Development Finance Glossary

With so much jargon involved in property development finance, it can seem baffling when a new borrower first enters the space or is comparing various loan offers from a few different banks. Oftentimes the terminology or how it is calculated, can change with each institution and also how you want structuring the loans, the type of scheme to fund or even depending on the type of lender you might be looking at.

But language is key here. How the terms are used can drastically alter the structure of the deal, how much use you get, what is being charged and accounted for on top of any principal amount and how risk assessment plays out. With some development loans and bridging loans looking identical when summarised, the real behaviour of both deals could alter dramatically once the drawdown schedule, commitment fees, cost assumptions and exit plans are scrutinised.

Within UK development finance and wider property development lending, the language is fragmented and it can be difficult to get to the bottom of things because some institutions may use bridging and short-term property lending terminology, whilst other banks use a mix, based on their own credit policy and risk appetite - specialist property lenders tend to take language to another level still.

This glossary aims to explain each core term in development finance, with a view to explain how it works in reality with transactions, than just textbook definitions, helping lenders, borrowers, investors, developers, landlords and business owners get to grips with what is actually important when structure/compare loans.

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Interest & Fees

Rolled-Up Interest

What it is:

Interest that accrues over the term of the loan and is repaid at exit, rather than paid monthly.

Why it matters:

Rolled-up interest improves cash flow during the build by removing monthly servicing requirements. However, it increases the total loan balance over time and reduces headroom within the facility. Lenders factor this into LTGDV and risk, particularly on longer programmes or where sales are uncertain.

Retained Interest

What it is:

Interest that is calculated upfront and deducted from the facility, then released or applied over the term.

Why it matters:

This structure ensures interest is covered from day one, which can improve lender confidence. However, it reduces the net funds available for the project and can create inefficiencies if drawdowns are delayed or costs shift.

Serviced Interest

What it is:

Interest paid monthly during the term of the facility.

Why it matters:

Servicing interest reduces the total cost of borrowing compared to rolled-up structures. However, it introduces cash flow pressure and is typically only viable where the borrower has external income or existing asset income to support payments.

Arrangement Fee

What it is:

A fee charged by the lender at the outset, usually calculated as a percentage of the total facility.

Why it matters:

Arrangement fees are a core part of lender pricing and should be assessed alongside interest rates. A lower rate with a higher fee can produce a higher overall cost, particularly on shorter-term projects.

Exit Fee

What it is:

A fee payable when the loan is repaid, typically expressed as a percentage of the gross loan.

Why it matters:

Exit fees can materially affect profitability, particularly on schemes with tight margins. They are often used by lenders to balance lower headline interest rates.

Monitoring Surveyor Fee

What it is:

Fees charged by the lender’s appointed surveyor to monitor progress and approve drawdowns.

Why it matters:

Monitoring surveyor costs are unavoidable in most development facilities and can be significant over the life of the project. They also influence the timing of drawdowns, which affects cash flow and contractor payments.

Non-Utilisation Fee

What it is:

A fee charged on undrawn funds within the agreed facility.

Why it matters:

This encourages efficient use of the facility. If a project runs behind schedule or costs are lower than expected, borrowers can still incur charges on unused capital.

Default Interest

What it is:

A higher rate applied if the borrower breaches terms, such as exceeding the agreed term.

Why it matters:

Default interest can significantly increase borrowing costs if a project overruns. Understanding extension terms and flexibility is critical when structuring the original facility.

Redemption Figure

What it is:

The total amount required to repay the loan, including capital, interest, and fees.

Why it matters:

This is the true cost of borrowing. Developers should model this early to ensure the exit, whether sale or refinance, supports full repayment with sufficient profit remaining.

Loan Structures and Facility Types

Development Finance Facility

What it is:

A structured loan designed to fund both acquisition and construction costs, typically released in stages.

Why it matters:

Unlike bridging, development finance is built around delivery. The structure determines how funds are accessed, how risk is managed, and how the project progresses.

Senior Debt

What it is:

The primary loan secured against the development, with first priority over repayment.

Why it matters:

Senior debt sets the base leverage for the project. It is typically the cheapest layer of funding but comes with tighter risk controls and lower maximum leverage.

Mezzanine Finance

What it is:

A secondary layer of funding that sits behind senior debt, often at a higher cost.

Why it matters:

Mezzanine can increase leverage and reduce equity requirements. However, it introduces additional complexity and cost, and lenders will assess the overall capital stack carefully.

Equity Contribution

What it is:

The borrower’s own capital invested into the project.

Why it matters:

Lenders expect meaningful equity to align risk. Lower equity contributions typically result in lower leverage or higher pricing.

Staged Drawdown

What it is:

Funds released in phases as construction progresses, rather than upfront.

Why it matters:

This reduces lender risk and interest costs, but requires careful cash flow planning. Delays in certification can affect contractor payments and programme timelines.

