Multi-Unit Development Finance: Funding 5-50 Unit Schemes

Multi-unit residential developments of five to fifty units represent the most active segment of the UK development finance market. Schemes in this range are large enough to generate meaningful developer profit but small enough to be manageable for independent developers without the infrastructure of a housebuilding company. They attract the widest range of lenders, from high-street banks and challenger banks to specialist funds and private credit platforms, which creates a competitive lending environment that benefits borrowers through better rates and higher leverage.

From a lender’s perspective, multi-unit schemes offer portfolio diversification within a single project. A twenty-unit development with four different unit types has a broader market appeal than a single house, and the risk of a total sales failure is lower because different unit types appeal to different buyer demographics. A scheme might include a mix of one-bed apartments for first-time buyers, two-bed apartments for young professionals, and three-bed houses for families, each accessing a different segment of demand. This diversification is reflected in more favourable lending terms compared to single-unit or very small schemes.

The economics of multi-unit development also work in the developer’s favour. Site acquisition costs are spread across more units, reducing the per-unit land cost. Construction costs benefit from economies of scale, with prelims, site setup, and project management costs distributed across a larger build programme. Professional fees as a percentage of GDV decrease as scheme size increases. We regularly see profit margins of 20-25% on GDV for well-structured multi-unit schemes, compared to 15-20% for smaller projects where the fixed costs represent a larger proportion of the total budget.

Lenders assess multi-unit schemes against several criteria beyond those that apply to smaller projects. The unit mix is scrutinised to ensure it reflects local market demand. A scheme of forty one-bedroom apartments in a suburban location where the primary demand is for family houses will raise concerns, regardless of how the numbers look on paper. Lenders expect the developer to have commissioned local market research, typically from a local estate agent or residential property consultant, that supports the proposed unit mix with evidence of demand, pricing, and absorption rates.

Absorption rate is a key consideration for larger schemes. This refers to how quickly the completed units can be sold, and it directly affects the development finance timeline and total interest cost. For a twenty-unit scheme in a location where the average absorption rate is three sales per month, the sales period would be approximately seven months. During this time, the development finance facility remains outstanding and interest continues to accrue. Lenders will model this sales period into their assessment, and a longer-than-expected sales phase can erode the developer’s profit and, in extreme cases, threaten the repayment of the loan.

For schemes above approximately £3,000,000 to £5,000,000 in total facility size, lenders may require the developer to achieve a certain level of pre-sales or reservations before releasing construction funding beyond the initial stages. A common condition is that 25-30% of units must be pre-sold or reserved before the lender will fund beyond the superstructure stage. This condition protects the lender by ensuring there is market validation before the majority of the construction cost is committed. We advise clients to begin marketing as early as possible, ideally from the point of planning approval, to build a pipeline of reservations that satisfies these conditions.

For schemes of five to ten units with a GDV of up to £3,000,000, the finance structure is relatively straightforward. A single senior debt facility covering the land acquisition and build costs at 60-65% of GDV is the standard approach, with the developer contributing 35-40% equity. This size of facility is within the appetite of most development finance lenders, and competitive tendering between three or four lenders typically delivers rates of 7-9% per annum with arrangement fees of 1.5-2%. The monitoring surveyor visits monthly or at key milestones, and drawdowns follow a conventional schedule aligned to the build programme.

For schemes of ten to twenty-five units with a GDV of £3,000,000 to £10,000,000, the developer has more options. Senior debt can often be stretched to 65-70% of GDV from established lenders, and supplementing this with mezzanine finance can bring total leverage to 75-85% of costs, significantly reducing the equity requirement. At this size, lenders may offer phased release structures where units that are sold during the construction phase generate cash that reduces the outstanding loan balance, potentially allowing further drawdowns against the remaining units. This recycling of capital is an efficient way to manage cash flow and minimise the peak debt on the facility.

For schemes of twenty-five to fifty units with a GDV of £10,000,000 to £25,000,000, the finance structure becomes more institutional. The developer is likely to be working with a bank or large specialist lender, and the facility terms will include more detailed covenants, reporting requirements, and drawdown conditions. Independent monitoring is typically more rigorous, with monthly site visits and detailed cost reporting. Pre-sales conditions are standard, and the lender may appoint an independent employer’s agent to monitor the project on their behalf. Despite the additional complexity, the terms available at this level are often more competitive on a rate basis, with senior debt rates from 6.5-8% for strong developers and schemes.

