Development costs

Development finance costs, explained

Development finance has a more layered cost structure than a standard loan, because funds are released in stages against build progress and monitored throughout. Understanding the components helps you appraise a scheme accurately at the outset.

Category: Costs & pricing

Product: Bridging Finance

Arrangement fee: Typically 1%–2% of the facility
Interest: Usually charged only on funds drawn
Monitoring surveyor: Ongoing cost throughout the build
Exit fee: Sometimes charged, often a % of GDV

Land and build cost tranches

Development finance is typically structured with an initial tranche to fund land purchase (or refinance existing equity in it) and subsequent tranches released against build stages as certified by a monitoring surveyor. Interest is usually only charged on funds actually drawn, not the full facility, which keeps early-stage costs lower than the headline facility size might suggest.

Monitoring surveyor and drawdown costs

Each drawdown typically requires sign-off from an independent monitoring surveyor confirming build progress matches the stage claimed, and their fees are usually charged to the borrower throughout the build, not just at the outset. Delays in scheduling inspections can also delay drawdowns, so factor this into your cash flow planning, not just the headline cost.

Arrangement fees and exit fees

Arrangement fees are typically charged on the full facility size, whether or not it's all eventually drawn, so right-sizing the facility to the actual build cost matters. Some lenders also charge an exit fee calculated against gross development value (GDV) rather than the loan amount, which can be a meaningful sum on a successful scheme — always model this into your appraisal, not just the loan interest.

Contingency and cost overrun implications

Most lenders require a contingency allowance within the facility, and if costs overrun beyond it, you may need to inject further equity or agree additional funding at short notice, sometimes on less favourable terms. Building a realistic contingency into the original appraisal reduces the chance of an expensive scramble mid-build.

Comparing total scheme finance cost

Because interest is charged on a rolling drawn balance rather than the full facility from day one, the total interest cost of a development loan is usually significantly lower than multiplying the headline rate by the full facility over the whole term — model it against your actual anticipated drawdown schedule for an accurate figure.

Frequently asked

Do I pay interest on the whole facility from day one?

No — interest is typically charged only on funds actually drawn down, which is why the total interest cost is usually much lower than the headline facility size and rate might first suggest.

What does the monitoring surveyor actually cost?

Fees vary with scheme size and the number of inspections required through the build, and are typically charged to the borrower as an ongoing cost throughout the facility rather than a single upfront sum.

Is an exit fee based on the loan or the finished value?

It depends on the lender — some charge a percentage of the loan, others a percentage of gross development value, which can be a larger sum on a successful scheme. Always clarify this before signing.

What happens if my build costs overrun?

Most facilities include a contingency allowance; beyond that you'd typically need to inject further equity or negotiate additional funding, which can be arranged but is best avoided by realistic appraisal at the outset.

Can I refinance a development loan mid-build?

It's possible in some circumstances, though usually more straightforward to refinance once practical completion is reached and the scheme can be valued as a finished asset.

Model your development finance costs properly

Call 0345 2690628 for a full facility and drawdown cost breakdown for your scheme.

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