100% of build costs is common
Development loans usually have two parts: a day-one advance towards the land, and a build facility released in stages. Many lenders will fund all of the build costs, provided the total loan stays within their limits. On our panel, a number of development lenders state that they can fund up to all of the build costs, and some also fund fees and interest.
The land is where the gap usually sits. Lenders typically advance only part of the land price on day one, so the developer funds the rest.
Why lenders rarely fund everything
Lenders limit their loan in two ways: a maximum percentage of the gross development value, and a maximum percentage of total costs. If a scheme costs most of its finished value to build, even a lender funding all of the build costs will hit its limit. A developer's own money in the scheme also shows commitment and absorbs the first loss if costs rise or values fall.
A few lenders on our panel state that they can fund up to all of the funding, including the land, in some cases, or up to all of the development costs. These are typically for schemes with a strong profit margin and a capable team, and they come with careful scrutiny of the numbers.
Ways to reduce the cash you need
Where a lender will not fund every cost, these routes can close the gap:
- Planning gain: if the land is worth more with planning than you paid, some lenders count the uplift towards your contribution
- Land you already own: equity in a site you own outright can serve as your contribution
- Additional security: a charge over another property can support a higher loan
- Mezzanine or stretch senior debt: higher leverage at a higher cost
- Joint venture equity: a partner provides the cash in return for a share of the profit
Each has a cost, so we compare the profit after finance, not just how little cash is needed.
Arranging high-leverage development finance
We compare lenders on how much of the build and land they will fund, their limits on value and costs, and their appetite for your scheme, then approach those that fit with a clear case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and checks.
If additional security is your home, the loan may be regulated, and we will tell you at the outset how your case will be handled. Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
