A property development loan funds buying a site and building on it. The money comes in instalments rather than in one go, released as the work is signed off, and you repay the whole facility when you sell the finished scheme or refinance it. The lender takes a charge over the site, and sizes the loan against what the scheme will be worth finished and what it will cost to build. That's why you always have some of your own money in it.

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How the money is released, and who signs off each stage

A development facility works backwards from a building that doesn't exist yet. The lender values the finished scheme, decides what share of that it will lend, then releases the money in pieces as the work catches up with the valuation.

That means an initial sum on approval, often against the value of the site itself, then further tranches as each stage is finished. To put a figure on the finished scheme – its gross development value, or GDV – a lender will usually require an independent third party to carry out a valuation. On NatWest's residential property development facility, a professional valuation and an independent monitoring surveyor fee are both standard. The surveyor decides whether a stage is done. That's the practical difference from an ordinary business loan: somebody inspects the work before each release.

During the build you pay interest rather than capital. OakNorth charges interest monthly but only on the funds it has released, so there are no monthly repayments while the scheme is under way, and NatWest adds the interest to the loan and applies it quarterly. The principal goes back at the end, out of unit sales or a refinance onto a longer-term facility.

Terms are short and tied to your programme rather than to a standard product. OakNorth puts the typical range at six to 18 months, says very few lenders go beyond 24-month terms, and can offer up to 36 months itself; NatWest lends up to three years interest-only. After completion there's usually a grace period to sell or refinance, which OakNorth puts at six to 12 months. Ask for more of that than you think you need – the grace period, not the build programme, is what absorbs a slow market.

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Development finance or construction finance: which one you need

These two get used as if they mean the same thing, and they don't. Development finance is for building on your own account: you own the site, you're building to sell or to let, and the lender's security is the scheme itself.

If you're building for someone else under a contract, you need construction finance for contractors instead. There the money is working capital advanced against your applications for payment, nothing is secured on the site, and the problem is that your client pays you weeks after you've paid your subcontractors. Same industry, different business, different lender – and most pages on this subject blur the two, so be sure which one you are before you make any calls.

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How much a lender will advance, and how much of your own money you need

Two limits decide the size of the facility, and the lower of the two is the one you get. The first is a share of the finished value: Shawbrook's maximum gearing is 65% loan to gross development value on a new build, and OakNorth typically considers loans up to 55% of GDV. The second is a share of what the scheme costs to deliver, which Shawbrook caps at 85% loan to cost. OakNorth adds a test that bites before either cap does: most property finance lenders expect total project costs to be 75% of the GDV or less, and an application can be rejected if they're expected to exceed that.

OakNorth publishes its own worked example, which is the clearest way to see what that means for your own money. Land is for sale at £1m and five new homes on it will cost £2.5m to build, so the total cost is £3.5m. Each home is projected to sell for £1m, so the GDV is £5m. At up to 55% of GDV, the borrower could apply for up to £2,750,000. OakNorth's own write-up totals the cost as £3m, but £1m plus £2.5m is £3.5m, so the figures here use the corrected total.

Set those two figures side by side and you have the answer to the question most first schemes founder on. Against £3,500,000 of cost, a £2,750,000 facility leaves £750,000 to find yourself – before the fees in the next section, which are part of the cost too. That's also the honest answer to 100% development finance: on debt alone, there isn't any. The cap is set so that your money goes in first and takes the first loss.

The cost figure those caps apply to is more than the build. It takes in the land, the architects, engineers, consultants, and project managers, the construction itself, the legal fees, valuations and surveys, utility connections, and the agency costs of selling the units. Interest and fees roll into the facility too, so they eat headroom you may have wanted for the work.

Scheme size decides who you can talk to at all: NatWest's minimum is £50,000, subject to approval, while OakNorth lends from £1m upwards and Shawbrook from £1m to £30m.

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What development finance costs

No honest page can quote you a rate, because the rate is built rather than listed. What you can see is how it's built, because Homes England publishes the structure for its own Home Building Fund loans. Two parts: the prevailing Bank of England Bank Rate, which is variable, plus a margin that is typically fixed. The margin is set on your creditworthiness, the nature of the investment and the collateral you offer. An arrangement fee is payable on top. The Bank Rate is 3.75%, where it has sat since 18 December 2025.

