Property developer finance

Categories: guides | development finance | development finance guides

Property development finance offers individuals and companies a potentially highly lucrative business venture, but it is a complex one that requires a deep understanding of real estate, finance, and project management.

This guide gives an overview on how to approach ground-up builds and how to secure the property development funding required to deliver them.

Given property development can be a significant undertaking involving large borrowing amounts, it is vital to seek professional, specialist advice from legal, project management and construction exponents. The content below is intended to help you ask the right questions when doing further research.

If you have a robust strategy in place and just want to discuss property development funding for your project, call our specialist advisors on the number above, or submit an enquiry for a call back.

To jump to a particular section of interest, use the links below.

Market analysis and strategy

When devising strategy for property development a SWOT analysis will provide an overarching structure from which you can develop a business plan:

  1. Strengths – What capabilities do you have, or can you access, to complete a successful ground-up build?
  2. Weaknesses – What skills or resources do you lack that you will need to secure to make your project successful?
  3. Opportunities – What type of project offers the best chance of a profitable outcome, where is there a demand for that type of project?
  4. Threats – Are there any emerging dynamics which could threaten the success of the project? E.g. changes in regulations, competitor projects, public objections, environmental protection orders

In order to come up with the answers to these bigger questions, you will need to consider the following.

Market research

Conducting thorough market research to identify emerging trends and underserved niches will establish the viability of a project.

Analysing demographic shifts, economic indicators, and local government policies will help you identify opportunities for projects that offer the potential for a strong return on investment.

Think about the following before you start applying for property development finance, because lenders will require a robust business plan from you as part of your application:

Define your goals: Start by clearly defining the objectives of your development project. Determine the type of property (ies) you intend to develop (e.g., residential, commercial, mixed-use). Establish your budget and desired return on investment (ROI) to guide your research efforts.

Study the local market: Research the local market for your planned development location. Analyse factors like population growth, employment trends, and the economic climate.

Identify your target audience: Define the demographics of your target audience. Consider whether your project will cater to families, young professionals, retirees, or if it is a commercial development, the industry you are serving or operating within (if you are building a property for your own use). This information will influence your development's design and features.

Competitor analysis: Conduct a thorough analysis of existing and potential competitors in the area. Examine other developments that target a similar audience and assess their strengths, weaknesses, pricing strategies, and amenities. Understanding the competitive landscape will help you differentiate your project.

Feasibility study: Carry out a feasibility study to assess the financial viability of your project. Estimate construction costs, operating expenses, and projected revenue. Determine the expected return on investment and ensure it aligns with your objectives.

Planning regulations and approvals: Understand the specific planning regulations and approvals that may affect your development. Ensure that your project complies with local planning policies, building codes, and the necessary planning permissions, to include Section 106 planning obligations (more information on this below). Seek legal advice to navigate the UK's planning and development control system effectively.

Infrastructure and amenities: Consider the accessibility and availability of critical infrastructure, including transportation, utilities, and public services. Additionally, assess the need for amenities like green spaces, schools, shopping centres, and recreational facilities.

Public opinion and community engagement: Gauge public opinion about your project through surveys, community meetings, or online feedback. Engage with local stakeholders and address their concerns to build positive community relationships.

Market trends and future projections: Stay informed about market trends and forecasts in the UK real estate industry. Be aware of emerging technologies, sustainability practices, and other factors that may impact the competitiveness of your project in the UK market.

Site analysis: Evaluate the specific site you intend to develop, considering factors like topography, soil quality, environmental impact, and any potential hazards. This will help determine the feasibility of your project and any necessary measure you need to take to mitigate potential risks.

Market demand and pricing: Assess the demand for properties in the area and the price point at which buyers or renters are willing to engage. This information will influence your pricing strategy.

Financial modelling: Develop a detailed financial model that incorporates all the data collected during your research. This model should outline the project's cost structure, revenue streams, and expected returns.

Risk assessment: Identify potential risks and challenges associated with your project. Develop risk mitigation strategies to address these issues and protect your investment.

Consult with experts: If you have already taken on a number of property development projects, you will likely have contacts in the industry to draw upon for specialist skills, real estate professionals, project managers, architects, surveyors, and engineers are examples of these. Their expertise can provide valuable insights and validate your research findings.

Decision-making: After conducting comprehensive market research, make informed decisions about the scale, design, and timing of your development project.

Remember that market research is an ongoing process. Continuously monitor market conditions and adjust your strategies as needed to ensure the success of your property development business over time.

