High-leverage development finance: what lenders need to see on a ground-up scheme

Development lenders will fund a high proportion of a scheme's costs — up to 90% of total project costs in the right case. But high leverage is only available when the scheme has been de-risked on paper before work starts. Lenders work through the same questions in roughly the same order, and the strength of the answers decides both whether the deal is bankable and what it costs.

Planning

Full planning permission is the starting point. Outline consent, or a scheme that still depends on conditions being discharged, narrows the field considerably. Lenders will also read the conditions and any section 106 obligations, because they affect both cost and timing.

The contractor and the build contract

The next question is who is building it. Lenders want a contractor with a track record on schemes of similar size and type, and they prefer a fixed-price contract that puts the risk of cost overruns on the contractor rather than the developer. Where the developer is managing the build directly, the lender will look closely at their own experience.

End-value evidence

The gross development value — what the finished units will be worth — drives the loan. Lenders want evidence from more than one source, usually agents with local knowledge, supported by comparable sales. The lender's own monitoring surveyor will test those figures, so optimistic ones tend to cost time rather than save it.

Costs and contingency

A detailed cost plan, ideally prepared or reviewed by a quantity surveyor, shows the lender where the money goes. A contingency is expected — often 5–10% of build costs — and treating it as optional is one of the quickest ways to weaken an application. Professional fees, finance costs and sales costs all belong in the appraisal.

How the money is released

Development loans are drawn in stages rather than all at once. The land or initial tranche is advanced at the start, and the build costs are released as work is completed and signed off by the monitoring surveyor. Interest is usually rolled up and repaid on exit, through sales or a refinance onto a term loan.

Get these four things in order — planning, contractor, evidence and costs — and the conversation moves on from whether the deal is fundable to how best to structure it.