Ground-Up Development Finance: New Build Funding Explained

Ground-up development finance is a specialist loan product designed to fund the construction of new buildings on land that is either vacant or cleared for development. Unlike refurbishment finance, which funds the improvement of existing structures, ground-up finance covers the full journey from bare land to completed, habitable property. The facility typically comprises two elements: a land loan to fund the acquisition of the site, and a construction loan to fund the building works. Both elements are combined into a single facility with a unified set of terms, although the land and construction drawdowns are managed differently.

The land element is usually advanced as a single drawdown at the start of the facility, coinciding with the purchase of the site. The construction element is then drawn down in stages as the build progresses, with each drawdown certified by an independent monitoring surveyor. This phased structure means the lender’s exposure increases gradually as the building takes shape, and the developer only pays interest on the funds actually drawn. For a scheme with a total facility of £2,500,000 comprising £800,000 for land and £1,700,000 for construction, the developer might draw £800,000 on day one, then draw the construction funds over twelve to eighteen months in five to eight tranches.

Ground-up schemes are the bread and butter of the UK development finance market. Whether you are building a single house, a development of twenty apartments, or a mixed-use scheme with commercial units on the ground floor and residential above, the fundamental finance structure is the same. The differences between deals are in the detail: the leverage available, the interest rate charged, the conditions attached to drawdowns, and the security and reporting requirements imposed by the lender. Understanding these details allows you to negotiate better terms and manage the facility more effectively during the construction phase.

The land element of a ground-up development finance facility is one of the most important components for the developer because it determines how much equity is required upfront. Most lenders will fund 50-65% of the land purchase price, with the developer contributing the remaining 35-50% from equity. Some lenders assess the land loan against current market value rather than the purchase price, which can be advantageous if you are buying below market value at auction or through an off-market deal. If the land is worth £1,000,000 but you are purchasing for £800,000, a lender lending at 60% of value would advance £600,000 rather than £480,000, effectively recognising your equity gain on acquisition.

If you already own the land, the dynamic changes. The lender can advance funds against the land’s current value, which may have increased since purchase due to planning permission being granted, market appreciation, or site preparation works you have carried out. Land purchased for £400,000 three years ago that now has planning permission for ten houses and is valued at £900,000 provides £900,000 of equity in the project, potentially reducing or eliminating the need for additional cash equity. This is one of the most common routes to leveraging development finance: acquire land, add value through planning, and then use the enhanced value as equity for the construction loan.

Stamp duty land tax on the land acquisition is the developer’s responsibility and must be paid from equity. For a land purchase of £600,000, SDLT at the non-residential rate would be approximately £19,500. This is a relatively modest cost but must be budgeted for alongside other day-one expenses including legal fees, broker fees, and any upfront survey or technical report costs. Lenders do not typically fund SDLT as it is considered a developer cost, not a development cost. Ensure your equity budget includes all day-one outgoings, not just the difference between the purchase price and the land loan.

Construction drawdowns are the mechanism through which the lender releases build funds as the project progresses. The process begins with the developer submitting a drawdown request, which specifies the amount requested and the works completed since the last drawdown. The lender then instructs the monitoring surveyor to visit the site. The monitoring surveyor, who is a RICS-qualified professional appointed by the lender, inspects the works, assesses whether they correspond to the amount requested, and issues a report to the lender. If the surveyor is satisfied, the lender releases the funds, typically within three to five working days of receiving the surveyor’s report.

The drawdown schedule should be agreed at the outset of the facility and aligned to your construction programme. A typical schedule for a twelve-month build might include six to eight drawdowns: an initial draw for mobilisation and preliminaries, followed by draws at substructure completion, ground floor slab, superstructure complete, roof on and watertight, first fix complete, second fix complete, and practical completion. Each drawdown represents a percentage of the total construction loan, and the percentages should correspond to the cost of works completed at each stage. Getting this schedule right is important because an unrealistic schedule creates cash flow problems if drawdowns do not align with actual expenditure.

One of the key points to understand about construction drawdowns is that they are paid in arrears, not in advance. You must complete the works before requesting the drawdown, which means you need working capital to fund the contractor between drawdowns. For a scheme with monthly build expenditure of £150,000 and a drawdown cycle of five to six weeks, you need approximately £200,000 to £250,000 of working capital to bridge the gap. This working capital requirement is over and above your equity contribution and must be factored into your cash flow planning from the outset. Many developers underestimate this requirement, leading to cash flow pressures during the build phase.

