Why phase a scheme
- Lower peak debt: sales from early phases repay borrowing before later phases are built
- Less equity tied up at any one time
- Market testing: early sales confirm prices and demand before you commit to the rest
- Manageable programme: a smaller contractor can handle one phase at a time
- Planning: larger consents are often granted with phasing plans or conditions tied to each phase
How lenders structure it
There are two common approaches. A single facility covers the whole scheme, with each phase released once conditions are met, such as sales targets on the previous phase. Alternatively, each phase is funded separately, with a new facility for phase two once phase one is complete or sold.
Single facilities give certainty of funding but may carry non-utilisation fees. Separate facilities give flexibility but expose you to changes in market terms between phases. See how drawdowns work.
Sales, releases and peak debt
On a phased facility, each unit sale repays an agreed amount, often more than the loan against that unit, so the debt falls faster than the units are sold. Lenders set release prices so that the remaining security still covers the outstanding balance. Peak debt is reached before the first sales and is lower than if the whole site were built at once. See the capital stack and peak debt.
Costs to plan for
- Infrastructure such as roads, drainage and utilities often has to be built up front for the whole site
- Site set-up and preliminaries recur with each phase
- Warranties, building control and sales costs per phase
- A longer overall programme, with more time for costs to rise
- Residents living next to an active site may affect later sales
Your appraisal should model each phase separately, with its own cash flow and finance costs.
What lenders look for
Lenders want to see a clear phasing plan that matches the planning consent, infrastructure costed and funded, realistic sales rates and a programme that allows for the market. Experience of phased schemes helps. If the last units sell slowly, a development exit loan can repay the remaining balance.
Compare lenders for phased schemes on Instant Quotes and apply online.
Common questions
What is phased development finance?
Funding for a scheme built in stages, either as one facility released phase by phase or as separate facilities for each phase.
Does phasing reduce the equity I need?
Often. Early sales repay borrowing, so peak debt and your peak cash requirement can be lower than building everything at once.
Are sales proceeds used to fund later phases?
Usually part of each sale repays the loan, and lenders may allow the rest to be recycled into later phases under agreed terms.
Is phasing more expensive?
It can add costs for repeated site set-up and a longer programme, which need weighing against the lower peak debt.
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.
