A development loan is a senior debt facility used to finance the construction phase of a property project, including land acquisition, build costs, professional fees, and contingency. It’s typically structured on a Loan to Gross Development Value (LTGDV) or Loan to Cost (LTC) basis and secured with a first legal charge. Repayment is usually made through a sale or refinance on project completion. Widely used in UK property development finance, these loans may be structured as drawdowns linked to build stages, with interest rolled up or serviced monthly, depending on the lender’s terms and the developer’s risk profile.
Within the capital stack, a development loan typically sits as Senior Debt 1st Charge, giving the lender priority over the asset and project cash flows, which directly shapes pricing, covenant strength, and recovery expectations. It is often compared with Land Loan structures where funding risk is earlier stage, although both share similar security positioning. In practice, the facility is documented through a Credit Facility Agreement that defines conditions precedent, drawdown mechanics, and monitoring requirements. Ongoing lender control and risk management are closely tied to Drawdown Structure & Phasing, ensuring funds are released in line with verified construction progress.
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