours and often the lender’s |
| Non-utilisation fee | A charge on money you do not draw |
| Extension fee | If the project overruns the term |
These are indicative only. Ask for a full written breakdown from each lender.
Planning and Your Professional Team
Most lenders want full planning permission before they make a formal offer, and some will accept outline permission but hold back funds until full consent is granted. A scheme that depends on planning permission you do not yet have is far harder to finance. For conversions, check whether permitted development rights apply, and for any project check building regulations, drainage, highways and conservation constraints.
Timing matters. Planning decisions can take months, and conditions attached to a permission, such as ecology surveys or highways agreements, can take longer. Ask your solicitor whether any conditions must be discharged before work starts, and tell the lender about them early. If you buy a site before planning is granted, a bridging loan with a clear fallback may be safer than committing to a development loan you cannot yet draw.
Lenders also look closely at the people who will deliver it:
- an architect or designer with a track record
- a main contractor with experience of the type of project and proper insurance
- a quantity surveyor to cost the scheme and certify progress
- a project manager, which matters more if you live abroad
- a solicitor who knows development
- an agent who can assess likely sale prices and demand
Lenders will want to see fixed-price or well-evidenced contracts, build warranties or a structural warranty for new homes, and insurance.
Experience and First-Time Developers
Lenders prefer to lend to people who have done similar projects before. If this is your first, you can still get funded, but expect a lower loan-to-cost, a larger equity contribution, a stronger professional team, a project manager or a more cautious structure. Show what you do have: relevant professional experience, a track record in property investment, or a contractor and a team with a strong record. Be honest about what you lack. Lenders see through gaps.
What Changes for Expats
Development lenders judge the project first, so many accept expats. The differences are practical.
- Country of residence. Lenders keep lists of accepted countries, which change. Sanctions and anti-money-laundering rules rule some out.
- Structure. Projects are often held in a special purpose vehicle (SPV), a limited company set up for the project. Some lenders accept offshore companies or trusts, with extra checks and sometimes extra security.
- Personal guarantees. Directors are often asked to guarantee the loan. This is harder to enforce abroad, so lenders may want additional security.
- Source of funds. You must show where your equity came from, with documents that the lender can verify.
- Documents and signing. Certified ID, translations and wet-ink signatures can add time.
- Control of the build. Lenders want to know who is managing the site day to day. If it is not you, they will want to see a competent person who is.
- UK team. A UK solicitor is almost always required.
- Location. Projects are usually in England, Scotland or Wales.
Managing a Build From Abroad
Running a development from another country is possible, but it needs more structure. Lenders and prudent borrowers expect:
- A UK-based project manager who visits the site, deals with the contractor and reports to you regularly.
- A clear contract with fixed prices or capped costs, a programme and penalties for delay.
- Regular reports and photographs that match the monitoring surveyor’s inspections.
- A contingency of at least 10% of the build cost, held in reserve.
- An agreed way to sign off payments across time zones, so drawdowns are not delayed.
- Planned site visits at key stages, if you can.
- A power of attorney or a trusted representative for urgent signatures, with legal advice on the risks of giving one.
Problems on site cost money every day, because interest keeps building. Quick decisions matter, so make sure someone in the UK can make them.
Agree a reporting rhythm at the start. Many owners ask for a short written update every two weeks, with photographs, a cost-to-date against budget, the programme status and a list of decisions needed. Use the monitoring surveyor’s reports as a cross-check on the project manager. Keep a log of variations, because changes to the scope are the commonest cause of overruns. If a problem is reported late, it is usually already expensive, so reward early warnings.
Exit Strategies
As with bridging, the exit is crucial. The usual ones are:
- Selling the units. Sales proceeds repay the loan. Lenders look at local demand and price evidence, and may release units for sale at a set percentage of the price.
- Refinancing onto a mortgage. You keep the finished property, and a long-term loan repays the development loan. See expat mortgages for homes and buy to let, and commercial mortgages for commercial schemes.
- Development exit finance. A shorter, cheaper loan that replaces the development loan so you can sell without time pressure.
- A mix. Sell some units and keep others.
If the exit relies on a refinance, check that the finished property would meet a mortgage lender’s criteria, including the valuation and the rent. If it relies on sales, build in time and a margin for a slower market. A secured loan can sometimes provide breathing space on other property. See secured loans for expats.
