How to Write a Development Appraisal That Lenders Love

A development appraisal is the financial model that underpins every property development project. It sets out all the costs involved in delivering a scheme, from land acquisition through to marketing and sales, and compares them against the anticipated revenue to determine the projected profit. For lenders, the development appraisal is the primary tool for assessing whether your project is financially viable and whether it provides sufficient margin to absorb cost overruns, programme delays, or falls in sales values. In short, it is the document that determines whether your development finance application succeeds or fails.

We have reviewed thousands of development appraisals over the years, and the quality varies enormously. At one end of the spectrum are institutional-grade models prepared using industry-standard software with detailed line items, sensitivity analysis, and supporting evidence for every assumption. At the other end are back-of-envelope calculations that list a total cost, a total sales figure, and a single profit number. Lenders see the full range, and the quality of your appraisal directly influences their confidence in you as a borrower. A well-prepared appraisal does not guarantee approval, but a poorly prepared one almost guarantees rejection or, at best, significantly worse terms.

The development appraisal serves multiple purposes beyond securing finance. It is your business plan for the project, your budget control tool during construction, and your benchmark for measuring performance at completion. Every assumption you make in the appraisal becomes a commitment you will be measured against. This guide walks through each component of a lender-ready development appraisal, drawing on our experience of what works and what does not when presenting schemes to the UK’s most active development lenders.

Gross development value represents the total anticipated revenue from your completed scheme. For residential developments, this is the aggregate sales price of all units. For commercial schemes, it is the capital value derived from the estimated rental income and an appropriate yield. For mixed-use developments, it is a combination of both. The GDV is the single most important number in your appraisal because every other metric, including loan-to-GDV, profit on GDV, and profit on cost, flows from it. If your GDV is wrong, everything else is wrong too. For a deeper understanding of this calculation, see our guide on how to calculate GDV.

Lenders expect your GDV to be supported by robust comparable evidence. For each unit type in your scheme, provide at least three recent comparable transactions. Comparable means similar in size, specification, location, and condition. A penthouse apartment in Canary Wharf is not comparable to a ground-floor flat in Woolwich, even though both are in East London. Land Registry data provides actual transaction prices, which lenders prefer over asking prices or estate agent valuations. Where possible, use transactions from the last six to twelve months, as older data may not reflect current market conditions.

Be conservative. Lenders will instruct their own independent valuation, and if the valuer comes back with a GDV significantly below your assumption, it undermines your credibility and delays the process. We advise clients to price their units at 5-10% below what they genuinely believe they can achieve. This builds in a buffer that protects both you and the lender, and it means the independent valuation is more likely to support or even exceed your assumptions. A GDV of £3,200,000 that is supported by the valuation is worth far more than a GDV of £3,800,000 that gets marked down to £3,100,000, because the latter triggers a fundamental reassessment of the entire deal.

Build costs should be presented as a detailed breakdown, not a single line item. The standard categories include preliminaries, which cover site setup, welfare facilities, scaffolding, and project management; substructure, covering foundations, ground floor slab, and below-ground drainage; superstructure, including walls, roof, windows, and structural elements; internal finishes, covering plastering, flooring, joinery, kitchens, and bathrooms; mechanical and electrical installations, including plumbing, heating, electrics, and fire alarm systems; and external works, covering landscaping, driveways, boundary treatments, and external drainage. Each category should include a cost per square foot or square metre to allow the lender to benchmark against industry norms.

For a typical residential scheme in the South East of England in 2026, build costs of £150 to £200 per square foot for standard specification are considered reasonable by most lenders. Premium schemes with high-end finishes might justify £200 to £280 per square foot, while schemes in lower-value areas might be priced at £120 to £160. If your costs fall significantly outside these ranges, be prepared to explain why. Costs that are too low raise concerns about quality and deliverability; costs that are too high raise concerns about viability. Supporting your costs with two or three competitive contractor tenders is the strongest evidence you can provide, as it proves the market has priced the works at the level you are presenting.

Contingency is essential and non-negotiable. Lenders expect to see a contingency allowance of 5-10% of total build costs. For new-build schemes with detailed designs and fixed-price contracts, 5% is usually acceptable. For refurbishment or conversion projects where there is greater uncertainty about existing conditions, 7.5-10% is expected. For schemes involving listed buildings, basement excavations, or complex engineering, 10% is the minimum. We have seen lenders decline applications where the developer has included zero contingency, even when every other aspect of the deal was strong. It signals that the developer does not understand or is unwilling to acknowledge the inherent uncertainties in construction.

