Ground-up development finance remains one of the more specialist corners of UK property lending, and 2026 has brought a market that is cautiously more active than the previous two years. With the Bank of England base rate held at 3.75% following the Monetary Policy Committee’s decision on 30 July 2026 — the fifth consecutive hold — developers are seeing a more predictable, if still elevated, cost of borrowing compared with the volatility of 2022 to 2024. This article sets out how ground-up development loans are typically structured, what lenders look for, and where developers most often run into difficulty.
What Is Ground-Up Development Finance?
Ground-up development finance funds the construction of a property from an undeveloped or cleared site, as distinct from refurbishment finance, which funds works to an existing structure. It is typically drawn down in stages against a build schedule, rather than released as a single lump sum, and is repaid on completion — usually through the sale of units, a term mortgage refinance, or, for larger schemes, investment sale to an institutional buyer.
How Facilities Are Structured
Most development finance facilities are built around two core metrics: Loan to Cost (LTC) and Loan to Gross Development Value (LTGDV). Lenders will typically fund up to 60–70% of total project costs (land, build costs, professional fees and contingency) and up to around 60–65% of GDV, with the balance funded by developer equity or mezzanine finance. Facilities are usually split between:
- Day-one land or acquisition funding — released on completion of the purchase.
- Staged build drawdowns — released against monitoring surveyor sign-off as each construction stage is completed.
- An arrangement fee and exit fee — typically 1–2% of the facility at the front end, with an exit fee of around 1% payable on redemption.
Interest is usually retained (deducted from the facility at drawdown) rather than serviced monthly, which helps cash flow during the build but increases the effective cost of borrowing once rolled-up interest is accounted for.
What Lenders Assess
Development lenders underwrite the scheme as much as the borrower. Expect scrutiny of:
- Developer track record and experience with schemes of comparable size and type.
- Planning status — full planning permission materially improves terms compared with outline consent.
- The build contract and appointed contractor, including JCT form and any collateral warranties.
- An independent monitoring surveyor’s report, appointed by the lender and paid for by the borrower.
- A realistic build programme and cost plan, with contingency of at least 5–10% of build costs.
- Exit strategy — pre-sales, an agreed sales agent’s appraisal, or a committed term refinance.
Current Market Conditions
With the base rate steady at 3.75% and UK inflation at 2.6% as of the most recent reading, development lenders have generally held pricing flat through the summer of 2026 rather than cutting further, with senior debt pricing commonly quoted in the region of 8–11% per annum depending on gearing, location and developer track record, plus arrangement and exit fees. Build cost inflation and subcontractor availability remain more significant swing factors for scheme viability than headline interest rates for most schemes we see. Where senior debt alone does not stretch far enough, mezzanine or preferred equity can bridge the gap between senior lending and available developer equity, at a higher blended cost.
Common Pitfalls
The schemes that run into difficulty tend to share the same handful of issues: underestimated build costs and insufficient contingency, planning conditions that delay the start on site, monitoring surveyor drawdown delays that are not factored into the cash flow forecast, and an exit strategy that assumes a sales market that has since softened. Building a realistic contingency and agreeing drawdown timelines with the lender before signing terms materially reduces the risk of a mid-build funding gap.
How Giles Finance Can Help
We work with a panel of senior development lenders, challenger banks and specialist funds to structure facilities against land acquisition, ground-up build and part-built schemes, including cases requiring mezzanine or JV equity alongside senior debt. Every case is assessed on the specifics of the scheme, developer experience and exit route.
Development finance is a form of commercial lending and is, in the vast majority of cases, not regulated by the Financial Conduct Authority. Property used as security, including any land or buildings charged against the facility, may be repossessed if the loan is not repaid in accordance with its terms. Where a scheme’s tax treatment (for example SDLT, VAT on new build, or corporation tax on development profit) is relevant to your decision, you should seek advice from a qualified tax adviser or accountant, as this article does not constitute tax advice.
If you are planning a ground-up development and want to discuss funding structure and terms, visit our Development Funding page or get in touch with our team.
Giles Finance is a trading style of Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857).