Investment strategy

Your investment strategy is likely to be influenced by your existing property development experience or your ability to access expertise from others. You may opt for residential, commercial, mixed-use, or niche market property developments, or a blend.

There are various property development strategies you can use:

Flipping property

Flipping property is where you will invest in property that you can renovate and sell on for a profit. It is a short-term property development strategy, with no plan to keep the property longer than it takes to get it to a saleable standard.

Your market research will inform what standard you need to get the property to, to make it attractive to your target audience, whether your finished property will be competitively priced versus your competition, or has other unique selling points that justify a higher price.

Your margin (the amount the income from the sale exceeds the costs of the project) will be impacted by the decisions you make on the work you will do. It is important to make informed and objective decisions all the way through.

Don’t be tempted to spend excessively on the finish of the property by treating it as though you would be using it yourself.

With this investment strategy, you are less likely to use ground-up property development finance, and more likely to use a bridging loan (which will be either a light refurbishment or heavy refurbishment bridging loan, depending on the extent of the work required).

Build to rent

This involves building properties set up to offer a rental community or complex with associated amenities, with the intention of renting to tenants.

It was also a government initiative over the period 2012-2016 where a loan was offered for up to 50% of development costs. The reason for the scheme was to overcome property being built and not occupied due to housing affordability.

Since then it has remained popular as it offers investors long-term income streams, and the level of demand on the rental sector is high.

These projects are typically large-scale, to benefit from economies of scale, so your choice to pursue them will be influenced by your experience.

This is a high cost strategy of typically multi-million pounds, it will require ground-up property development finance and experience in this type of project.

Long-term hold

This means you will keep a property once it has been developed and rent it out to tenants, this offers the possibility of an income from rent and capital appreciation over time (where a property may go up in value). Property values can go up as well as down, so this has to be an extended long-term strategy (many years) if you are relying on capital appreciation to generate a return on your investment.

Ground-up property development finance is suited to this strategy, to fund building a property or multiple properties. The borrowing would then be paid off with long-term finance.

  • If you build residential rental property you would pay off the development finance loan with a buy to let mortgage.
  • If you build a commercial rental property, you would pay off the development finance loan with a commercial mortgage.

You can’t use either mortgage to fund the build, because those products are designed to be secured against a habitable building, this is why specific property development funding is appropriate.

Risk assessment

To expand upon the subject of risk assessment, before initiating a construction project, a thorough risk assessment will help you identify and manage potential challenges. Key areas of assessment include:

  • Market: Analysing local market conditions and economic trends.
  • Site and location: Assessing site suitability, infrastructure access and regulatory compliance.
  • Financial: Creating financial models, considering funding options and examining cost overruns.
  • Construction and technical: Evaluating feasibility, contractor reliability and quality control.
  • Environmental and sustainability: Addressing environmental issues and sustainability requirements.
  • Legal and Title: Conducting due diligence on legal status and potential disputes.
  • Marketability and sales: Evaluating demand and sales or leasing risks.
  • Insurance and liability: Planning for construction and liability risks.
  • Contingency planning: Developing strategies for unexpected events or costs.
  • Operational and management: Consider property management, maintenance and tenant retention.
  • Exit strategy and market cycles: Assessing exit options and property market cycles (and what point in the cycle your development will be when completed).
  • Community and stakeholder engagement: Engaging with the community and stakeholders to build positive relationships and address concerns.

Diversifying your investments can reduce exposure to specific markets or asset classes. If you are just starting out with your property development journey, this will be something to plan for in the future.

If you are well established in a given niche and have not considered this, use the steps above and refer to the section on “Market Research” to help in your planning.

Capital structure

The capital structure of a business refers to the amount of money/assets it has that have a value, versus the money it owes/liabilities. Or, in terms used in industry, the equity or debt a business has and uses to fund its assets.

There are various ways you can organise the capital structure and raise property development funding for your business, including:

  • Debt means you agree an amount of interest you will pay in return for being lent money.
  • Mezzanine financing is a mixture of the two, where a ‘subordinate debt’ exists, and if you were unable to repay it would be last in line to be repaid after all other debts, similar to a second charge on a term-mortgage.

Mezzanine financing is higher risk to a lender, and therefore typically costs more than debt financing. Debt financing is generally more common as a way of raising property development funds, as a result.

The ratio of equity versus debt within the business has risk attached to it, and much like taking on any debt, it makes sense not to borrow more than you can afford to repay, and not make those repayments so high that they could cause you financial problems if any increased or income decreased.