Your appraisal must include a realistic estimate of all finance costs. For a development finance facility, this includes the arrangement fee, typically 1.5-2% of the total facility; rolled-up interest, calculated on the basis of your drawdown schedule; monitoring surveyor fees, typically £750 to £1,500 per visit with five to eight visits on a standard scheme; valuation fees, starting from £3,000 for straightforward residential schemes; and legal fees for both your solicitor and the lender’s solicitor, typically £8,000 to £20,000 combined depending on deal complexity. If you are also using mezzanine finance, the costs of the mezzanine facility must be separately itemised.

Professional fees beyond finance costs include architect fees, structural engineer fees, quantity surveyor fees, planning consultant fees, building control fees, warranty provider fees, and estate agent and marketing fees for the sales phase. As a rule of thumb, total professional fees on a residential development typically amount to 8-12% of build costs. For a scheme with £1,500,000 in construction costs, budget £120,000 to £180,000 for professional fees. Lenders will question professional fee allowances that are significantly below this range, as it suggests costs have been omitted or underestimated.

A common error is failing to account for the timing of finance costs. Interest is rolled up and compounds over the life of the loan, which means the total interest cost depends on when funds are drawn and how long the facility remains outstanding. A six-month overrun on a £2,000,000 facility at 9% interest adds approximately £90,000 in additional interest costs. Your appraisal should model the interest cost based on a realistic drawdown profile, not simply apply an annual rate to the total facility amount. We use a month-by-month cashflow model for every deal we arrange, and we strongly recommend you do the same.

The profit margin is what determines whether a lender considers your scheme viable. For residential development, the benchmark is a minimum 20% profit on GDV. Some lenders will accept 17-18% for low-risk schemes with strong pre-sales or in prime locations, but below 15% is a red flag for almost every lender. For commercial development, where the end product is typically retained rather than sold, profit margins of 15% on GDV are generally acceptable. Express your profit as both a percentage of GDV and a percentage of total costs, as different lenders use different benchmarks. A scheme that delivers £600,000 profit on a £3,000,000 GDV represents 20% on GDV and 25% on total costs of £2,400,000.

Sensitivity analysis demonstrates that your scheme remains viable under adverse conditions. At minimum, model three scenarios: a 10% increase in build costs, a 10% decrease in sales values, and a combination of both. Show the impact on profit margin, profit on cost, and whether the scheme still generates a positive return in each scenario. If a 10% increase in build costs wipes out your entire profit, the scheme is too tightly margined for most lenders. The strongest appraisals also model programme delays of three to six months, showing the additional finance costs and their impact on returns.

We have found that developers who proactively include sensitivity analysis in their appraisal receive faster credit decisions and better terms. It demonstrates commercial awareness and shows the lender you have thought about what could go wrong. One approach that works well is to include a summary page at the front of your appraisal showing the base case returns alongside the sensitivity scenarios in a clear table format. This gives the credit analyst the key information at a glance without needing to work through the entire model. Submit your appraisal for an initial review through our deal room and we will provide feedback within 48 hours.

How you present your appraisal matters almost as much as the numbers within it. Use industry-standard software if possible. Argus Developer is the gold standard and is used by most institutional developers and lenders. If Argus is not available, ProDev or a well-structured Excel model is acceptable. Whatever format you use, ensure the model is clearly laid out with consistent formatting, labelled assumptions, and a logical flow from inputs to outputs. Avoid hiding assumptions in complex formulas; transparency builds trust.

Every assumption in your appraisal should be supported by evidence. Build costs should reference contractor tenders. Sales values should reference comparable transactions. Professional fees should reference quotes from your appointed team. Finance costs should reference indicative terms from your broker. The more evidence you attach, the fewer questions the lender’s credit team will have, and the faster the decision process will move. We typically compile the appraisal and all supporting evidence into a single indexed PDF document of 40 to 80 pages, depending on the complexity of the scheme.

Include a brief executive summary at the front of the document. This should cover the key metrics in two to three paragraphs: total scheme cost, GDV, developer profit as a percentage and an absolute figure, the loan amount requested, and the loan-to-GDV ratio. Add a site photo and a CGI or architect’s impression if available. First impressions count, and a credit analyst who opens your submission and immediately sees a professional, well-structured document with compelling imagery will approach the numbers with a more positive mindset than one who opens a disorganised collection of poorly scanned documents.