Development Land Finance

Development land finance is designed for developers and investors looking to acquire land for residential or commercial development. Unlike standard mortgages, development finance is based on Gross Development Value (GDV) rather than purchase price, reflecting the profit potential of the completed project.

GDV-Based Lending

Development finance works differently to standard mortgages:

• Lending against GDV: Finance is calculated based on the final value of completed units, not land purchase price
• Typical leverage: 60-75% of GDV, meaning you need 25-40% equity
• Loan-to-cost ratio: Usually 70-80% of total project costs (land + build + fees)
• Staged drawdowns: Funds released as build progresses, protecting lender interests

Typical Leverage Bands

• Residential development: 60-75% LTGDV, requiring 25-40% equity
• Commercial development: 55-70% LTGDV, higher equity requirements
• Mixed-use projects: Assessed on a case-by-case basis
• First-time developers: May require higher equity (30-40%) and proven track record

Exit Strategies Lenders Want to See

Lenders require clear exit strategies:

• Sale of completed units: Most common exit, requires pre-sales or market evidence
• Refinance to term mortgage: For buy-to-let or commercial income properties
• Forward funding: Pre-agreed sale to institutional buyer
• Cash exit: Developer has sufficient funds to repay loan

Fees and Interest Considerations

• Arrangement fees: Typically 1-2% of loan amount
• Interest rates: Higher than residential mortgages, often 6-12% APR
• Interest roll-up: Interest may be rolled into the loan rather than paid monthly
• Exit fees: Some lenders charge fees on early repayment
• Cashflow planning: Essential to ensure sufficient funds throughout the project