Development Finance in City of London

Development finance is a specialist form of property lending designed to fund construction and development projects. Unlike a standard mortgage, development finance is drawn down in stages as construction progresses, with each tranche released against independent Quantity Surveyor (QS) certification of completed works. The loan is typically repaid upon completion through either the sale of finished units or refinancing onto a long-term mortgage product. In the City of London, development finance is commonly used for ground-up residential and commercial builds, office-to-residential conversions, and major refurbishment projects.

For City of London development projects, lenders typically offer up to 70% of total project costs (Loan to Cost, or LTC) and up to 65% of the Gross Development Value (GDV). The amount available depends on the strength of your project, your track record, and the quality of your exit strategy. We regularly arrange facilities from £500,000 to £30 million for City of London schemes. For larger projects exceeding £30 million, we can source funding through club deals involving multiple lenders.

Development finance rates for City of London projects currently start from 0.65% per month (approximately 7.8% per annum). Rates are influenced by several factors: Loan to Cost ratio, Loan to GDV, your development experience, project type, planning status, and the overall risk profile. City of London schemes often attract competitive rates due to strong underlying land values and proven demand. Rates are typically charged on a rolled-up basis, meaning interest is added to the loan balance and repaid at the end of the term rather than paid monthly.

With standard senior development finance at 70% LTC, you will need to contribute 30% of total project costs as equity. This equity typically needs to be in place before the first drawdown. For a £2 million total cost project, that means approximately £600,000 of your own funds. However, by layering mezzanine finance on top of senior debt, we can reduce your equity requirement to as little as 10-15% of total project costs. Some developers also use development equity partners to cover their entire equity contribution.

Yes, first-time developers can secure development finance for City of London projects, although the terms may differ from those offered to experienced developers. Several lenders on our panel actively support first-time developers, particularly for smaller schemes (under £2 million), conversions, and refurbishment projects. To strengthen your application as a first-time developer, we recommend: assembling an experienced project team (contractor, architect, QS), starting with a manageable project, having a larger equity contribution, and demonstrating relevant professional experience such as construction, surveying, or architecture.

For straightforward City of London development schemes, we can secure indicative terms within 24 hours of receiving your project details. Full credit approval typically takes 5-10 working days, and legal completion can be achieved in 2-4 weeks from application. More complex schemes involving heritage buildings, unusual planning conditions, large facilities over £10 million, or multiple security properties may require 4-8 weeks from start to finish. We always work to compress timescales wherever possible.

Development finance fees typically include: an arrangement fee of 1-2% of the facility, a valuation fee (varies by project size, typically £3,000-£15,000), lender legal fees (£5,000-£20,000+), monitoring and QS fees (typically 0.5-1% of the build cost), and broker fees. Some lenders also charge exit fees of 1-1.5%, although we frequently negotiate exit-fee-free facilities for our clients. All fees are disclosed upfront in the terms sheet before you commit to proceeding.

Development finance is drawn down in stages aligned with your construction programme. Typically, the initial drawdown covers the site acquisition cost (or refinances an existing bridging loan). Subsequent drawdowns are released monthly or at agreed milestones, based on an independent Quantity Surveyor's inspection and certification of completed works. For example, a £5 million facility might be drawn as: £2 million for site acquisition, then £3 million in 6-8 tranches as construction progresses through substructure, superstructure, first fix, second fix, and completion stages.

Loan to Cost (LTC) measures the loan as a percentage of total project costs, including land acquisition, construction costs, professional fees, and finance costs. For example, if your total project costs are £3 million and you borrow £2.1 million, your LTC is 70%. Loan to Gross Development Value (GDV) measures the loan as a percentage of the completed project value. If your finished development is worth £5 million and you borrow £3.25 million, your LTGDV is 65%. Lenders use both metrics to assess risk, and your facility will be capped at whichever limit is reached first.

Absolutely. Permitted Development (PD) conversions are one of the most popular uses of development finance in the City of London. Office-to-residential conversions under Class MA (formerly Class O) are particularly common as older, less desirable office buildings are converted into residential apartments. Development finance for PD conversions typically offers up to 70% LTC, and many lenders view PD schemes favourably because they carry less planning risk. We have extensive experience funding PD conversions across the Square Mile, from single-floor conversions to entire building transformations.

Lenders accept several exit strategies for City of London development projects. The most common are: sale of completed units (the most straightforward exit), refinance onto a buy-to-let mortgage (for developers retaining units as investments), refinance onto a commercial mortgage (for commercial or mixed-use schemes), and pre-sales or forward sales (units sold off-plan before completion). City of London properties benefit from strong demand and high values, which provides lenders with confidence in your exit strategy. Having a credible, evidenced exit plan is one of the most important factors in securing competitive development finance terms.

Most development finance lenders require detailed planning permission (or a lawful development certificate for Permitted Development schemes) to be in place before they will complete the facility. However, you can begin the application process while planning is pending, and some lenders will issue a conditional offer subject to planning approval. For City of London projects, it is worth noting that the City of London Corporation has its own planning authority, separate from the Greater London Authority, with specific policies around heritage, tall buildings, and the St Paul's Heights code that experienced lenders understand.