Site Value vs Completed Value: How Lenders Calculate Your Loan

Every development finance facility is structured around two distinct valuation figures: the current value of the site in its existing condition and the gross development value of the completed scheme. These two figures serve different purposes in the lending decision. The site value determines the day-one advance, which funds the land acquisition or refinances an existing land holding. The GDV determines the total facility size, which caps the aggregate of all drawdowns including the land advance, construction costs, rolled-up interest, and fees. Both figures are assessed independently by the lender's RICS valuer and both must support the proposed facility for the loan to proceed.

The distinction between these two valuations reflects the phased risk profile of a development project. At the outset, before construction begins, the lender's security is the bare site. If the developer defaults at this stage, the lender can only recover by selling the site, so the day-one advance must be conservative relative to the site's current value. As construction progresses and value is added through building work, the security improves, and the lender can safely advance more funds. By practical completion, the security is the finished development, and the total advance is measured against the GDV.

Understanding this dual-valuation structure is critical for planning your equity requirements and cash flow during the development. Too many developers focus exclusively on the GDV when calculating how much they can borrow, without considering whether the site value supports the day-one advance they need. We have seen deals fall apart because the developer calculated their equity based on the LTGDV ratio but forgot that a separate LTV constraint on the site created a larger equity requirement on day one.

The site value is the current market value of the land or property in its existing condition, taking into account any planning permission that has been granted. A greenfield site with full planning permission for ten houses will have a significantly higher value than the same site with no planning, because the planning permission unlocks the development potential. The valuer will assess the site value using the residual method for sites with development potential, cross-checked against comparable site sales where available. For sites with existing buildings that are to be demolished or converted, the valuer will consider both the value of the existing structures and the underlying development potential.

Several factors affect the site value beyond the basic characteristics of the land. The quality and detail of the planning permission is a major driver. Full planning with all conditions discharged is worth more than full planning with outstanding conditions, which is worth more than outline permission, which is worth more than an allocation in the local plan. Each step down the planning certainty ladder represents increased risk for the buyer, which is reflected in a lower site value. We have seen sites increase in value by 30-50% between outline and detailed permission simply because the planning risk has been removed.

Access, services, and ground conditions also affect the site value. A site with existing access from a public highway, mains drainage, water, gas, and electricity connections is worth more than one requiring new access roads and service connections. Similarly, a site with clean ground conditions is worth more than one with potential contamination, poor load-bearing capacity, or a high water table. The valuer will note these factors in the report, and any adverse findings will reduce the assessed site value. For guidance on how the site value relates to the overall development economics, see our guide on the residual land valuation method.

The gross development value represents the total market value of all units in the completed scheme, and it is the primary metric that determines the overall size of the development finance facility. Senior lenders typically offer facilities of 55-70% of GDV, with the exact percentage depending on the lender's risk appetite, the developer's track record, and the specifics of the scheme. For a development with a GDV of £4,000,000 at 65% LTGDV, the maximum total facility is £2,600,000. This must cover the land advance, all construction drawdowns, rolled-up interest, and lender fees.

The GDV is assessed by the RICS valuer using comparable sales evidence for completed properties similar to the proposed units. The valuer will analyse recent sales in the area, adjusting for differences in size, specification, aspect, and market conditions. For new-build units, the valuer may apply a new-build premium of 5-15% above second-hand values if the evidence supports it. The accuracy of the GDV assessment depends heavily on the quality of comparable evidence, which is why we always advise developers to prepare comprehensive evidence packs before the valuation is instructed. For detailed guidance on this process, see our article on how to calculate GDV.

It is important to understand that the GDV figure assumes all units are completed and sold individually on the open market at the prevailing price. If you plan to sell the entire development in a single bulk sale to an investor, the achievable price may be 10-20% below the individual unit GDV because the bulk buyer expects a discount. Lenders are aware of this and may apply their own discount if the exit strategy involves a bulk sale. Similarly, if affordable housing obligations mean that some units must be sold to a registered provider at a discount to market value, the GDV will reflect the blended value of market and affordable units rather than all units at full market value.

Let us work through a complete facility calculation for a residential development scheme to illustrate how the site value and GDV interact. The scheme involves the purchase and development of a site in Hampshire with planning permission for six detached houses. The site has a current market value of £850,000 and the developer has agreed a purchase price of £825,000. The GDV is assessed at £3,300,000 based on individual house sales of £500,000 to £600,000 each. The total construction cost is £1,400,000 including professional fees and contingency.

The lender offers 65% LTGDV for the total facility and 60% LTV for the day-one advance. The maximum total facility is 65% of £3,300,000, which equals £2,145,000. The maximum day-one advance is 60% of £850,000, which equals £510,000. The developer needs £825,000 to purchase the site, so the equity required on day one is £825,000 minus £510,000, which equals £315,000. The remaining facility of £2,145,000 minus £510,000, which equals £1,635,000, is available for construction drawdowns, rolled-up interest, and fees.

