How development finance really works

Most people assume a developer buys a site and builds it out with their own money. Almost no one does. Development runs on a stack of other people's money, arranged in layers — and understanding that stack is the difference between a scheme that works and one that quietly loses a fortune.

Equity: the money at the bottom

At the base is your equity — the cash you put in. As a rule of thumb you need equity of around 10 to 20% of total costs; funders will typically lend up to 70–75% of the land and 100% of the build, with the best rates around 75% loan-to-value. So even a modest scheme needs a few hundred thousand pounds of equity behind it. Having none doesn't put you out of the game, but it does mean getting creative — structuring the land deal so the owner leaves money in, bringing in partners, or joint-venturing with another developer who provides the cash while you run the job.

Why equity is expensive

Equity is dear. Private money wants a strong return — often 10 to 20% interest, or a share of the profit — and every pound of it eats into what you can pay for the land. That's why building your own equity over time makes you more competitive: if a rival has the cash in the deal and you're paying 20% for yours, your offer to the landowner is lower before you've even started. In this game, the strongest sensible bid usually wins.

Debt: senior and mezzanine

On top sits the debt. Senior debt is the main facility — think of it as the development's mortgage. The lender takes first charge and releases money in stages as the build hits milestones (groundworks, superstructure, roof, second fix), charging interest only on what's been drawn. That's why an accurate construction programme matters — it drives the cash flow. Mezzanine finance can bridge the gap between the senior debt and your equity when you're short, sitting in second charge behind the senior lender. Many lenders also want a personal guarantee — a charge over your own home — so if it goes wrong, they can come after it. Sobering, and worth respecting.

Experience is the real currency

Here's the thread running through all of it: how much you can borrow, on what terms, and whether you'll need a personal guarantee, all hinge on experience. Funders back people who have done it before and delivered. Which is why, for anyone newer to development, partnering with someone who has the track record isn't just about the money — it's what unlocks the money in the first place.

How a scheme is judged

Funders and developers weigh a scheme on a few measures: the profit margin — most want to see at least 20% before they'll lend; the internal rate of return, which is really about how fast your money comes back to be used again; and the money multiple, how much you get back for each pound you put in. Two schemes with the same profit are not equal if one returns your cash a year sooner. Speed and efficiency matter as much as the headline number.

Why does this matter if you own land, or you're thinking of backing a scheme? Because the finance stack shapes the offer on your land, and it's why experience and backing count for so much in who actually gets to build. If you're weighing up partnering on your own site, or investing alongside a developer, these are the questions worth asking.