Development Finance Pre-Approval: Getting a Decision in Principle

A decision in principle, sometimes called a DIP, an agreement in principle, or an indicative offer, is a conditional commitment from a development finance lender that they are willing to fund your project, subject to satisfactory completion of formal due diligence. It is not a binding commitment and does not guarantee that the final facility will be approved on the terms indicated. However, it carries significant weight because it means the lender has reviewed the key parameters of your deal, assessed your credentials as a borrower, and concluded that the project falls within their lending appetite.

The DIP typically specifies the indicative loan amount, the interest rate range, the arrangement fee, the maximum loan-to-GDV ratio, the expected term, and the key conditions that must be satisfied before a formal offer is issued. Common conditions include a satisfactory independent valuation, satisfactory legal due diligence on the title and planning, confirmation of the borrower’s equity, and receipt of detailed build cost evidence. The DIP will also usually specify its validity period, typically thirty to ninety days, after which it lapses and needs to be refreshed.

In our experience, a well-drafted DIP is one of the most valuable tools a developer can have when competing for sites. It demonstrates to vendors, estate agents, and competing bidders that you have finance backing and can proceed with confidence. A vendor choosing between two offers at a similar price will almost always prefer the buyer who can produce a DIP from a credible lender over one who has not yet engaged with the finance market. We arrange DIPs for clients before they begin their site search, giving them a competitive advantage from day one of the acquisition process.

Obtaining a DIP is faster and requires less documentation than a full finance application. At the DIP stage, the lender is making an assessment based on headline information rather than detailed due diligence. The information typically required includes a summary of the proposed scheme including location, unit count, estimated GDV, and estimated build costs; your development experience and track record; a summary of your financial position including net worth and equity availability; and the planning status of the site. This information can usually be summarised in a one-to-two-page document, which we prepare on behalf of our clients.

The lender reviews this information, typically at a senior or credit team level, and responds with either a DIP, a request for additional information, or a decline. The turnaround time for a DIP from a specialist development finance lender is usually two to five working days, although some lenders can turn around a DIP within 24 hours for experienced developers with well-known track records. At our firm, we submit DIP requests to multiple lenders simultaneously, typically three to five, to provide our clients with the widest range of options and the most competitive terms.

The quality of the DIP depends on the quality of the information provided. A DIP based on accurate, detailed information is a strong indicator that the final facility will be approved on similar terms. A DIP based on vague or incomplete information carries less weight because the lender has more reasons to adjust the terms once the full picture emerges. We invest time in preparing thorough DIP submissions because we know that the more accurate the DIP, the smoother the transition to a formal application will be. For a comprehensive understanding of what you will need for the full application, review our application checklist.

A DIP is an expression of intent, not a legally binding commitment. The lender is saying that, based on the information provided, they would expect to offer a facility on approximately the terms indicated, subject to their standard due diligence process. They are not committing to lend, and they can withdraw the DIP at any time if the formal due diligence reveals information that was not disclosed or differs from what was presented. Common reasons for a DIP being withdrawn include a valuation that comes in significantly below the developer’s GDV assumption, adverse information emerging from the credit search, title issues that affect the lender’s security position, or build costs that are substantially different from those indicated.

Despite these limitations, a DIP carries meaningful weight. A lender that issues a DIP has committed reputational capital and staff resources to the assessment. They have, in effect, pre-approved the deal at a preliminary level and are invested in seeing it through to completion. The conversion rate from DIP to formal offer in our practice is approximately 85-90%, meaning the vast majority of deals that receive a DIP proceed to drawdown. The 10-15% that do not proceed are typically attributable to material changes in the deal rather than the lender changing their mind.

For practical purposes, the DIP gives you the confidence to proceed with site acquisition, knowing that the finance is likely to be available. It also gives you a benchmark for the finance terms, allowing you to budget accurately for interest, fees, and the equity contribution in your development appraisal. We always recommend obtaining a DIP before exchanging contracts on a site purchase, as it eliminates the risk of discovering after exchange that the finance terms are materially different from your assumptions, which could turn a profitable project into a marginal one.

