How development finance is released: stages, monitoring surveyors and planning

Development finance is different from an ordinary property loan. Instead of receiving the whole amount at once, you normally receive it in stages as the work progresses. Here is how it works in practice.

What development finance covers

It funds the construction of new buildings, conversions and heavy refurbishment. The loan is based on your costs and on the expected value of the finished scheme, and the developer is usually expected to contribute some of their own money.

What lenders need before they lend

• Planning permission, or permitted development rights, in place or very likely
• A budget and programme, showing costs and how long the work will take
• A team you can rely on, including a main contractor with a good record
• Your experience. First-time developers can often borrow, although lenders may ask for an experienced project manager or contractor
• A clear exit, which is how the loan will be repaid, normally by selling the finished homes or by refinancing

How the money is released

Funds are usually drawn down in stages, or tranches, as the project reaches agreed points. Before each release, the lender's monitoring surveyor visits the site to check the progress and the quality, and confirms that the work justifies the next payment. This protects both the lender and you, because it helps keep the budget under control.

The monitoring surveyor

The surveyor is independent of you. They review the plans and budget at the start, then inspect the site at each stage and report to the lender. Their fees are normally paid by the borrower, so include them in your budget. Keep the surveyor informed of any changes to the plans or costs.

Interest and repayment

Interest is often added to the loan rather than paid monthly, which helps cash flow during the build, but the total cost builds up. The loan is repaid when you sell the homes or refinance. If sales take longer than planned, the interest keeps running, so allow for delays.

Common pitfalls

• Underestimating costs, including professional fees and contingency
• Delays caused by weather, contractors or planning conditions
• Optimistic sale values
• Not leaving enough room if the exit takes longer than planned

Find out more

Read more about development finance, or see our local pages for Chelmsford and Brentwood.

Talk it through

If you have a scheme in mind, get in touch and we will explain what may be possible.