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Development finance is not a lump sum. It arrives in tranches against certified progress, and every other feature follows from that.
The Construction Capital podcast is the UK property development market, decoded. Hosted by Georgina, each episode breaks down a specific UK location or finance topic using proprietary transaction data, live regeneration pipelines, and the real-world lender dynamics shaping development finance today. Published by Construction Capital, an independent capital advisory brokerage sourcing terms from over 100 lenders across development finance, bridging, mezzanine, and equity. For developers, investors, and brokers who want the numbers that actually matter.
Welcome to the Construction and Capital podcast. I'm Georgina, and this is our episode on development finance. There is one idea at the centre of it, and if you take nothing else away, take this. The money arrives in stages against certified progress, not as a lump. The usual note before we go further. Construction Capital is a trading name of Lenzy Consulting Ltd. We are a commercial finance broker and introducer. We are not a lender, and we are not authorised by the Financial Conduct Authority. Where a deal is a regulated activity, we arrange it through lenders who hold the relevant permissions. Every figure is indicative and never a formal offer. So, the lump sum. Almost everyone new to this arrives expecting one. You have a site, you have a build cost, you have a scheme, and the mental model is that a lender hands over the total, and you go and spend it. That is not what happens, and once you understand why, most of the rest of development finance stops feeling arbitrary. A lender is funding something that does not exist yet. The security on day one is a plot of land and a set of drawings. The value that repays the loan only comes into being as bricks go up. So the lender releases money at the pace the value is created, and never faster. Land first, usually, and then the build in tranches behind it. Here is how that works in practice. Before anything is drawn, you agree a cost plan and a draw schedule with the lender. The cost plan is the full build broken into elements. Groundworks, frame, roof, first fix, second fix, externals. The draw schedule sets out when money is released against those elements. Then a monitoring surveyor is appointed. Some people call them the QS or the fund monitor. That person acts for the lender, not for you. they visit the site, look at what has actually been built and certify the value of the work in place. The lender releases against that certificate. Two things follow from that and both catch people out. The first is that drawdowns are almost always in arrears. Work is done, then certified, then paid. So you need working capital to get from one certification to the next and your contractor needs to be comfortable with that rhythm before you sign anything. The second is that the monitoring surveyor is a schedule item. Visits need booking, reports take time to issue and if you have not planned for that gap you will feel it as a cash squeeze that has nothing to do with the building work at all. Ask at the outset how often the surveyor will attend and how quickly funds follow a certificate. It is one of the most useful questions you can ask. Now, gross development value, which everyone shortens to GDV. This is the whole facility is sized from. and it is the figure developers most often get wrong. GDV is what the finished scheme is worth on completion, not what you hope to achieve, but what a valuer instructed by the lender will put on paper. That valuer works from comparable evidence. Recent sales of similar units in the same location at the same specification. If your comparables are thin or slightly further away than you would like or drawn from a stronger market than the one you are actually in, the valuation comes back lower than yours. That is not the lender being difficult. The lender has to sell the scheme if you cannot, so the number has to survive a bad day. Then comes the loan to GDV. Our indicative range is 65 to 70%, and I want to show you what those five percentage points mean in cash because it is a great deal more than it sounds. Take a scheme with a GDV of £1 million. At 65%, the facility is £650,000. At 70, it is £700,000. That gap of £50,000 is money you have to find yourself and it is often the difference between a deal that works and one that does not. And note that the facility is the total, so interest and fees come out of it too. The money genuinely available for land and build is less than the headline number. Always work backwards from the net. Interest. Rates start from 6.5% a year, which against a Bank of England base rate of 3.75%, held since December 2025, is a margin of about 2.75 over base. During the build that interest is normally rolled up rather than paid monthly. That matters, because a site under construction produces no income and asking a developer to service a loan out of nothing is asking for trouble. So the interest accrues and is settled when you exit. through sale or refinance. Here is the part that is genuinely good news. Interest is charged on the balance drawn, not on the facility agreed. So on that £650,000 facility, if the average drawn balance across a 12-month build sits somewhere near half, you are paying 6.5% on roughly £325,000. That is about £21,000 across the year, against about £42,000 if the whole facility were drawn on day one. The staged drawdown that feels restrictive when you are managing cash is quietly saving you a large amount of interest. Which is also why an honest, realistic draw schedule beats an optimistic one every time. Contingency. Every cost plan a lender takes seriously has a contingency line in it. The percentage is set by your quantity surveyor and agreed with the lender so I am not going to put a number on it here. What I will say is what it is for. A contingency is not padding and it is not a fund for a better kitchen. It is there to absorb the discoveries. The ground conditions nobody could see, the material price that moved, the eight weeks lost to weather. A cost plan with no contingency in it does not read as confident to a lender. It reads as inexperienced. And if a scheme only works when nothing goes wrong, the lender has already priced in the fact that something will. Which brings me to the first time developer, because that is the question I get asked most. If a lender wants track record and this is your first scheme, what do you do? The answer is that you substitute for track record rather than pretend to have it. Bring in a main contractor with a real history on comparable jobs and let that record do work yours cannot. Appoint an experienced project manager or a professional team the lender recognises. Choose a first scheme that is modest and conventional, rather than clever. Have planning already in place. Put together a genuine cost plan from a quantity surveyor, rather than a spreadsheet you built yourself. And be able to explain your exit in specific terms. Who buys these units? At what price? On what evidence? Experience is really just the lender asking whether somebody has done this before. If it is not you, make sure it is somebody standing next to you. That is development finance. The drawdown is the whole shape of the product. Money follows certified progress. GDV is set by a valuer, and not by you. The facility carries interest and fees inside it. And the interest only bites on what you have actually drawn. If you want the detail, including how to apply and what a lender will ask you for, it is at constructioncapital.co.uk services developmentfinance The written guides there are by Matt Lenzy. Thanks for listening. I'm Georgina, and this has been the Construction and Capital Podcast.