The margin is where your covenant shows up. Homes England's published matrix gives you the shape of it: a minimum of 0.60% for a strong applicant offering the better category of security, 2.00% to 4.00% for a weak covenant, and 4.00% to 10.00% for one in financial difficulties. Those are one public lender's minimums rather than the market, but the spread is the point – the same scheme costs very different money depending on who is promoting it.

Ask for the fees in writing early, because several fall due when you have least spare cash. NatWest publishes four: an arrangement fee taken on the day of drawdown, a security fee when the loan is arranged, a valuation and independent monitoring surveyor fee, and an exit fee on repayment.

One term matters more than any of them, and it rarely appears on a rate sheet. NatWest usually requires 100% of net sales proceeds until the loan is repaid. The first homes you sell don't pay you – they clear the facility, and your profit arrives at the end of the queue. There are no early redemption charges on that facility, conditions applying, so selling faster than you planned genuinely saves you money.

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What a lender will want to see before they commit

Shawbrook gives indicative terms at the first conversation, based on your scheme, your experience and the projected GDV. What decides whether those terms are any good is how much of this you can put in front of them on day one:

• the current value of the site or the building you're buying
• the projected gross development value on completion
• a costed breakdown of the build, and a programme with dated milestones
• your track record: previous schemes, what they returned, and what went wrong
• planning permission and building regulations approval, or a clear route to both
• your exit, with the evidence behind the assumption
• financial statements, projections, and your existing facilities and credit history

Development finance is a market for experienced developers, and the published criteria say so plainly. If this is your first scheme, make it a small one: a refurbishment or a single conversion rather than a ground-up site. Buy somewhere that already has planning. And put an experienced contractor and project manager around you, so the track record the lender can't see in you is visible somewhere in the team.

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When bridging, mezzanine or exit finance fits better

Development finance covers the build. Three near neighbours cover what sits on either side of it, and knowing which is which saves a wasted application.

A bridge is for buying, not building. Shawbrook's own comparison is the clear one: a bridging loan is assessed against the current value of the property and paid out in full on completion, while development finance is assessed against the future value and released in stages over a longer term. The classic development use, as OakNorth describes it, is buying a site without planning permission and exiting by selling it on or refinancing onto a development facility once planning is in place. If that's you, read up on commercial bridging loans – or auction finance if the site is going under the hammer.

Mezzanine finance sits between the senior facility and your own money and ranks behind the senior lender's security, which is why it's priced the way it is. It's what developers reach for when the senior cap leaves a gap they can't fill in cash.

Development exit finance answers the question nobody asks until it happens: the scheme is finished and the units haven't sold. It refinances a development beyond practical completion, buying a longer marketing period rather than a fire sale, and can release equity for the next site – Shawbrook provided a £2.98m development exit loan on a partially sold residential scheme in Wimbledon. If the plan is to keep the finished units and let them, that's an investment loan rather than an exit.

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Where iwoca fits, and where we don't

Can you get a business loan for property development? Not for the build. We don't take property as security and we don't offer development finance, so a Flexi-Loan can't buy a site or fund a scheme drawn down against a surveyor's sign-off. What it can do is keep the company behind the scheme trading while your money is locked up in it. That means your team and your overheads, and the architects, planning consultants, and surveyors you spend on months before any facility is agreed. With net sales proceeds going to your development lender first, that's a longer stretch than most developers plan for. A Flexi-Loan is a business loan with flexible repayment options. Interest is charged on what you draw rather than on the limit. You pick a fixed term of between 12 months and five years, but pay no fee for clearing it early – so a scheme that sells in the spring doesn't cost you a year of interest. It isn't a substitute for a development facility, or a way to find the £750,000 of equity the lender in that example expects you to put in yourself.

We lend to UK limited companies, including development and construction businesses, and every new Flexi-Loan needs a personal guarantee from at least one director.