Development finance for first-time developers explained: LTVs, rates, drawdowns and planning risk. A straight-talking 2026 guide from Lime Finance Solutions
In the 1980s (yep, I’m old), small and medium-sized builders put up 40% of all new homes in England. Today that figure is 12%. That’s not because the appetite has gone. I speak to first-time developers most weeks who want to build one house, convert a barn, or turn a tired commercial unit into flats.
What’s changed is how hard it’s become to get the finance, and (perhaps more so) the planning permission, that makes any of that possible.
If you’re looking at your first development finance deal, this is what you actually need to know – not the marketing version, the real one.
Development finance is a short-term loan that funds the cost of building or converting a property, released in stages as the work progresses rather than as a single lump sum. Think of it less like a mortgage and more like a running tab at the bar – you draw down what you need for each stage, the lender checks the work’s been done, and the tab grows as the build does. It’s repaid, usually with the interest rolled up, when you sell or refinance at the end.
Lenders look at two figures above all else: the gross development value, or GDV – what the finished scheme will be worth – and the total cost of getting there. Most will lend up to somewhere between 55% and 70% of GDV, with the lower end of that range far more likely if this is your first project.
On cost, many lenders will fund 85–90%, but the GDV cap usually bites first, which means you’ll typically need to find 10–15% of the cost yourself, sometimes more as a first-timer.
Remember, the lender will fund in arrears. You do the work, they release the capital.
I won’t pretend the market treats a first-time developer the same as someone with ten completed schemes behind them. It doesn’t, and there’s a reason for that. Lenders are pricing risk, and an unproven developer is more risk.
In practice, that usually means a lower loan-to-GDV, a requirement to use a professional main contractor rather than manage the build yourself, and a restriction to smaller schemes – often one to four units – until you’ve got a track record.
Rates for first-time developers commonly sit at 9–12% per annum, against 6.5–9.5% for an experienced developer with a strong history.
Then there’s planning. According to research from the Home Builders Federation, 94% of small-site planning applications now miss their statutory determination deadline, with an average of 30 weeks to a committee decision and a further 21 weeks after that to secure formal permission. Nine out of ten SME developers say council planning departments are under-resourced, and it shows. If you’ve budgeted your finance around a six-month planning timeline, and it takes fourteen, that’s not a paperwork problem. That’s a viability problem.
None of this means it can’t be done. The market for development finance is growing quickly — annual lending volumes reached roughly £12.5 billion in late 2025, up 18% year on year, and specialist and private credit lenders now write something like 40–50% of all new development finance in the UK. There are more lenders willing to look at smaller, first-time schemes than most people assume. You just need to know where to look, and what they’ll want to see.
Development finance doesn’t land in your account on day one. It’s released in stages, tied to work actually completed and usually verified by an independent monitoring surveyor the lender appoints. Foundations done, first drawdown. Roof on, next drawdown. And so on.
This protects the lender, but it also protects you – it stops the whole facility being tied up in a scheme that’s stalled, and it keeps everyone, including your contractor, honest about progress.
What catches first-timers out is cash flow timing. You pay your contractor, then wait for the surveyor to sign off before the lender releases funds. If your working capital doesn’t stretch to cover that gap, even a well-funded scheme can grind to a halt. This is one of the most common reasons a first project runs into trouble that has nothing to do with the build itself.
I spent a good chunk of my banking career on the other side of this exact conversation, assessing first-time developers’ proposals for a credit committee. The ones that got approved quickly were never the most ambitious. They were the ones where the numbers held together under pressure – realistic contingency, a contractor with a track record, and a sensible answer to “what happens if this takes a year longer than planned.”
It’s a bit like teeing off on a golf course you’ve never played. You can hit a good shot without knowing where the trouble is. But you’re better off with someone who’s walked it before, pointing out where not to aim.
Before you approach a lender, get three things in order. First, a realistic GDV, checked against genuinely comparable sales, not the optimistic end of the estate agent’s range.
Second, a contingency of at least 10%, because costs move and programmes slip – ask anyone who’s built anything since 2022.
Third, clarity on your exit: sale, refinance onto a term facility, or rental. Lenders want to see you’ve thought past completion day, not just to it.
It’s also worth understanding what happens at the far end of a project, not just the start. A fair number of first-time developers get so focused on getting the build finance in place that they don’t think about how they’ll come out of it – which is exactly where development exit finance tends to earn its keep, buying time to sell at the right price instead of the rushed one.
If you’re bringing in a partner or investor to help fund your first scheme, it’s also worth reading up before you sign anything – a lot of the common misconceptions around joint venture finance specifically catch out smaller, first-time developers who assume it means giving up control or paying over the odds. Neither is necessarily true if it’s structured properly.
And keep an eye on the wider market. Rates and lender appetite move with the economy, not just with your project, and some of the trends shaping property finance this year are worth understanding before you fix your numbers.
Your first development deal is where you learn the most, usually the hard way if nobody’s warned you what’s coming. A good broker won’t just find you a rate. They’ll tell you honestly whether your numbers stack up before a lender does it for you, less kindly. If you’re weighing up a first project, I’m always happy to have that conversation.
David Farmer
Lime Finance Solutions
Development finance is a short-term loan that funds construction or conversion costs, released in stages as work progresses, repaid on sale or refinance. For first-time developers, lenders typically cap borrowing at a lower loan-to-GDV (around 55–65%), often require a professional main contractor, and restrict lending to smaller schemes until you’ve built a track record.
Most lenders will fund 85–90% of total build cost, but don’t get hung up on this one. There are loads of development finance lenders and the percentages vary, besides the loan-to-GDV cap usually applies first. In practice that means finding 10–15% of the total cost yourself, and first-time developers should budget towards the higher end of that range.
It helps enormously, and some lenders will only fund schemes with permission already granted. Others will consider a “planning gain” facility for land without consent, but pricing is higher and terms tighter, reflecting the added risk. Given that small-site planning applications now average 30 weeks to a committee decision, building this timeline into your numbers matters as much as the finance itself.
My advice, apply with planning permission pending and get approved subject to planning being granted.
Funds are released in stages tied to verified progress, usually checked by an independent monitoring surveyor the lender appoints. You typically pay your contractor first and are reimbursed after sign-off, so managing the cash flow gap between paying out and drawing down is essential.
Don’t get hung up on interest rate. The costs of development finance is incurred via interest and fees. It is about the total cost of the development finance, not the interest rate. Warning over.
Development finance rates for first-time developers commonly sit between 9% and 12% per annum, compared with roughly 6.5–9.5% for experienced developers with a proven track record. Rate depends heavily on loan-to-GDV, scheme size, and whether a professional contractor is in place. They also move in line with the market, so read this with a sizeable pinch of salt.
Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
Tel: 01293 541333
Email: hello@lime-fs.com
Tel: 0207 866 2102
Email: hello@lime-fs.com
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