The construction cost of £1,400,000 must come from this remaining facility of £1,635,000, leaving a buffer of £235,000 for rolled-up interest and fees. At 8.5% per annum over a 14-month build programme with an average drawn balance of approximately £1,400,000, rolled-up interest will be approximately £140,000. Arrangement fees at 1.5% of the total facility add £32,175. Valuation and monitoring costs of approximately £15,000 and legal costs of £25,000 bring total non-construction costs to approximately £212,175, leaving a small buffer of £22,825. This is tight, and the developer should either bring additional equity or negotiate a smaller arrangement fee. For help optimising your facility structure, submit your scheme through our deal room.

In many developments, particularly in high-value land areas such as Greater London, Surrey, and Berkshire, the site value constraint is more restrictive than the LTGDV constraint. This occurs when the site is expensive relative to the GDV, meaning the developer needs a large day-one advance but the LTV cap on the site limits what the lender will provide. For example, if a site costs £2,000,000 and the GDV is £5,000,000, at 65% LTGDV the total facility is £3,250,000. But if the lender only advances 60% of the £2,000,000 site value, the day-one advance is £1,200,000, leaving the developer to find £800,000 of equity just for the land purchase.

This equity gap can be bridged through several mechanisms. Additional developer equity is the simplest but requires the developer to have significant liquid resources. Mezzanine finance can provide a second charge loan that sits behind the senior debt, funding part of the equity requirement in exchange for a higher interest rate and a share of the project profits. An equity joint venture partner can contribute capital in exchange for a share of the development profits, reducing the developer's equity requirement while sharing both risk and reward.

The site value constraint is particularly acute for developers who have contracted to purchase a site at a premium to the RICS valuation. If you are paying £1,200,000 for a site that the lender's valuer assesses at £1,000,000, the lender will base the day-one advance on £1,000,000, not £1,200,000. At 60% LTV, the advance is £600,000, and you need £600,000 of equity rather than the £480,000 you might have planned. This £120,000 difference can be the difference between a viable deal and one that falls through. We always advise developers to obtain an indicative valuation before exchanging contracts on a site purchase to avoid this situation.

The GDV constraint becomes binding when the site is relatively cheap compared to the completed value, which is more common in the Midlands, the North, and areas undergoing regeneration. In these markets, land might represent only 15-20% of the GDV, and the site value supports a generous day-one advance relative to the purchase price. However, the total facility is capped by the LTGDV ratio, which may not leave sufficient headroom for the full construction cost plus fees and interest.

Consider a development in Greater Manchester where the site costs £300,000, the GDV is £1,800,000, and the total build cost is £1,100,000. At 65% LTGDV, the maximum facility is £1,170,000. The day-one advance at 60% of site value is £180,000, leaving £990,000 for construction and costs. But with build costs of £1,100,000 plus estimated interest of £85,000 and fees of £40,000, the total cost exceeds the available facility by approximately £235,000. The developer must fund this gap from equity or mezzanine finance.

This situation highlights the importance of understanding both constraints before committing to a site. The total equity required is the sum of the day-one equity gap and the construction period equity gap. In our Manchester example, the day-one equity is £120,000 for the site, and the construction period equity gap is £235,000, giving a total equity requirement of £355,000 or approximately 20% of the total development cost. Developers who only calculate equity based on the LTGDV percentage without modelling the full drawdown schedule often underestimate their cash requirements. Our team models every facility in detail before presenting it to clients, ensuring there are no equity surprises during the build.

The art of development finance structuring lies in optimising across both the site value and GDV constraints to minimise your equity requirement while maintaining a viable facility. This involves working with lenders whose criteria align best with your scheme's specific characteristics. Some lenders offer higher LTV on the day-one advance but lower LTGDV, which suits schemes with expensive land but relatively modest build costs. Others offer generous LTGDV but conservative site value lending, which suits schemes with cheap land but high construction costs.

Layering mezzanine finance behind the senior debt can increase the effective leverage at both levels. A mezzanine lender might advance an additional 15-20% of GDV, increasing the total borrowing from 65% to 80-85% of GDV. The mezzanine element can fund part of the land equity or part of the construction costs, depending on where the binding constraint sits. The cost of mezzanine is higher than senior debt, typically 12-18% per annum, but it enables developments to proceed with less developer equity, which may be the difference between doing one project at a time and running two or three simultaneously.

Development exit finance is another optimisation tool. By arranging a development exit facility that replaces the development finance at practical completion, you can demonstrate a clear refinance exit that reduces the senior lender's risk. This can sometimes persuade the senior lender to offer slightly more generous terms because the exit strategy is secured. The exit facility is then repaid through individual unit sales over a 6-12 month period, typically at a lower interest rate than the development finance it replaced. For a comprehensive review of your facility options across senior, mezzanine, and exit finance, submit your scheme through our deal room.