The drawdown schedule for a multi-unit development is more complex than for a single-unit project because the construction programme involves overlapping activities across different plots or blocks. A typical drawdown schedule for a twenty-unit scheme might include an initial drawdown for land acquisition and mobilisation costs, followed by monthly or milestone-based drawdowns for substructure works, superstructure, first fix, second fix, and external works. Each drawdown request must be supported by a monitoring surveyor’s report confirming that the works claimed have been completed to the required standard.

Cash flow management is critical for multi-unit schemes because there is often a gap between when the developer pays the contractor and when the lender releases the corresponding drawdown. Contractors typically invoice monthly in arrears, and the monitoring surveyor visit, report preparation, lender review, and fund transfer process can take seven to fourteen days. This means the developer needs working capital to bridge a gap of three to six weeks between expenditure and drawdown receipt. For a scheme with monthly build expenditure of £200,000, this bridging requirement is £200,000 to £300,000 of accessible working capital.

We advise clients to prepare a month-by-month cash flow projection for the entire project, from land acquisition through construction to the final unit sale. This projection should show the timing of all costs, including land, construction, professional fees, finance costs, and marketing, alongside the timing of drawdowns and sales receipts. The cash flow peak, which is the maximum amount of cash tied up in the project at any point, determines the actual equity requirement, which is often higher than the headline equity percentage suggests. Understanding your cash flow peak before committing to the project avoids unpleasant surprises during construction. Submit your scheme for cash flow modelling through our deal room.

For multi-unit schemes, the sales strategy is an integral part of the finance application. Lenders want to see that you have a credible plan for selling the completed units within a reasonable timeframe, supported by market evidence. A strong sales strategy includes the appointment of a reputable local or regional estate agent, a marketing plan with timeline and budget, pricing for each unit type supported by comparable evidence, and a projected sales schedule showing the expected pace of sales. For a twenty-unit scheme, the lender will typically expect all units to be sold or reserved within six to twelve months of practical completion.

Off-plan sales, where buyers exchange contracts during the construction phase, are highly valued by lenders because they provide certainty of exit. In strong markets, achieving 30-50% off-plan sales is realistic for well-located multi-unit schemes, and this level of pre-commitment significantly reduces the lender’s risk. Some lenders offer enhanced terms, such as lower interest rates or relaxed drawdown conditions, for schemes that achieve a minimum threshold of off-plan sales. We help clients develop off-plan sales strategies that maximise the benefits from a finance perspective while managing the practical aspects of selling unbuilt properties.

For developers who intend to retain some or all of the units as rental investments, the exit strategy involves refinancing the development finance facility onto a term loan or portfolio buy-to-let mortgage. This approach requires the completed development to be valued on an investment basis, with the rental income supporting the refinance amount at prevailing interest rates and coverage ratios. For a twenty-unit scheme generating £240,000 per annum in gross rental income, a refinance at 75% LTV on a capitalised value of £3,200,000 might provide £2,400,000, which needs to be sufficient to repay the outstanding development finance. Plan the refinance early and ensure the rental projections support the required refinance amount before committing to a retention strategy.

Programme overruns are the most common challenge on multi-unit developments. The larger the scheme, the more opportunities there are for delays caused by weather, material supply issues, subcontractor availability, or coordination problems. Each month of delay adds interest costs to the project. On a £5,000,000 facility at 8% per annum, one month of delay costs approximately £33,000 in additional interest. Three months of delay adds £100,000, which can significantly erode the profit margin if not absorbed by the contingency allowance.

Sales risk increases with scheme size simply because there are more units to sell. In a softening market, a five-unit scheme might take three to six months to sell out, but a fifty-unit scheme could take twelve to eighteen months or longer. The extended sales period means the development finance facility remains outstanding for longer, accruing interest. Some developers mitigate this risk by using development exit finance, which is a lower-cost facility that replaces the development finance once construction is complete, reducing the interest burden during the sales phase. For first-time developers tackling their first multi-unit scheme, our guide for first-time developers covers additional strategies for building lender confidence.

Section 106 obligations and affordable housing requirements can significantly impact the viability of multi-unit schemes, particularly those of ten or more units where affordable housing contributions are typically required. In some local authority areas, affordable housing requirements of 30-40% of units can fundamentally change the economics of a scheme. The affordable units are typically sold at 50-80% of open market value, reducing the overall GDV by 10-20% compared to a fully open market scheme. Accounting for these obligations accurately in your appraisal is essential, and we work with clients to structure schemes that comply with planning policy while maintaining an acceptable profit margin for both developer and lender.