In a competitive land market, the ability to demonstrate finance backing gives you a tangible advantage over other bidders. When submitting an offer on a development site, include the DIP as supporting evidence of your ability to proceed. Estate agents and vendors are reassured by the sight of a named lender prepared to fund the acquisition and development, and it distinguishes your offer from those made without any evidence of financial capability.

The strategic value of a DIP is greatest in informal tender situations where multiple developers are bidding on the same site. In these scenarios, the vendor’s agent is evaluating not just the headline price but the certainty of execution. A bid of £600,000 supported by a DIP from a reputable lender may be preferred over a bid of £620,000 from a buyer who has not engaged with the finance market, because the agent knows the first buyer is more likely to complete without delays or renegotiation. We have seen numerous situations where our clients have been awarded sites at below the highest bid price because their DIP gave the vendor confidence in a clean, timely transaction.

For auction purchases, the DIP plays a different role. Auction purchases typically require completion within twenty-eight days, which is too short for a standard development finance facility. However, having a DIP for the development finance gives you a clear exit strategy for the bridging loan you will use to complete the auction purchase. The bridging lender is more comfortable lending for the acquisition when they can see that development finance is conditionally approved, as this confirms there is a credible plan to refinance the bridge within a reasonable timeframe. The DIP effectively de-risks both the bridging loan and the development finance by creating a documented chain of funding from acquisition through to development.

Converting a DIP into a formal offer requires providing the lender with the detailed information needed for full due diligence. The additional documentation typically includes the full development appraisal with supporting evidence, two to three contractor tenders or a QS cost plan, detailed planning documents including the decision notice and approved drawings, personal and corporate financial information for all borrowers and guarantors, proof of equity, and details of the professional team. If you have prepared these documents in advance, the transition from DIP to formal offer can be seamless, taking as little as two to three weeks.

The valuation is the most significant step between DIP and formal offer because it involves an independent third party whose opinion may differ from your own assumptions. If the DIP is based on a GDV of £3,500,000 but the independent valuer assesses the GDV at £3,200,000, the maximum facility will be reduced proportionally. This is why we advise clients to use conservative GDV assumptions in the DIP request. A DIP based on a GDV that is subsequently supported by the valuation is far more useful than one based on an optimistic GDV that gets marked down, as the latter triggers a renegotiation that can delay the process by two to four weeks.

We manage the DIP-to-formal-offer process for all our clients, coordinating with the lender, the valuer, the monitoring surveyor, and the legal teams to ensure all workstreams progress in parallel. The most common cause of delay at this stage is missing or incomplete documentation, which is why thorough preparation at the DIP stage, even though it is not formally required, pays dividends later. Developers who treat the DIP as an opportunity to get their paperwork in order rather than just a one-page request consistently achieve faster completions and better outcomes. For a detailed understanding of the timeline from DIP to drawdown, see our guide on the development finance timeline.

For developers who acquire sites regularly, maintaining a rolling DIP with one or more lenders is a highly effective strategy. A rolling DIP is an agreement with a lender that they will consider funding your projects on pre-agreed general terms, subject to each individual site meeting their criteria. This arrangement is typically available to developers with a track record of at least three to five completed projects and a demonstrated ability to deliver on time and on budget. The benefit is that site-specific DIPs can be issued within 24 to 48 hours, giving you the ability to move fast in competitive situations.

Building relationships with two or three preferred lenders provides flexibility and competitive tension. If Lender A is your primary relationship but Lender B can offer better terms on a specific deal, having an established relationship with both means you can switch without the time cost of a cold start. We maintain active relationships with over sixty development finance lenders and can match each deal to the most appropriate lender based on the specific parameters. For portfolio developers, this means every deal is optimally funded rather than defaulting to a single lender regardless of the terms.

As a portfolio developer, your track record becomes your greatest asset. Each successful project adds to your credentials, improving the terms available from lenders and expanding the range of lenders willing to work with you. Documenting your completed projects comprehensively, including original appraisals, actual costs, programme performance, and sales outcomes, creates a portfolio of evidence that supports every future DIP request. We maintain development track record summaries for all our regular clients, updating them after each project completion and using them to support new DIP requests. This institutional approach to track record management is one of the reasons our regular clients consistently achieve better terms than developers who approach the market on an ad hoc basis. Start the conversation by submitting your first project through our deal room.