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Property Development Business Plan

Development lending is decided on an appraisal, not a narrative. A lender wants the gross development value, the total cost to get there, the profit between them and the evidence behind every figure. This guide covers how that appraisal is built and where first-time developers get caught.

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What a development lender works through

Development finance is drawn in stages against a monitoring surveyor's reports, so the lender is underwriting your costings as much as your scheme. The appraisal is read line by line.

  • Profit on cost, evidenced. Most development lenders want to see around 20% profit on cost, and some price on profit on GDV instead. The margin is not there to enrich you — it is the buffer that absorbs a build overrun or a softer sale price. A scheme showing 10% will usually be declined regardless of how attractive the site is.
  • Build costs from a real source. Costs taken from a published cost index, a quantity surveyor's estimate or a builder's priced schedule, not a rate per square foot someone mentioned. The monitoring surveyor will benchmark your figures and any gap becomes a problem at the first drawdown.
  • The exit, and a second one. Sale or refinance, with comparable evidence supporting the values. Lenders also want to know what happens if units do not sell at the pace assumed — whether you can hold and let, and what that does to the finance cost.
  • Contingency and finance costs in the appraisal. A contingency of at least 10% of build cost, and interest and fees modelled across the full term including a sales period. First-time appraisals routinely understate the total finance cost by a significant margin because they forget it runs on after practical completion.

Typical startup costs

Development costs are scheme-specific, so what follows is the shape of an appraisal rather than absolute figures. Every line has to be present before a lender takes the numbers seriously.

Cost Typical range What drives it
Site acquisition Purchase price Plus Stamp Duty Land Tax at the rates applying to the property type, which for additional and non-residential property is materially higher than standard residential rates.
Acquisition costs 1.5% – 3% of price Legal fees, surveys, searches and agent fees on purchase.
Build cost Priced schedule The largest line and the one under most scrutiny. Sourced from a quantity surveyor or a priced builder's schedule, not a rule of thumb.
Professional fees 10% – 15% of build Architect, structural engineer, quantity surveyor, planning consultant, party wall surveyor, building control.
Planning and statutory costs Scheme specific Planning application fees, Community Infrastructure Levy where it applies, Section 106 contributions, utility connections and Building Safety Levy considerations.
Contingency 10% – 15% of build Non-negotiable for a lender. Ground conditions, asbestos and material price movement are the usual claimants.
Finance costs Interest, arrangement and exit fees Interest is normally rolled up and charged on the drawn balance. It runs through construction and through the sales period, which is the part most often underestimated.
Sales and disposal costs 2% – 4% of GDV Agent commission, sales legals and marketing. Deducted from GDV before profit.

Percentages are conventional appraisal assumptions for UK residential development and vary by scheme, region and procurement route. A quantity surveyor's figures replace them.

The numbers that decide whether it works

These are the figures a lender turns to first, and the ones SquarePlan calculates for you as you enter your sales and costs.

Profit on cost

20% or above

Profit divided by total development cost. The standard development lending test, and the buffer that protects both you and the lender against a build overrun or a slower market at exit.
Gross development value

Comparable-led

The aggregate sale value of the completed scheme, supported by comparable evidence from completed sales nearby, not asking prices. A valuer instructed by the lender will produce their own figure, and if it comes in below yours the loan shrinks accordingly.
Loan to gross development value

60% – 70%

The usual maximum a development lender will advance against the finished value. It determines how much equity you must put in, and it is the constraint that most often decides whether a first scheme is achievable.
Loan to cost

70% – 85%

The share of total cost the lender will fund. Applied alongside the loan to GDV cap, with the lower of the two governing. Your equity has to bridge whatever gap remains.
Development period

Build plus sales

Interest accrues from first drawdown until redemption, not until practical completion. A nine-month build with a six-month sales period is a fifteen-month finance cost, and appraisals that stop at completion understate the total substantially.

Licensing and regulation

Development is governed by planning and building safety law, and both have moved considerably in recent years. Each has direct cost and programme consequences that belong in the appraisal.

Planning permission
The value of a site is almost entirely a function of what may be built on it. Buying unconditionally without consent is speculative; most developers buy subject to planning or with an option. Where consent already exists, check what conditions attach and whether it has been implemented, because discharging conditions carries cost and time.
Building Regulations and building control
Approval and inspection throughout construction. Higher-risk buildings fall under a separate and considerably more demanding regime with gateway approvals that can add substantial time to a programme.
Community Infrastructure Levy and Section 106
Where a local authority charges CIL it is calculated on floor area and payable on commencement, which is a real cash demand early in the programme. Section 106 obligations, including affordable housing contributions, are negotiated at planning and can change scheme viability outright.
Stamp Duty Land Tax
Payable on acquisition, at higher rates for additional residential property. Mixed-use and non-residential sites are charged on a different scale. It is a large early cash cost and belongs in the appraisal at the correct rate.
Construction Industry Scheme and VAT
Payments to construction subcontractors fall under CIS with deduction obligations. VAT treatment varies by scheme — new-build residential is zero-rated on sale, conversions may qualify for a reduced rate, and the domestic reverse charge applies between construction businesses. It affects cash flow considerably and is worth confirming before the appraisal is finalised.