The ratio of debt to equity is used as a measure of how much risk a business operation carries.

Optimising your capital structure to minimise costs and maximise returns is key to making a profit.

Financial analysis

When large sums are involved, a property development finance lender will expect a thorough financial model to assess project feasibility, sometimes referred to as a pro forma. But, this is also a valuable tool to establish the viability of the project for your own purposes.

This would cover the following types of data, by property being built:

  • Property size in square foot
  • Land cost
  • Interest payable on property development finance
  • Professional fees (legal, estate agent, s106 Costs, marketing)
  • Build cost
  • Contingency budget
  • Gross sale amount/square foot (excluding VAT)
  • Gross sale price
  • Net sale amount/square foot (including VAT)
  • Net sales revenue
  • Gross profit
  • Margin

Conducting a “sensitivity analysis”, a tool in financial modelling that highlights the impact of key figures or assumptions changing, to give a picture of the outcome you would be faced with could help you with risk mitigation strategies.

Where you achieve a robust financial picture that falls within lender loan to value ratios, you put yourself in a strong position to secure property development finance.

Other factors at play will be whether you have any adverse credit (which may limit your lender choice, or temporarily delay your ability to borrow, depending on its severity and recency) and either direct experience in delivering similar projects or experience in the field of property development.

Site selection and due diligence

Your financial analysis and site selection will go hand in hand. You cannot accurately come up with a projection of costs if you are not clear on the cost and size of the land you plan to develop on and don’t have a full picture of any factors that will influence your construction plans.

Selecting an appropriate site will involve considering factors such as:


Location is one of the most critical factors in property development. The choice of location can significantly affect the property's desirability and, consequently, its market value.

If you are developing residential properties: Consider the site's proximity to essential amenities such as schools, hospitals, shopping centres, and recreational facilities. Locations with convenient access to these amenities are often more attractive to potential buyers or tenants.

If you are developing commercial properties: Depending on the industry the property (ies) are for, logistics may be fundamental to supply of resources and distribution of products. Easy access to motorways and/or other transport links via routes that are away from residential areas could both ease the way for planning and ensure strong interest from buyers or commercial tenants.


Accessibility is closely related to location but focuses on how easy it is to reach and leave the site. Consider the following factors:

  • Transportation links: Evaluate the proximity to major roads, highways, and public transportation options (e.g., bus stops, train stations). Good transportation connectivity can enhance the site's attractiveness.
  • Traffic flow: Consider traffic patterns and congestion, as well as the ease of access for future residents, employees, or customers.
  • Parking and circulation: Assess the availability of parking facilities and the design of the site for smooth traffic circulation.
  • Pedestrian and bicycle access: In urban areas, walkability and bike-friendliness are becoming increasingly important factors for property development.


Whilst some commercial buildings (e.g. factories, warehouses, landfill sites) are often best positioned away from residential areas, others (e.g. offices, restaurants, hotels) will do better to be within reach of prospective employees or customers.

Residential developments will clearly benefit from amenities such as being close to schools, doctor’s surgeries, a local shop and a supermarket within reasonable reach, as well as transport links.


When selecting a site for development, consider the basic facilities required for a community or company to function:

  • Water supply and quality
  • Electricity supply
  • Natural gas
  • Sewage and wastewater systems
  • Road and transportation networks
  • Internet and telecommunication services

A lack of infrastructure can significantly increase property development costs, as you may need to invest in bringing these services to the site.

Market demand

Research the local real estate market to understand if there is adequate demand for the type of development you are planning. Different locations may have varying demand for residential, commercial, or industrial properties.

Due diligence

Perform meticulous due diligence, including environmental assessments, title searches and property condition assessments.

Engage experts and legal advisors to uncover potential issues and liabilities.

Find out if there are any restrictions related to:

  • Environmental conservation (your project may require an Environmental Impact Assessment (EIA);
  • Rights of way;
  • Tree preservation orders;
  • Conservation areas;
  • Environmental health notices;
  • Highways agreements;
  • Listed buildings.

A title search, will look at public records relating to a piece of land or a property to identify:

  • Who owns it
  • If there are any outstanding claims on the property or liens (a right to possession of the property by a third party).

A conveyancing/property search will look at:

  • Local authority plans for the area
  • Confirm drainage and water provision

And tell you about environmental factors such as:

  • Whether the site is at risk of flooding
  • Information on ground stability
  • If the site is built on or near a landfill site or has been subject to other industrial uses.

