GDV vs Market Value: Understanding the Difference for Finance

Gross development value and market value are terms that are often used interchangeably in casual conversation, but in the context of property finance they have precise and very different meanings. Market value, as defined by RICS, is the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties have each acted knowledgeably, prudently, and without compulsion. In plain terms, it is what the property is worth today in its current condition. For a vacant site with planning permission, the market value reflects what a buyer would pay for it right now.

Gross development value, by contrast, is a forward-looking figure. It represents the total value of a development scheme once all construction is complete and every unit is finished to the proposed specification. The GDV is calculated by aggregating the expected sales prices of each individual unit in the completed scheme. For a development of ten apartments expected to sell at an average of £350,000 each, the GDV would be £3,500,000. This figure does not exist today. It is a projection of future value that depends on the developer successfully building and finishing the scheme to the assumed standard, and on the market conditions at the point of sale.

The distinction matters enormously because development finance lenders use both figures for different purposes within the same facility. The market value drives the day-one land advance, while the GDV determines the overall facility size. Confusing the two or failing to understand how each is applied will lead to unrealistic expectations about borrowing capacity. In our experience, this confusion is one of the most common sources of frustration for developers, particularly those arranging their first development loan.

The market value of the site determines how much the lender will advance on day one to fund the land acquisition or refinance an existing land holding. Most senior development finance lenders will advance 55-65% of the current market value of the site for the initial drawdown. This means that if your site has a market value of £1,200,000, the lender will typically provide a day-one advance of £660,000 to £780,000. The remaining equity must come from the developer's own funds, or from a mezzanine finance facility that sits behind the senior debt.

The market value also acts as a floor for the lender's security. If the development goes wrong and the lender needs to recover their funds through a sale of the site, the market value represents the minimum they would expect to achieve, assuming a reasonable marketing period. This is why lenders are conservative in their assessment of market value and may instruct the valuer to provide both an open market value and a 180-day forced sale value. The forced sale value is typically 15-25% below the open market value and represents what the lender could realistically achieve in a distressed sale scenario.

It is important to note that the market value of a development site is not the same as the price paid for it. If a developer purchases a site at auction for £900,000 but the RICS valuer assesses the market value at £750,000, the lender will base the day-one advance on £750,000, not £900,000. The developer will need to fund the £150,000 difference from their own resources. Conversely, if the site is valued at more than the purchase price, some lenders will use the higher valuation figure, effectively giving the developer credit for securing a good deal. To understand how this affects your specific project, submit your scheme through our deal room.

While the market value controls the day-one advance, the GDV determines the maximum total facility size. Senior development finance lenders typically offer facilities of up to 60-70% of the GDV, which includes both the land advance and all construction cost drawdowns. For a scheme with a GDV of £5,000,000, the maximum senior facility would be £3,000,000 to £3,500,000. This cap applies to the total of all drawdowns including rolled-up interest and fees, not just the principal amount advanced.

The GDV also determines the loan-to-GDV ratio, which is one of the primary metrics lenders use to assess risk. A lower LTGDV means the lender has more headroom between their exposure and the projected end value, providing a larger buffer against market falls or cost overruns. Experienced developers with strong track records can typically access higher LTGDV ratios of 65-70%, while first-time developers may be limited to 55-60%. The difference on a £4,000,000 GDV scheme is significant: 70% LTGDV provides a facility of £2,800,000, while 55% provides only £2,200,000, a gap of £600,000 that must be bridged with additional equity.

The accuracy of the GDV figure is therefore critical to maximising your facility. An independent RICS valuer will assess the GDV as part of the Red Book valuation, and if their figure is lower than yours, the facility will be reduced accordingly. We have arranged facilities where the developer expected a GDV of £6,200,000 but the valuer assessed it at £5,600,000, reducing the maximum facility by over £400,000. This is why we always stress the importance of robust comparable evidence and realistic pricing assumptions. For detailed guidance on calculating GDV accurately, see our comprehensive guide on how to calculate GDV.

There is a direct mathematical relationship between the site value and the GDV, expressed through the residual land valuation method. The site value is essentially the GDV minus all development costs and the developer's profit. This means that changes in the GDV flow through to the site value, but not on a one-to-one basis because some costs such as agent fees and developer profit are expressed as a percentage of GDV and therefore also change. For a detailed explanation of how this calculation works, see our guide on the residual land valuation method.

In a healthy development scheme, the site value typically represents 25-35% of the GDV for residential development in the South East of England, and 15-25% in the Midlands and North. These ratios provide a useful benchmark for assessing whether a site is priced appropriately. If a landowner is asking £1,500,000 for a site where the GDV is £4,000,000, the site cost represents 37.5% of GDV, which is at the high end and would leave limited room for profit. Conversely, a site priced at £800,000 against the same GDV represents only 20%, leaving a healthier margin for development costs and profit.

Lenders pay close attention to this ratio because it indicates the viability and risk profile of the scheme. A high site cost relative to GDV suggests that the developer has overpaid for the land or that the scheme is marginal. A low ratio suggests either a good land deal or overstated GDV expectations. The lender will scrutinise both possibilities. In practice, the optimal position is a site cost of 25-30% of GDV with build costs of 35-45% of GDV and a profit margin of 18-22%, leaving adequate room for professional fees, finance costs, and contingency.

For completed or near-completed properties, the GDV and market value converge because the projected future value becomes the present value. This is relevant in several scenarios. If you are purchasing a completed development that requires no construction work, there is no GDV in the traditional sense because the property is already built. The lender will simply value it at its current market value and lend against that figure, typically through a commercial mortgage or term loan rather than development finance.

The convergence also occurs during the final stages of a development. As construction approaches practical completion, the gap between the current value of the partially completed scheme and the GDV narrows. This is why many developers refinance from development finance to a development exit facility or commercial mortgage in the final months, as the property's current market value has increased sufficiently to support the refinance amount. Development exit finance typically offers lower interest rates than development finance because the construction risk has been substantially eliminated.

Understanding when GDV and market value converge is also important for schemes involving light refurbishment rather than ground-up development. For a property that requires only cosmetic improvement, the difference between its current market value and its improved market value may be relatively small. In these cases, a bridging loan based on the current or projected market value may be more appropriate and cost-effective than a development finance facility structured around the GDV. We regularly advise clients on the most appropriate finance product for their specific situation, ensuring they are not over-engineered or paying for a facility structure they do not need.

When preparing a development finance application, you need to present both the current market value and the projected GDV with supporting evidence for each. For the market value, this means comparable site sales, evidence of what similar sites with similar planning permissions have sold for in the area. For the GDV, this means comparable sales evidence for the completed units, supported by local agent opinions and Land Registry data. These are two separate evidence bases and they require two separate research exercises.

A common mistake we see is developers presenting a strong GDV case supported by abundant comparable evidence but neglecting the site value evidence. The lender needs both because they are lending against both. If the site value evidence is weak, the lender may instruct the valuer to take a conservative view on the day-one advance, which increases the equity requirement. Similarly, presenting strong site comparables but weak GDV evidence will cap the total facility even if the site value supports a generous day-one advance.

We always recommend that developers prepare a comprehensive evidence pack that covers both the current market value and the GDV before the valuation is instructed. This pack should include at least five comparable site sales for the market value assessment and at least eight comparable completed property sales for the GDV assessment. The more evidence you provide, the easier it is for the valuer to support your figures. For schemes in emerging areas where evidence is limited, we can draw on our network of local agents and valuers to source additional supporting data. To discuss your specific evidence requirements, submit your project through our deal room and our team will advise on how to build the strongest possible case.