What makes development finance green
Green development finance is not a separate type of lending. It is development finance where the lender recognises the environmental performance of the scheme, sometimes through a dedicated product and sometimes through a pricing adjustment or other benefit on a standard facility. The structure is the same: a land advance, a build facility released in stages and an exit through sales or refinance.
Lenders set their own qualifying criteria. Common examples include a target energy performance certificate rating, often A or B, low-carbon heating such as heat pumps rather than gas boilers, and certification under a recognised assessment for commercial buildings. Some lenders also look at embodied carbon, materials and biodiversity.
Because the criteria vary, a scheme that qualifies with one lender may not with another, so it is worth checking the detail early in the design.
The regulatory backdrop
Energy standards for new buildings have been tightening. In England, building regulations already require substantially lower carbon emissions from new homes than a few years ago, and the Future Homes Standard sets a further step, with low-carbon heating expected in most new homes. Wales and Scotland have their own standards.
Biodiversity net gain is now mandatory for most new developments in England, requiring schemes to leave habitat in a measurably better state than before. Local authorities may also set their own energy and sustainability policies through the local plan.
This matters for finance because a scheme designed to meet or exceed upcoming standards is less exposed to changing regulations, and lenders increasingly consider how future buyers and mortgage lenders will view a property's energy performance.
What lenders will ask for
Lenders offering green terms want evidence that the scheme will deliver what it claims, both at the outset and at completion. Expect to provide:
- Predicted energy assessments, such as SAP calculations for homes, showing the expected rating
- A specification for insulation, glazing, airtightness, heating and renewable technology
- Any sustainability or energy statement submitted with the planning application
- The build cost of the sustainability features, included in the appraisal
- Confirmation at completion, such as the final energy performance certificates
Some lenders apply the green benefit only once the final certificates are issued, or claw it back if the target is not met. Check how this works before relying on it in your appraisal.
Who it suits
Green development finance suits developers who are already designing schemes to a high energy performance standard, or who are prepared to do so, and who can evidence the result. It is often most relevant on larger schemes, where dedicated green products tend to be aimed and where any pricing benefit is spread across a bigger facility.
For smaller schemes, or where the qualifying features would add significant cost without a clear effect on value, a standard development facility may work out better. The right answer depends on the specific scheme, the lender's criteria and the numbers in your appraisal.
Cost, value and the exit
Higher specifications can increase build costs. Whether they increase value depends on the local market, and valuers may need evidence that buyers pay more for energy-efficient homes in that area. Running costs, comfort and mortgage availability can all support saleability, and some mortgage lenders offer green mortgages for highly rated homes, which can help buyers.
The rest of the case is assessed in the usual way. Lenders look at planning permission, your experience and team, the build contract, the appraisal and the evidence for the gross development value. Loan to gross development value is typically around 60% to 70% for senior lending, in line with other development finance.
We compare lenders with green products alongside standard development finance, so you can see whether the green terms make a real difference once the qualifying costs are included. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation and checks.