Risks to Understand
- Cost overruns. Materials, labour and unforeseen ground or structural problems can push costs up.
- Delays. Weather, planning conditions, contractor failure or utility connections all add time, and interest.
- Falling sale values. If the market weakens, the GDV may fall below the lender’s valuation.
- Contractor failure. A contractor that goes under mid-build can halt the project and trigger default.
- Funding gaps. If you run out of equity, the lender will not release funds.
- Personal guarantees. They can put your other assets at risk.
- Currency. If your equity or exit is in another currency, exchange rates can change the outcome.
- Loss of the site. If you cannot repay, the lender can enforce its charge over the site and project.
Regulated or Unregulated?
Most development finance is unregulated, because the borrower is a business or investor, not a consumer. It can become regulated if a significant share of the property will be lived in by you or your family, with a common threshold being around 40%. Unregulated lending means fewer formal protections, so you must read the terms carefully, take independent legal advice and check the status of any firm advising you on the FCA Financial Services Register.
The Process and Timescales
- Prepare a summary of the scheme: site, planning, costs, programme, GDV, team and exit.
- Speak to a broker or lender to test the idea and see which lenders suit.
- Receive indicative terms, which are not a guarantee.
- Submit the full application and supporting documents.
- The lender instructs a valuation and a monitoring surveyor to review the budget and programme.
- The lender issues a formal offer.
- Solicitors complete the legal work and register the charge.
- Funds are drawn in stages as the work proceeds.
- On completion, you sell or refinance and repay the loan.
A bridging loan for the site can take a few weeks. A full development loan often takes longer, commonly two to three months from application, and more if planning or the structure is complex.
Documents You Will Need
- Passport and proof of your overseas address
- A statement of your assets and liabilities, and your experience
- Proof of your equity and where it came from
- The site title, planning permission and any surveys
- Plans, a cost plan or bill of quantities and a build programme
- The building contract and details of the contractor and team
- Appraisal showing GDV, costs, profit and finance costs
- For companies, the structure chart and details of owners and directors
- Evidence of the exit, such as agents’ opinions or a mortgage in principle
Alternatives to Development Finance
| If your project is… | Consider |
|---|---|
| A light refurbishment of a property you are buying | A bridging loan |
| Funded from equity in property you already own | A secured loan |
| A commercial property you will keep and let | A commercial mortgage |
| A home you will live in or let | An expat mortgage |
Tax on Property Development
- VAT. New residential building can be zero-rated and some conversions are taxed at a reduced rate, but the rules are detailed and differ for commercial property. Take advice early.
- Stamp Duty Land Tax. Due on the site purchase, and a non-resident surcharge may apply.
- Profit on sale. Profit from developing and selling is usually treated as trading income, not a capital gain, and is taxed accordingly. The rules for non-residents and companies differ.
- Corporation tax. Applies to profits in a company or SPV.
- Tax where you live. Your home country may also tax the profit. A double tax treaty may help.
We are not tax advisers. Speak to someone who understands both countries before you buy the site.
If you sign personal guarantees or put your savings into a project, think about what would happen to the debt if you died or could not work. Our expat insurance guide explains cover such as life insurance and income protection. Never fund a project from a pension transfer pushed by a stranger: see our guide to UK pensions for expats for the warning signs of pension scams.
Common Mistakes to Avoid
- Buying the site before checking the funding. A good site is no use if no lender will fund the project.
- Underestimating costs. Leave out the contingency and a small overrun becomes a large problem.
- Leaving out professional fees, VAT and finance costs from your budget.
- Relying on optimistic sale prices. Lenders use their own valuation. Use cautious figures.
- Ignoring planning conditions. They can delay the start or require extra spending.
- Hiring an unproven contractor. Check references, insurance and finances.
- No plan for managing the site from abroad. You need someone reliable in the UK.
- A thin exit. Know how you will repay if sales are slow.
- Not reading the personal guarantee. It can reach your other assets.
- Using the lowest rate as the only measure. Fees, exit charges and drawdown rules matter as much.
Choosing a Broker
Development lending has many lenders and many structures, and a broker can save time. A good one should be authorised for the advice they give, show how they are paid, explain the costs plainly, test your numbers and tell you if a project looks too thin to fund. Be wary of anyone who promises funding before seeing your plans, asks for fees up front before any work, or pushes you to buy the site before the finance is agreed.