The appraisal is the plan

Development is unusual in that the financial model comes first and the narrative supports it. A lender or investor will turn to the appraisal before reading anything else, and if the appraisal does not work the rest is irrelevant.

The structure is always the same. Gross development value at the top, less sales costs, less total development cost — land, acquisition costs, build, professional fees, statutory costs, contingency and finance. What is left is profit, expressed both on cost and on GDV. Every line needs a source behind it, and the two that get tested hardest are GDV and build cost, because those are where optimism has the largest effect.

Get those two from outside your own head. GDV from completed comparable sales, not asking prices and not what an agent hopes for. Build cost from a quantity surveyor or a priced schedule from a builder who has seen the drawings. A monitoring surveyor will benchmark both, and a gap discovered at that stage is expensive because you will already have committed to the site.

Finance costs run longer than the build

The most common structural error in a first appraisal is stopping the interest calculation at practical completion. Finance runs until the loan is redeemed, and redemption happens when units sell or a term facility replaces the facility — both of which take months after the last brick is laid.

A nine-month build with a six-month sales period carries fifteen months of interest, arrangement fees and exit fees. If the market slows and sales take twelve months, that is eighteen. Because development interest is normally rolled up, the balance is compounding across the whole period on an increasing drawn amount. Model the sales period explicitly, then model it again with a slower rate, and see whether the profit survives. That sensitivity is precisely what a lender will run, so it is better to have run it first.

Contingency is not padding

New developers often see contingency as an admission of imprecision and trim it to improve the headline margin. Experienced lenders read a thin contingency as inexperience, and will add one back into their own version of your appraisal — which reduces the loan.

Ten percent of build cost is the floor for new build. Refurbishment and conversion warrant fifteen, because you cannot know what is behind the walls until you open them, and the surprises are rarely cheap ones. Asbestos, inadequate foundations, unrecorded drainage and rot are the routine discoveries, and any of them can consume a thin contingency in a fortnight.

Where SquarePlan fits

You enter the site cost, build costs, professional and statutory fees, the finance structure and the expected sale values and timing. SquarePlan builds the cash flow across the development period, showing the drawdown profile, the rolled-up interest and the point at which the scheme turns cash positive, alongside the profit on cost and profit on GDV a lender will ask for. Extend the sales period or drop the GDV by 5% and you can see what it does to the margin before you commit to the site.

How this gets funded

Development is funded in stages against certified progress, which is a different mechanism from an ordinary business loan and one worth understanding before applying.

Development finance
The standard route. The lender advances a proportion of the land cost at completion, then releases build cost in arrears against a monitoring surveyor's certification of work done. Interest is typically rolled up rather than serviced monthly.
Bridging finance
Short-term funding to acquire a site quickly, or to secure one while planning is pursued. Priced higher than development finance, so the exit into a development facility or a sale needs to be credible from the outset.
Joint venture equity
A partner provides the equity the lender will not fund, in exchange for a profit share. The common route for a first scheme where the developer has the site and the skills but not the deposit.
Refinance onto a term facility
Where the intention is to hold and let rather than sell, the development facility is redeemed by a buy-to-let or commercial mortgage on completion. The plan needs the rental figures and the interest cover ratio the term lender will test.

Frequently asked questions

What profit margin do property development lenders require?
Most UK development lenders look for around 20% profit on cost, though some assess profit on gross development value instead. The margin functions as a risk buffer rather than a target, so a scheme showing appreciably less will generally be declined, because there is nothing absorbing a build overrun or a weaker sale price.
How does development finance work?
The lender advances part of the land purchase at completion, then releases the build cost in stages in arrears, each drawdown certified by a monitoring surveyor who inspects the work. Interest is usually rolled up and settled on redemption. Typical limits are 60% to 70% of gross development value and 70% to 85% of total cost, with the lower of the two governing.
What is GDV in property development?
Gross development value is the aggregate market value of the completed scheme. It must be supported by comparable evidence from completed sales nearby rather than asking prices, because the lender will instruct its own valuation and will lend against that figure, not yours.
How much contingency should a development appraisal include?
At least 10% of build cost, and 15% for refurbishment or conversion where the structure has not been opened up. Ground conditions, asbestos, structural surprises and material price movement are the usual causes, and a lender will insert a contingency itself if your appraisal omits one.
Do I need experience to get development finance?
For a first scheme it is difficult without either relevant experience or a partner who has it. The usual routes are starting with a small refurbishment funded conventionally, bringing in an experienced joint venture partner, or appointing a main contractor and professional team whose track record the lender can underwrite instead of yours.

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