The design and presentation of your project, engaging with the local community and using an architect with experience in the type of project you are pursuing will all help in successfully securing planning permission.

Planning regulations

In England, the National Planning Policy Framework (NPPF) sets out overarching planning policies for the country and how these should be applied, but for the majority of projects – with the exception of anything of extreme size (e.g. a power station, a new rail network) – the local planning office is your first port of call.

Understanding local planning regulations is vital and engaging with the local planning office at the earliest opportunity can have a significant influence on your project going ahead. Familiarise yourself with the process of securing planning application.

The planning application process comprises 6-7 steps:

1) Pre-application advice: Start with an informal conversation to get initial feedback on your ideas, surface any potential issues you will need to attend to and understand any concerns the local authority are likely to raise that you may need to address or challenge.

Some local authorities offer a pre-application planning advice service, to see if yours does do a web search for “Pre-application Planning Advice at [your local authority]”.

2) Application and validation: Many local authorities will have a Planning Portal which you can make a planning application through.

Planning portals give you a lot of the information you need around the documents you will need to supply, the costs involved, what type of application you need to make and associated guidance and signposting to further information. Validation is the process of an application being accepted, and by getting things right upfront you will avoid delays.

3) Community consultation: The neighbours of any proposed development site are contacted to alert them of the plans, the local authority will also consult with any specialists they need to at this stage, as applicable. Notices are placed in local newspapers and physically placed on or near the site.

Other parties can view the plans online and make comments about the application. The consultation period lasts for at least 21 days.

4) Site visit: If necessary, a planning officer from the local authority will visit the site to inspect it, and gather information and any necessary photographic records.

5) Recommendation: The planning officer will make their recommendation as to whether they feel the development should go ahead, accounting for planning policies, consultation responses and support or objections received from the public.

6) Decision: Decisions should be given within statutory time limits. For minor applications this is within 8 weeks of submission, and within 13 weeks for major applications, however if an Environmental Impact Assessment is required a 16 week time limit applies.

If the local authority takes longer to respond than the statutory period, without having arranged an extension with you, they are required to uphold a 16 week deadline for minor applications and a 26 week deadline for major applications.

The last step only applies if your application is refused and you wish to dispute the decision.

7) Appeals: You can appeal to the Planning Inspectorate, an independent body within the government, against refusal of an application, if an agreed deadline is missed, or against a condition of a granted permission.

If you appeal a condition, you will need to demonstrate why you believe they are unnecessary, unenforceable, vague, unreasonable or irrelevant.

If you appeal a refused application, you will need to demonstrate reasons why you think this goes against the local authority’s development plan or planning policy.

Planning obligations

Planning obligations are legally binding requirements, which aim to minimise any negative impact a development may have. They can add significant costs to a project, which will need to be incorporated when planning an application for property development funding.

The subject of planning obligations is a complex one, and as such professional legal advice should be sought in relation to it, as with the rest of this guide.

Section 106 agreements

Planning obligations come about under Section 106 of the Town and Country Planning Act 1990, they are known as a “Section 106”, “s106” or as “developer contributions”.

A Section 106 will outline obligations imposed on the owner or developer of a piece of land to provide things like, infrastructure and services. For example the physical and organisational structures and facilities needed to operate, such as basic roads, power supplies, sewage systems, gas and electricity, buildings.

Essentially anything that the development might need for the end result to be a success for the community it serves.

Community Infrastructure Levy

The Community Infrastructure Levy is another charge a local authority may require a property developer to pay. The council in question must have followed a procedure to produce a charging structure for this levy, and it must be on their website.

So, if you are investigating property development, this is another area you need to look at to assess any financial impact on the profitability of your project.

The Community Infrastructure Levy typically applies when a development is of, or larger than, 100 square metres or creates a new dwelling (place where someone will live).

Some cases may be exempt from this levy, or eligible for relief, such as extensions or annexes added to a residential home or someone building their own home, social housing or a charitable development.

Section 278 agreements

If your property development impacts roads, pavements, verges, public footpaths, etc. it will be subject to Section 278 of the Highways Act 1980.

A Section 278 is where a developer can work with the local authority to put in place a legal agreement to make changes and improvements to public highways.

Given the complexity and importance of getting any changes right, the process can be lengthy. You will need to ensure that your programme of works takes this into consideration.

Be aware that any unauthorised work on public highways is an offence, which would be subject to enforcement action against the developer and/or the contractor responsible.