Tranche

What it is:

A portion of the loan released at a specific stage of the project.

Why it matters:

Tranches control how capital flows into the project. Misalignment between build stages and funding can create funding gaps.

Interest Roll-Up Facility

What it is:

A facility where interest is added to the loan balance rather than serviced.

Why it matters:

This is common in development finance but must be carefully modelled, as it impacts overall leverage and exit requirements.

Development Exit Loan

What it is:

A facility used to refinance a completed development, typically after practical completion.

Why it matters:

Development exit finance are loans that provide breathing space if sales or refinancing is slower than expected, once a development is complete. They are often cheaper and more flexible than development finance.

Forward Funding

What it is:

An arrangement where a funder agrees to purchase or fund a development in stages, often before completion.

Why it matters:

Forward funding can de-risk a project by providing a defined exit, improving lender confidence and potentially enhancing leverage.

Development Metrics & Appraisal

Gross Development Value (GDV)

What it is:

The projected value of the completed development.

Why it matters:

GDV underpins the entire funding decision. Lenders assess whether the end value supports the loan, interest, and profit margin.

Loan to Gross Development Value (LTGDV)

What it is:

The ratio of the loan amount to the GDV.

Why it matters:

LTGDV is a key risk metric. Higher ratios reduce lender margin for error and can limit funding or increase pricing.

Loan to Cost (LTC)

What it is:

The ratio of the loan to total development costs.

Why it matters:

LTC determines how much equity is required. It is often the primary constraint on leverage in development finance.

Total Development Cost

What it is:

The full cost of delivering the project, including land, build, fees, and finance.

Why it matters:

Accurate cost assessment is critical. Underestimating TDC leads to funding gaps and increased risk.

Profit on Cost

What it is:

The developer’s profit expressed as a percentage of total cost.

Why it matters:

Lenders use this to assess viability. Strong profit margins provide a buffer against market changes.

Developer Profit Margin

What it is:

The expected profit after all costs and finance are accounted for.

Why it matters:

This determines whether a scheme is viable. Lenders typically expect a minimum margin to proceed.

Build Cost

What it is:

The total construction cost, typically presented as a cost per square foot.

Why it matters:

Benchmarking build costs helps lenders assess whether assumptions are realistic.

Contingency

What it is:

An allowance for unexpected costs within the budget.

Why it matters:

Contingency protects against overruns. Insufficient contingency can cause projects to stall.

Residual Land Value

What it is:

The value of land based on the projected development outcome after costs and profit.

Why it matters:

This informs acquisition pricing and lender confidence in the overall scheme.

Construction & Delivery

Build Programme

What it is:

A detailed schedule outlining the sequence and timing of construction works from start on site through to completion.

Why it matters:

The build programme underpins the entire funding structure. Lenders assess whether the timeline is realistic based on scheme complexity, contractor capability, and procurement strategy. Delays impact drawdowns, increase interest costs, and can push a project into default or extension territory.

Practical Completion

What it is:

The stage at which construction is sufficiently complete for the property to be occupied or used for its intended purpose.

Why it matters:

Practical completion is a key milestone for lenders, often triggering final drawdowns or transitioning the facility toward exit. It does not mean the project is fully finished, and minor defects may still be outstanding, but it marks the point where value is effectively realised.

Cost Overrun

What it is:

Any situation where actual construction or project costs exceed the original budget.

Why it matters:

Cost overruns are one of the primary risks in development finance. Lenders expect borrowers to absorb overruns through contingency or additional equity. If not managed, this can delay completion and affect the ability to repay the facility.

Contractor

What it is:

The principal construction firm responsible for delivering the project in line with agreed plans and specifications.

Why it matters:

Lender confidence is closely tied to contractor experience and track record. An established main contractor with relevant scheme experience can improve terms, while weaker delivery capability may limit leverage or increase scrutiny.

Fixed Price Contract

What it is:

A construction contract where the contractor agrees to complete the works for a set price.

Why it matters:

Fixed price contracts provide cost certainty, which lenders favour. However, they depend on clearly defined scope and can still be subject to variation if specifications change or unforeseen issues arise.

JCT Contract

What it is:

A standardised construction contract widely used in the UK, published by the Joint Contracts Tribunal.

Why it matters:

JCT contracts provide a recognised legal framework for managing construction risk, payments, and responsibilities. Lenders are familiar with these structures and often prefer them over bespoke agreements.

Retention (Construction)

What it is:

A portion of the contractor’s payment withheld until completion and resolution of defects.

Why it matters:

Retention protects against incomplete or defective work. It also aligns incentives, ensuring the contractor addresses issues during the final stages of the project.

Snagging

What it is:

The process of identifying and rectifying minor defects or unfinished items after construction.

