What Is Development Finance?

Property development is one of the most lucrative yet capital-intensive ventures in the real estate world. Whether you are constructing a residential complex from the ground up or converting a former office into modern flats, securing the right type of funding is critical. That’s where development finance comes in—a tailored financial solution designed to fund large-scale property projects. At Mayfair Commercial Mortgages, we specialise in sourcing and structuring development finance solutions that help investors and developers turn ideas into reality.

Definition and Scope of Development Finance

Development finance is a short-term loan used to cover the costs associated with residential or commercial property development. This can range from ground-up construction projects to extensive refurbishments or conversions of existing properties. Unlike traditional mortgages, which are generally used to purchase ready-built properties, development finance is designed specifically for projects that require multiple stages of funding and oversight. The loan typically covers the purchase of land as well as construction costs, and the amount released is usually based on the project’s gross development value (GDV).

How Development Finance Works

Development finance is usually arranged in phases, with funds released incrementally as each stage of the project reaches completion. Lenders often require a detailed cost breakdown, planning permissions, and project timelines before approving a facility. Interest is usually rolled up, meaning it accrues during the term of the loan and is paid at the end, rather than monthly. The exit strategy—such as selling the completed units or refinancing—is a critical component of the application, as it reassures the lender that their funds will be repaid once the project is completed.

When Is Development Finance Needed?

This type of finance becomes essential when you are undertaking property ventures that are too complex or too large for standard mortgage products. For instance, if you’re developing a block of apartments from scratch, remodelling a mixed-use building, or converting an old barn into a luxury home, development finance offers the speed and flexibility traditional lending does not. It can also be used for part-complete developments, where a project was started but paused due to financial or regulatory issues. Essentially, whenever significant construction or renovation is involved, development finance is the go-to solution.

Who Can Apply for Development Finance?

Development finance is not limited to large-scale developers. While experienced builders and real estate investors often use it, many lenders are open to working with first-time developers provided they have a strong business plan and the right professional team in place. Companies, SPVs (Special Purpose Vehicles), and even partnerships can apply, depending on the lender’s criteria. At Mayfair Commercial Mortgages, we work with a wide range of clients, from individual landlords expanding their portfolios to property firms delivering multi-million-pound schemes.

Key Benefits of Using Development Finance

A major benefit of development finance is how quickly funding can be accessed. Decisions can often be made in a matter of days, and funds can be released quickly once legal and valuation work is complete. This speed can be critical when securing land or winning a competitive deal. Another benefit is the flexibility of repayment, with interest often deferred until the project is finished. Lenders also assess the project’s value rather than just the borrower’s income, making it easier for property professionals to access significant funding. The ability to structure the finance around the project timeline makes it a practical and efficient funding route.

Risks and Considerations

While development finance offers many advantages, it also comes with risks. The success of a project depends on accurate budgeting, reliable contractors, and market conditions. If delays occur or costs exceed expectations, borrowers could face funding gaps or increased interest costs. Lenders typically mitigate this with detailed due diligence, including monitoring surveys and contingency planning. That’s why working with experienced brokers and lenders is essential. Mayfair Commercial Mortgages helps you avoid pitfalls by ensuring you partner with the right financial institutions and have robust planning in place.

Differences Between Development Finance and Mortgages

Development finance differs from traditional mortgages in several ways. Most notably, it is short-term and project-specific, whereas mortgages are long-term and used primarily for property purchases. With development finance, the loan is usually repaid through a refinance or sale of the completed development, rather than through monthly instalments. Additionally, lenders place more emphasis on the value of the completed project and the feasibility of your construction plan, rather than your personal income. This distinction is crucial for developers who may not meet standard mortgage affordability tests but have valuable projects in the pipeline.

Common Types of Development Finance Loans

The type of development finance you need will vary based on the specific requirements of your project. Ground-up construction finance is used when building new structures from scratch. Refurbishment finance helps cover costs for heavy renovations or upgrades to existing properties. For projects that have been started but abandoned mid-way, part-complete development finance can provide the capital needed to resume and finish the build. Each type of loan requires different documentation and risk analysis, which is why working with a broker ensures you access the most suitable product for your circumstances.

Role of Brokers in Securing the Right Deal

Navigating the development finance market can be complex, especially given the variety of lenders, terms, and eligibility criteria. Brokers like Mayfair Commercial Mortgages act as your guide through this process. We assess your project, liaise with a wide panel of lenders, and help negotiate terms that support your timeline and financial goals. We understand that every development is different, and we tailor our advice to ensure you access funding that works not just on paper, but in practice. Our experience and network give our clients a competitive edge.

Why Mayfair Commercial Mortgages Is a Trusted Name

At Mayfair Commercial Mortgages, we’ve built a reputation for connecting clients with high-quality, flexible finance solutions for a wide range of development projects. Our in-depth market knowledge, transparent process, and commitment to client success have made us a go-to broker for property developers across the UK. From initial consultation to deal completion, we’re by your side, ensuring each step is handled with care and clarity. Whether you’re a seasoned developer or taking on your first project, our team is ready to support your vision with expert funding strategies.

Conclusion

So, what is development finance? It is a powerful, project-specific funding solution tailored to the needs of property developers and investors. It offers the flexibility, speed, and scale that traditional financing simply can’t match. Whether you’re building from the ground up or restoring a historic property, having access to reliable funding is crucial. With the right strategy and expert guidance, development finance can turn vision into value. At Mayfair Commercial Mortgages, we’re here to help you navigate every step with confidence and clarity.

FAQs About Development Finance

How much can I borrow with development finance?

This depends on the gross development value of your project, but most lenders offer between 60% to 70% of the GDV.

Do I need planning permission before applying?

Yes, lenders typically require full planning permission as part of the application process.

What is the typical loan term?

Most development finance loans last between 12 to 24 months, though some lenders offer extensions depending on project scope.

Can interest be rolled up?

Yes, many lenders allow interest to accrue during the loan period and be paid at the end, which helps cash flow during the build.

Is development finance available for first-time developers?

Yes, but you may need to demonstrate strong professional support and a sound exit strategy.