Negotiation and acquisition

When it comes to securing land to develop, you will need strong negotiation skills to secure the best possible price, as this will directly impact the profitability of your project and may influence any property development funding you secure. Use information gathered in your due diligence to support your negotiations and make clear why you believe a given sum is appropriate.

You will typically buy land through a commercial estate agent, who is handling the sale of the land. On a small to medium sized property development project you might negotiate a deal with that agent where they will sell the property(ies) you develop once the project is complete (see “Marketing and sales” below).

However, if the agent selling you the land does not specialise in sales of the type of property (ies) you are building, you may work with a different agent on the sale.

You don’t need to own land in order to pursue a planning application. You could make a conditional offer subject to planning permission being granted.

Design and development of your project

Working with professionals with experience in the type of project you want to achieve is a sensible approach. Your architect, project manager (if you are not doing this yourself) and construction team are all vital to the success of the project.

An architect who understands the dynamics of the local planning authority’s requirements, can also smooth the path in securing planning permission.

Initial designs which you can feedback on should be produced, before a detailed design is produced and planning applications submitted. Technical designs and construction drawings will need to be produced for building regulation applications.

If you do not have a construction team lined up, your architect may offer to handle a tendering process. Similarly, they may offer project management solutions to you and onsite management of the project.

The professional body for architects in the UK is the Royal Institute of British Architects, who offer a “Find an architect” facility on their website.

Marketing and sales

Once your project is complete, whether you are selling or renting out the properties, they will need to be marketed.

The decision to sell or rent will be a significant consideration in the planning stages of your project. However, this may change if something unexpected happens in the economy, over the period of the build.

Your may have always intended to sell the properties you develop. But, when the time comes, the market is subdued and it will not give you the level of profit you need out of the project.

You could use development exit finance at this point, which buys you more time to sell. Or, you can take on long-term borrowing and rent out the properties instead. If they are homes, you can use buy to let mortgages, if you have commercial properties you can use commercial mortgages.

You can use the broker services of Commercial Trust to help you secure competitive property development funding. Call us on the number at the top of the page, live chat with an advisor or send us an enquiry here.

Marketing small to medium-sized property developments

As mentioned above, when you buy the land from a commercial agent, you will set up terms with them that they will handle the sale of your development. Alternatively you might get quotes from a couple of commercial agents to see how they compare and to secure the best terms.

Once you are approaching the end of the work, say a few months out from completion, you would make contact with the commercial agent, who would start the process of marketing the property, e.g. by building a website, getting sales boards up at the site, creating listings for property portals, etc.

Marketing large-scale property developments

Large scale developers, such as some of the national house building firms, will have their own in-house marketing team. This cuts out the cost of paying a commission to a commercial agent by handling the sales themselves.

Properties will be sold in tranches, as they complete. This will involve having a sales unit at the site, placing properties on mainstream property portals (as an estate agent would), and using digital and traditional marketing channels to promote the development both online, and physically in the local area.

Large-scale commercial developments

Typically UK-wide large scale commercial developments, such as a series of industrial units a chain of DIY stores or supermarkets may occupy, are held by a pension or investment fund. The properties are let out as a way of generating an income for investors or pension holders.

These units tend not to be sold individually, they are instead packaged up in batches of 30-40 units and sold as an investment opportunity.

Securing funds for your property development project

Property development finance lenders vary in the amount of capital they will offer for any single project. This is down to the appetite they have for a particular scale of development.

Some may lend many millions of pounds on a single project, and may limit the minimum level of capital they will offer. For example, if a lender handles deals which involve lending of up to, say, £25million, they may impose a minimum lending amount of £5million. This ensures they do not end up with cases on their books that do not fit with their overarching business plans.

As with any borrowing for investment in property, using a broker puts you at an advantage for a number of reasons.

Your broker will immediately know which subset of lenders to approach, to discuss your borrowing plans, based on the conversation they have with you, called the “fact find”. It is your broker’s job to understand which lender wants to offer you lending, and pre-qualify the case with the lender’s underwriting team, to ensure the smooth progress of an application, before it is made.

There may be details of your project that, on the surface to you seem quite normal, but which need to be run past a lender to ensure they are happy to accommodate them. If additional details are required to satisfy any arising questions, your broker can prepare for this with you.

A lot of brokers simply won’t operate within the property development sector, due to the complexity of the work. At Commercial Trust we specialist in this field and can offer you appropriate support no matter what size your project is.

Call us for free from a mobile or landline on the number at the top of the page, or you can also speak directly to our advisors on our live chat facility. If you would prefer a call-back, request one here.