Interest on drawn funds
Development interest is charged on the land advance from day one and on each build release from the date it is drawn. Because the build is drawn gradually, the average balance is much lower than the full facility. Interest is usually rolled up and repaid on exit, so there are no monthly payments.
Many appraisals approximate interest by assuming around half the build cost is outstanding on average over the build period, plus the full land advance for the whole term. A month-by-month cash flow gives a more accurate figure.
Fees
- Arrangement fee: commonly 1% to 2% of the facility, added to the loan
- Exit fee: often charged on development facilities, as a percentage of the loan or of GDV; a fee on GDV can be much larger, so check the basis
- Valuation: of the site and the completed scheme
- Monitoring surveyor: an initial report plus a fee for each site visit
- Legal fees: yours and the lender's
- Non-utilisation fees: some lenders charge on undrawn funds
Read what a monitoring surveyor does and fees explained for more.
What drives pricing
Leverage is the biggest factor: higher LTC and LTGDV cost more. Experience matters, as does the scheme's size, location, profit margin and how the build is procured. Stretch senior and mezzanine funding cost more than standard senior debt. Some lenders offer lower pricing for energy-efficient schemes; see green development finance.
Building finance into the appraisal
Lenders expect finance costs in the appraisal, and they are part of the total cost used to work out loan to cost. Include interest for the full term, not just the build, so the sales period is covered; the arrangement, exit, monitoring and valuation fees; and legal costs. See how to write a development appraisal.
A development exit loan at practical completion can lower the cost of the sales period; see development exit loans.
Comparing development offers
Compare the total finance cost over your programme, including exit fees and monitoring, alongside the leverage and day-one advance. A lower rate with less leverage may require more equity than a deal can bear, and a lower fee may come with a heavier exit fee.
Instant Quotes shows indicative development terms from lenders on our panel. Final terms depend on each lender's valuation, monitoring surveyor and checks.
Current development finance rate ranges, LTGDV and loan to cost limits across the panel are set out in bridging loan and development finance rates and costs UK 2026.
An illustrative calculation
Take an illustrative facility with a £600,000 land advance and £1,200,000 of build funding drawn evenly over 12 months, with a further 6 months for sales, at 0.75% a month, a 2% arrangement fee and a 1% exit fee on the loan.
- Land advance interest for 18 months: about £81,000
- Build interest, assuming half the build is drawn on average over 12 months and all of it for the 6-month sales period: about £54,000 plus £54,000
- Arrangement fee on a facility of about £2,000,000: £40,000
- Exit fee: £20,000
- Monitoring, valuation and legal costs: a further sum depending on the scheme
That is roughly £250,000 before monitoring and legal costs, without compounding. Rolling up interest monthly adds a little more. The figures are for illustration only, but they show why finance is often one of the largest lines in an appraisal after land and build.
Common questions
Is development finance interest charged on the full facility?
Usually not. Interest is charged on the land advance and on each build release from the date it is drawn, so the average balance is lower.
Do development lenders charge exit fees?
Many do, as a percentage of the loan or of GDV. Check the basis, as a fee on GDV can be considerably larger.
Who pays the monitoring surveyor?
The borrower pays, both for the initial report and for each site visit during the build.
Do development lenders fund professional fees?
Many include professional fees in the total costs they fund, sometimes released from the build facility, because architects, engineers and surveyors are a real cost of delivering the scheme. Others expect you to pay them from your equity.
How is the exit fee calculated if the facility is not fully drawn?
It depends on the wording. A fee based on the facility or on GDV is payable in full even if you draw less, while a fee based on the amount drawn falls with it. Check the basis before you accept terms.
Why do smaller development loans cost more?
Valuation, legal and monitoring costs are similar whatever the loan size, and lenders set minimum fees, so on a small facility they are a larger share of the loan.
Can I get a bank loan for property development?
Some high street and regional banks lend on development, usually to experienced developers at lower leverage. Specialist lenders typically offer higher leverage and more flexibility at a higher cost.
Are development finance rates fixed?
Some lenders fix the rate for the term and others charge a margin over a base rate, so a change in rates can change your interest bill. Check which applies and allow for it in your appraisal.
This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.