Ground-up development finance interest rates in 2026 typically range from 6.5% to 12% per annum, depending on the developer’s experience, the strength of the scheme, and the lender. Experienced developers with proven track records and strong schemes in prime locations can access rates at the lower end of this range from mainstream banks and established challenger banks. First-time developers or those with complex schemes will pay rates toward the higher end, reflecting the additional risk. Interest is almost always rolled up rather than serviced monthly, meaning you do not make interest payments during the build. Instead, the interest accrues and is added to the loan balance, with the total repaid from sales proceeds or refinance at the end of the project.

Arrangement fees are typically 1.5-2% of the total facility, payable on completion of the legal documentation. On a £2,000,000 facility, this represents £30,000 to £40,000. Some lenders deduct the arrangement fee from the first drawdown, while others require it to be paid separately. Monitoring surveyor fees range from £750 to £1,500 per visit, with five to eight visits typical for a standard scheme, totalling £4,000 to £12,000 over the life of the facility. The initial valuation fee ranges from £3,000 to £6,000 depending on the complexity and size of the scheme, while legal fees for both solicitors typically total £8,000 to £15,000.

The total cost of finance for a ground-up development typically represents 8-14% of total project costs. For a scheme with total costs of £2,000,000, finance costs of £160,000 to £280,000 should be budgeted. This includes interest, arrangement fees, monitoring surveyor fees, valuation fees, and legal costs for both the borrower’s and lender’s solicitors. These costs must be included in your development appraisal to ensure the scheme remains viable after all finance expenses. We model the full cost of finance for every deal we arrange, providing a detailed breakdown that shows exactly how much the facility will cost over its projected term.

The monitoring surveyor is a central figure in any ground-up development finance facility. Appointed by the lender but paid for by the borrower, the monitoring surveyor acts as the lender’s eyes on the ground, verifying that construction works are progressing in accordance with the approved plans and budget. Before the facility is drawn, the monitoring surveyor conducts an initial assessment of the build programme, cost plan, and contractor credentials to satisfy themselves that the project is deliverable. During construction, they visit the site at each drawdown stage to inspect the works and certify the value of completed construction.

The monitoring surveyor’s report covers several areas. They assess the quality of workmanship, checking that construction meets Building Regulations standards and the approved specification. They verify the quantity of work completed, ensuring that the value claimed in the drawdown request corresponds to what has actually been built. They review the remaining budget, flagging any concerns about whether the remaining funds are sufficient to complete the project. And they comment on the programme, identifying any delays and assessing whether the overall completion timeline remains realistic.

Developers sometimes view the monitoring surveyor as an obstacle, but in our experience, a good monitoring surveyor is an asset to the project. They provide an independent check that catches issues early, before they become expensive problems. If they identify poor workmanship at the substructure stage, it can be corrected before the superstructure is built on top of it. If they flag a budget shortfall at the midpoint, the developer has time to secure additional funds or value-engineer the remaining works. We encourage clients to build a positive working relationship with the monitoring surveyor, providing access to the site, responding to queries promptly, and treating their feedback constructively. Submit your ground-up project through our deal room for tailored finance advice.

Every ground-up development finance facility requires a clear, credible exit strategy. The most common exit for residential schemes is individual unit sales, where completed houses or apartments are sold on the open market and the proceeds are used to repay the loan progressively. Lenders assess this exit by examining comparable sales evidence, the depth of local market demand, and the developer’s proposed pricing and marketing strategy. A realistic sales timeline is essential; lenders will not accept an assumption that all units sell on day one of practical completion.

Refinance is the second most common exit strategy, particularly for developers who intend to retain the completed units as investments. The development finance facility is replaced with a term mortgage, either a portfolio buy-to-let mortgage for residential units or a commercial mortgage for mixed-use or commercial schemes. The refinance amount must be sufficient to repay the development finance facility in full, including all rolled-up interest and fees. For a facility with a peak debt of £2,200,000, the completed development must be valued highly enough to support a refinance of at least this amount at the prevailing loan-to-value ratio.

A third option gaining popularity is forward sale to a registered provider or build-to-rent investor. Under this arrangement, the developer agrees to sell the completed units to an institutional buyer at a pre-agreed price, eliminating sales risk entirely. Forward sales are most common for larger schemes of twenty or more units and are particularly attractive for affordable housing delivery. The certainty of exit that a forward sale provides is highly valued by lenders and can result in enhanced terms, including higher leverage and lower interest rates. We have arranged finance for numerous ground-up schemes with forward sale commitments and can advise on the structuring of these arrangements to maximise their benefit from a finance perspective.