If you’re considering a residential or commercial property project, development finance can provide the capital to fund the build. But one of the most common questions is, how much can I actually borrow?
The answer depends on several key factors, including the value of your project, your contribution, and the lender’s appetite for risk. In this post, we’ll explain how lenders calculate borrowing limits, what you can expect as a developer, and how to maximise your funding potential.
What is development finance?
Development finance is a short-term funding solution used to finance ground-up builds, conversions, refurbishments, or mixed-use schemes. It differs from a standard mortgage in that the loan is tailored to the build phase, with funds released in stages and repaid on sale or refinance of the completed asset.
Specialist firms such as ourselves structure deals that match your project’s requirements, whether you need senior debt, or a joint venture partnership.
How do lenders calculate how much you can borrow?
There are three main metrics lenders use to determine how much development finance they will offer:
1. Loan to Value (day 1)
This refers to the loan amount available on day 1 towards the purchase of the land. Most lenders offer up to 65% of the purchase price.
2. Loan to Gross Development Value (GDV)
This refers to the loan amount as a percentage of the projected value of the completed development. Most lenders offer up to 65% to 70% of GDV. For example, if your project’s expected end value is £2 million, you may be eligible to borrow up to £1.4 million.
3. Loan to Cost (LTC)
This is the percentage of total project costs (land, building, professional fees, etc.) that a lender is willing to finance. Most development lenders offer up to 100% of the project cost.
It’s worth noting the lender will need to ensure that all three metrics are within criteria so if one metric is too high, the loan will be reduced so that all three are satisfied.
Maximum borrowing example
Let’s say you’re purchasing land for £500,000, and your build costs are £1 million, totalling £1.5 million in development costs. If the completed scheme is valued at £2 million:
- Up to 65% of the day 1 value = £325,000
- Up to 70% of GDV = £1.4 million
- Up to 85% of total costs = £1.275 million
In this case, the lender would typically cap your borrowing at £1.275 million as it is the lower of the loan to cost and the loan to GDV. The lender will always favour lending 100% of the build costs, therefore the build cost available in drawdowns will be £1,000,000 and the maximum you would receive on day 1 towards the land purchase will be the remainder which is £275,000.
The maximum borrowing includes interest and fees therefore the net amount received may be lower
Can I get 100% development finance?
Yes, but only in specific situations. 100% development finance is usually reserved for:
- Projects with high GDV margins (25%+)
- Deals backed by additional security or structured as a joint venture
In these cases, a specialist like us can structure layered finance that combines senior debt, and equity investment to reach full funding.
What affects how much I can borrow?
A number of variables influence how much funding a lender will offer:
- Experience and track record: Seasoned developers can typically borrow more.
- Project profitability: Higher margins mean more favourable loan terms.
- Planning status: Full planning consent often unlocks better borrowing potential.
- Security: Additional assets or personal guarantees can increase loan size.
- Exit strategy: Lenders want assurance they will be repaid, whether by sale or refinance.
Conclusion
How much you can borrow for development finance depends on the project’s costs, end value, and your experience.