Frequently Asked Questions
1. What is development finance?
Short-term lending to fund a property project, released in stages and repaid from sales or a refinance.
2. Can an expat get development finance?
Yes. Lenders focus on the project, but they also check your country, structure, experience and how the build will be managed.
3. How much can I borrow?
Lenders apply a loan-to-cost limit and a loan-to-GDV limit, and use the lower figure. Typically around 60% to 70% of GDV for senior debt.
4. What is loan-to-GDV?
The loan as a percentage of the projected value of the finished project.
5. What is loan-to-cost?
The loan as a percentage of the total project cost, including land and build.
6. Can I get 100% development finance?
Rarely. It is sometimes possible through a joint venture, or with extra security. Most lenders want you to put in some equity.
7. How much equity do I need?
Often 20% to 30% of the total cost, though it varies with experience and the project.
8. What does it cost?
Interest from roughly 0.8% a month, plus arrangement, exit, valuation, legal and monitoring surveyor fees.
9. How long is the term?
Typically 9 to 24 months, and up to 36 for some heavy refurbishments.
10. Do I need planning permission first?
Most lenders want full planning permission before a formal offer. Some will accept outline permission but hold back funds.
11. Do I need experience?
Lenders prefer it. First-time developers can get funding, but usually with a lower loan, more equity and a stronger team.
12. How is the money released?
In stages against milestones, after a monitoring surveyor inspects the work.
13. What is a monitoring surveyor?
An independent professional who checks progress and costs before the lender releases each payment. You pay for it.
14. What is a backstop date?
The date by which the loan must be repaid, typically three to six months after the expected end of the works.
15. Do I pay interest monthly?
Usually not. Interest is rolled up and repaid at the end, on the amount drawn.
16. How do I repay the loan?
Most often by selling the units, or by refinancing onto a mortgage or exit loan.
17. What is development exit finance?
A cheaper, shorter loan that replaces the development loan so you can sell the finished units without time pressure.
18. Is development finance regulated?
Usually not. It can be if a significant share of the property will be lived in by you or your family.
19. Can I borrow through a company or SPV?
Yes, and most do. Lenders often ask the directors for personal guarantees.
20. Can an overseas company borrow?
Some lenders accept offshore companies or trusts, with extra checks and sometimes extra security.
21. Can I manage a build from abroad?
Yes, with a UK project manager, a clear contract, regular reporting and a contingency.
22. What if costs overrun?
You must find the extra money from your own funds, since the lender will not usually increase the loan. A contingency is essential.
23. What if sales are slow?
You may pay extension fees and more interest. A development exit loan or a refinance can help if arranged in time.
24. Can I live in the property?
Usually not, as most lenders lend only for projects to sell or let. A regulated loan may allow it.
25. What tax will I pay?
Possibly Stamp Duty Land Tax, VAT considerations, and income or corporation tax on profit, plus tax in your home country.
26. Which countries do lenders accept?
Each lender has its own list, and the lists change. Check yours first.
27. Do I need a broker?
Not by law, but a broker can compare lenders and test your numbers. Check they are authorised and ask how they are paid.
Glossary
- GDV: gross development value, the projected value of the finished project.
- LTGDV: loan-to-gross-development-value.
- LTC: loan-to-cost.
- Senior debt: the main loan, with first charge over the site.
- Mezzanine finance: extra borrowing that ranks behind senior debt.
- Drawdown: a staged release of loan funds.
- Monitoring surveyor: an independent professional who checks progress for the lender.
- Backstop date: the final date by which the loan must be repaid.
- SPV: a special purpose vehicle, a company set up for one project.
- Practical completion: when the building work is finished apart from minor defects.
- Contingency: money set aside for unexpected costs.
- Development exit finance: a loan that replaces the development loan after works end.
Planning a UK Property Project From Abroad?
Speak to us before you buy a site. We will look at the scheme, your structure and where you live, and tell you whether it is likely to be funded and by whom. Request a callback.
Risk warning: Your property or other assets may be at risk if you do not keep up repayments on a loan secured on them. Development finance carries risk, including cost overruns, delays and falling sale prices. Rules and lender criteria can change and depend on your circumstances.