Why it matters:

Snagging can delay final sign-off and impact exit timing, particularly where units need to be handed over or sold. Lenders may require confirmation that snagging is complete before releasing final funds.

Professional Team

What it is:

The group of advisors involved in delivering the project, typically including architects, engineers, surveyors, and project managers.

Why it matters:

A strong professional team improves execution and reduces risk. Lenders assess experience, track record, and how well the team is structured when underwriting the deal.

Security, Legal & Underwriting

First Charge

What it is:

The primary legal charge over the property, giving the lender first priority in repayment.

Why it matters:

Most development finance lenders require a first charge. It provides control over the asset and reduces risk in the event of default.

Second Charge

What it is:

A secondary charge that ranks behind the first charge lender.

Why it matters:

Second charges are typically used in mezzanine structures. They carry higher risk and cost, and lenders will closely assess how they interact with senior debt.

Personal Guarantee

What it is:

A commitment by the borrower or directors to repay the loan personally if the project fails.

Why it matters:

Personal guarantees align borrower and lender interests. They are standard in development finance and can influence leverage, pricing, and overall lender appetite.

Debenture

What it is:

A legal charge over a company’s assets, including bank accounts and receivables.

Why it matters:

Debentures give lenders broader security beyond the property itself. They are commonly required where borrowing is through a limited company or SPV.

Step-In Rights

What it is:

The lender’s right to take control of the project if the borrower defaults.

Why it matters:

Step-in rights allow lenders to protect their position by completing the development or appointing new contractors. This is a key risk mitigation tool in development finance.

Monitoring Surveyor

What it is:

An independent surveyor appointed by the lender to oversee progress and approve drawdowns.

Why it matters:

The monitoring surveyor plays a central role in controlling risk. Their reports determine when funds are released and whether the project remains on track.

QS Report

What it is:

Quantity surveyor report - a detailed assessment of costs, programme, and construction viability prepared by a quantity surveyor.

Why it matters:

Lenders rely on QS reports to validate cost assumptions and identify risks. A weak or unrealistic report can delay or prevent funding.

Valuation (Red Book)

What it is:

A formal valuation prepared in accordance with RICS Red Book standards.

Why it matters:

The valuation establishes GDV and current value, which underpin lending decisions. Conservative assumptions can reduce leverage or require additional equity.

Exit Strategy

What it is:

The planned method of repaying the loan, typically through sale or refinance.

Why it matters:

Exit is central to every development finance decision. Lenders assess whether it is realistic, achievable within the term, and supported by market demand.

Planning, Asset Type & Strategy

Planning Permission

What it is:

Formal approval from the local authority to carry out a development.

Why it matters:

Planning status is one of the first things lenders assess. Fully consented schemes attract stronger terms, while higher-risk planning scenarios may limit funding options. Borrowers seeking planning gain finance are often funding sites where planning outcomes are expected to create a material increase in value.

Permitted Development

What it is:

A planning route allowing certain types of development without full planning permission

Why it matters:

Permitted development can accelerate timelines and reduce risk, but lenders will assess whether the scheme fully complies with regulations and conditions. Permitted development can be undertaken via conversion finance.

Change of Use

What it is:

Altering the legal use class of a property, such as converting commercial space into residential.

Why it matters:

Change of use can significantly increase value but introduces planning and execution risk. Lenders assess demand, location, and exit viability carefully. Property development conversion can be undertaken via conversion finance.

Section 106 Agreement

What it is:

A legal agreement with the local authority requiring contributions or obligations as part of a development.

Why it matters:

Section 106 obligations can materially affect costs and timelines. These must be factored into the appraisal from the outset.

Community Infrastructure Levy (CIL)

What it is:

A charge imposed by local authorities on new developments to fund infrastructure.

Why it matters:

CIL can be a significant cost and is often payable at specific stages. Misunderstanding timing or liability can create funding pressure.

Planning Gain

What it is:

The increase in land value resulting from obtaining planning permission.

Why it matters:

Planning gain underpins many development strategies. For some developers and investors, planning gain finance can be used to fund sites where a significant proportion of the value creation strategy relies on securing planning permission, improving an existing consent or unlocking development potential. Lenders assess how realistic the uplift is and whether it can be achieved within the project timeline.

Ground-Up Development

What it is:

A project where a new building is constructed from scratch.

Why it matters:

Ground-up developments typically carry higher risk and require full development finance structures. Lenders assess experience, cost control, and exit demand closely.

Conversion Development

What it is:

Repurposing an existing building into a different use or configuration.

Why it matters:

Conversions, for example commercial to residential development can offer strong returns but often involve structural complexity. Lenders assess build risk, planning, and end demand carefully.

Mixed-Use Scheme

What it is:

A development that combines different property types, such as residential and commercial.

Why it matters:

Mixed-use schemes can diversify income and demand but introduce additional underwriting complexity. Lenders assess each element separately as well as the overall scheme.