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Guide to Construction Finance

Applying for construction finance for the first time? Discover all you need to know about suitable uses, mortgage eligibility, and how construction finance works.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-06-14
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What You need to know about consutruction finance before applying for a mortgage

Revolution Brokers deals with hundreds of clients seeking construction lending to enable their development projects to proceed. This experience includes significant commercial developments, through to residential housing builds.

The costs and terms available for construction finance vary significantly between lenders, and so a professional brokerage team is crucial to find the best rates and most competitive deals.

We work with each client to understand your circumstances, recommend the best type of lending to meet your needs, and negotiate rates directly with lenders to ensure your application is successful.

For more support with construction finance, contact us on 0330 304 3040 or drop us a message at [email protected].

Who is Construction Property Developer Finance Aimed At?

Construction finance is a type of development finance offered on a short-term basis to fund construction projects.

This form of development finance is more viable than a regular mortgage since the payments are aligned with the construction schedule. Interest is charged usually only on the funds you've drawn down - making it more cost-effective in terms of how much interest you'll pay!

Developers are also far more likely to secure competitive construction finance for a building project since a new-build or large-scale renovation isn't usually eligible for any other form of residential or commercial mortgage.

Most applicants secure around 70-75% of the development value to finance the initial investment or land purchase, with a 100% loan against the total budget for the build.

Loans usually run for around a year, although terms are negotiable depending on your expected completion date. Construction finance is interest-only lending, and you'll need to demonstrate your exit strategy to show your lender how you will repay the debt at the end of the term.

Development finance differs from bridging finance in that funds are released in tranches at the agreed stages of the project. The lender often requires a site visit at each stage, which can carry an additional cost.

However, the benefit is that you only pay interest on the funds you have already drawn down.

  • Loan details
  • help If the land was purchased within the last 2 years for less than the current land value, we will lend up to 65% of this figure
  • Initial Loan (day 1) must be less than 65% of Initial Land Value (day 1)
  • help Minimum 6 months
  • The LTGDV is higher than 70%. Please review the Initial Loan (day 1), construction costs and gross development value fields.
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Initial Loan (day 1) 0
Total Loan Amount 0
Day 1 (LTV) 0
Margins at 0
Build Term (months) 0
Minimum Term (months) 0
Assumed arrangement fee @2% 0
Admin fee 0
Exit fee 0
Net Day 1 Advance (after deductions)* 0
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Can I Use Construction Property Development Finance for a New Home Build?

Financing new residential builds is a common reason for applying for construction finance. However, the most appealing form of lending depends on your experience in residential builds and which sort of loan is the most cost-effective option.

Development finance is a popular option since it offers up to 75% of the funds you need to purchase the land and usually the total value required for the construction itself.

However, residential projects are more challenging to finance since this form of loan is often unregulated and, therefore, may be more restrictive in terms of caps and maximum loan terms.

If you are seeking construction finance for a residential build, give the Revolution Brokers team a call on 0330 304 3040, and we will run through the options available to you.

You might be better off opting for a self-build mortgage, but this all depends on the circumstances and how much you need to borrow.

Self-Build Mortgages with Construction Property Development Finance UK

Self-build mortgages are similar to development finance in that the lender releases money in stages, according to an agreed schedule of work.

Usually, the final payments are made when the property is watertight and when decorating is completed.

It is worth considering the options since interest rates on self-build mortgages are usually higher than standard residential loans, in line with the increased risk level to the lender.

You will usually find that lenders require at least a 25% deposit, and sometimes as high as 50% if you have an adverse credit history or no prior construction experience.

For more help analysing the lending options, contact the Revolution team.

Understanding Commercial Construction Lending

All sorts of developers and private investors use development finance to fund commercial builds. These include the following sectors and projects:

  • Agricultural investments.
  • Care home construction.
  • Educational establishments.
  • Industrial complexes.
  • Leisure facilities
  • Professional developments.
  • Retail sites.
  • Semi-commercial properties.

Each construction finance application is assessed on its individual merit, and the most important factors are:

  • What exit strategy you can offer and how stable this is.
  • How viable the project is, and the expectation that this will be profitable.
  • Whether you have construction experience.
  • What deposit or alternative security is available.
  • Your credit rating and credit history.

In most cases, you can borrow up to 70-75% of the land cost and 100% of the build budget. This financing is released in stages as the build progresses.

Most borrowers plan to either sell the development on completion or remortgage when the work has finished to repay the development finance.

Lenders will also review the area of the build as part of the viability analysis. For example, if you are building a residential development in an area that is sought-after and has high housing demand, the viability will be rated as higher.

Construction Finance for Hotels

Hotel constructions are often financed through development lending, and the same criteria usually apply.

You can apply to niche hospitality sector lenders, but they will still rely on the exit strategy assessment to determine whether they can offer to lend.

For hotel constructions, you'll also need to demonstrate that you have permissions and licenses to operate and a business plan to show that the hotel project has been well planned.

Some development finance providers lend across the sectors and industries, whereas others specialise in specific fields. If you use a general lender not familiar with your construction sector, they may ask for a higher deposit to bring down their risk exposure.

In most cases, hotel construction finance is repaid through a commercial mortgage on completion.

What Interest Rates are Payable on Residential Development Finance for Construction Projects?

You will usually find that development finance interest rates are higher than standard mortgages. However, it is difficult to give an indicative rate since this type of lending is tailored to the application and assessed on its own merit.

Most construction loans run between three months to three years and are interest-only.

The benefit is that you pay interest only on the funding you have drawn down so far and won't be charged for the rest of the lending you haven't yet accessed.

A drawback is that you will usually need to cover the cost of a site inspection at each stage of the project for the lender to release your next batch of funding.

What Alternatives are there for Construction Project Financing?

There are multiple alternatives to development finance:

Equity Finance

This financing means that a business releases shares to an investor in return for its capital injection. Companies can use this option to raise investment to finance construction. However, releasing shares in your business should only be considered after seeking expert advice.

Bridging Loans

Another option is a short-term bridging loan. A bridging loan is a viable option if you have the funds available for the building project and need to raise capital to pay for the site purchase.


You can also raise the finances yourself without relying on investment or external lenders. Businesses may be able to self-finance a new construction development without paying interest costs.

Equity Raised from Other Assets

Alternatives include releasing equity from properties or assets. For example, remortgaging a commercial building might raise the required funds.

Alternative Debt Finance Options for Construction Projects

If you require a smaller amount of financing, you can also consider other debt finance solutions to provide the budget you need. This option is usually the best solution if you need £25,000 or less since development finance is generally available for £50,000 and above loans.

Unsecured business loans are another possibility, depending on how much you need to borrow and for how long.

For more options and to weigh up the pros and cons, contact the Revolution team on 0330 304 3040.

Contact the Leading UK Construction Finance Brokers

Contact mortgage brokers on 0330 304 3040 for tailored advice about the best construction finance options for your development.

As an independent, whole-of-market broker, we offer professional support with analysing lending options and choosing the most attractive lenders whose criteria match with your requirements.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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