Senior Development Finance in 2026: How the Main Facility Is Priced and Sized

Most developers come to us with a site, a build cost and a sales or rental plan, and the first question is always the same: how much of this can be borrowed, and how much do we have to put in ourselves. The answer almost always starts with senior development finance, the largest and cheapest layer of the funding stack. Get that layer right and the rest of the numbers follow. Get it wrong and the scheme either stalls or eats far more cash than the developer expected.

Senior development finance is the main facility that funds the purchase of land and the construction of a commercial scheme. It is the first money in and the first money repaid, which is why it carries the lowest rate in the stack. In 2026 we are seeing senior priced at an indicative 9 to 12% pa, with an arrangement fee of 1 to 2% of the loan. It sits underneath stretched senior, mezzanine and any joint venture equity, and it is the layer every other piece of funding is measured against. With the Bank of England base rate held at 3.75% since the December 2025 cut, pricing has been steadier than it was a couple of years ago, but lenders still price each scheme on its own merit.

This article explains what senior development finance is and where it sits, how it is sized on two separate limits, how the rate and fees work, how interest is charged, how money is drawn against build cost, and how much equity a developer has to fund on day one. We are an arranger and introducer, not a lender. We are not FCA authorised and commercial development lending of this kind is unregulated. Everything below is indicative market commentary for UK property in 2026, not an offer of finance, and every figure is a band rather than a quote.

What senior development finance is and where it sits

Think of the funding for a scheme as a stack, with each layer sitting on top of the one below. Senior development finance is the bottom layer. It funds the bulk of the land and the build, it takes a first charge over the site, and it is repaid first when units are sold or the scheme is refinanced onto a term loan. Because it ranks first and carries the least risk, it is the cheapest money in the deal.

Above senior sits stretched senior, which pushes leverage up to around 75 to 80%. Above that sits mezzanine, which can take combined borrowing to 85 to 90%. At the very top sits joint venture equity, which can reach up to 100% of cost in exchange for a share of profit. Each layer costs more than the one below because it ranks behind it for repayment. The point worth holding onto is simple: senior is the cheapest layer, so the more of the scheme you can fund with senior, the lower your blended cost of finance. Pushing higher with stretched senior or mezzanine raises the all-in cost, which is a trade every developer has to weigh.

How senior is sized: two limits, lower of the two

Senior development finance is sized against two separate measures, and the facility is capped by whichever produces the smaller number. This catches a lot of first-time developers out, so it is worth slowing down on.

The first measure is loan to cost, or LTC. This is the loan as a percentage of the total project cost, which includes land, build, professional fees and the finance costs themselves. On senior we typically see an indicative 65 to 70% of cost.

The second measure is loan to gross development value, or LTGDV. This is the loan as a percentage of what the finished scheme is worth on completion. On senior this sits at an indicative 60 to 65% of GDV.

A lender will calculate both. The maximum senior facility is the lower of the two figures. One limit protects the lender against the project costing more than planned, the other protects against the finished value coming in soft. You only borrow up to the more cautious of the two, never the higher.

A worked example you can follow

Take a scheme with a gross development value of £3m and a total cost of £2.2m, where that cost covers the land, the build, the professional fees and the finance.

Run the loan to cost test first. Senior at 70% of the £2.2m cost gives £1.54m.

Now run the loan to GDV test. Senior capped at 65% of the £3m GDV gives £1.95m.

The maximum senior facility is the lower of those two numbers, so it is £1.54m, set by the cost test. The GDV test would have allowed more, but it does not apply because the cost test bites first. The developer borrows £1.54m of senior against a £2.2m cost, which leaves £660,000. That £660,000 is the developer’s day-one equity, the cash they have to fund themselves before the senior lender releases a penny.

The rate, the fees and how interest is charged

Senior development finance in 2026 carries an indicative rate of 9 to 12% pa, plus an arrangement fee of 1 to 2% of the loan. Where a scheme lands inside those bands depends on the strength of the developer’s track record, the sector, the exit plan and how much equity is going in.

Interest can be handled in two ways. It can be retained, which means it is deducted up front and held back by the lender, so the developer does not make monthly payments. Or it can be serviced, which means the developer pays it monthly out of their own cash flow. Most ground-up schemes with no income during the build use retained interest.

Here is the part that ties back to the sizing. Rolled-up or retained interest sits inside the loan to cost from day one. It is counted as a project cost, so it is funded by the facility itself and it consumes part of your LTC headroom. That is why the cost figure in our worked example already includes finance. The interest is not a bill that arrives later, it is baked into the £2.2m from the start.

Drawdown against build cost with monitoring

Senior is not handed over in one lump. The land portion is usually released at the start, then the build money is drawn down in stages as construction progresses. A monitoring surveyor, appointed by the lender, visits the site and signs off the work done before each drawdown is released. This protects the lender by making sure the money tracks real progress on the ground, and it protects the developer by keeping interest off money that has not yet been drawn. The cleaner your cost plan and the better your monitoring relationship, the smoother and faster each drawdown tends to be.

The day-one equity a developer must fund

The maximum senior facility is the lower of loan to cost and loan to GDV, and everything the developer cannot borrow against those two limits is the equity they fund on day one.

In our example that day-one equity was £660,000 on a £2.2m scheme, because senior leverage landed at 70% of cost. Across most senior deals we arrange, developers should expect to fund the gap left by 65 to 70% leverage from their own resources. If that gap is too large, this is where the higher layers of the stack come in: stretched senior, mezzanine or JV equity can reduce the cash you put in, at the cost of a higher blended rate and, with JV, a share of the profit.

How to get the best senior terms

A few things move the needle. A clear, evidenced build cost plan and a sensible contingency reassure the cost side. A credible exit, whether that is sales or a refinance onto an investment loan, reassures the GDV side. A relevant track record matters, and where a developer is light on experience, a strong main contractor and monitoring surveyor help. Having your own equity ready and in the right place speeds everything up. We package all of this before it goes to a lender, because a well-presented case is what earns the lower end of the 9 to 12% band rather than the higher end.

Which lender camps fund it

Senior development finance is funded by several broad camps, and we keep relationships across all of them so a scheme can be matched to the right home. High street and clearing banks sit at the most conservative end, with the keenest pricing but the tightest criteria and the slowest pace. Challenger and specialist development banks take a wider view on sector and structure. Non-bank development lenders and debt funds are more flexible on leverage and speed, usually at a slightly higher rate. Family offices and private capital fund the schemes that need a bespoke structure. We never tie a developer to one camp. We test the scheme against the camp most likely to fund it at the best terms. We do not name individual lenders here because the right one depends entirely on the scheme.

How we approach a senior development facility

We start by running both sizing tests, LTC and LTGDV, so you know your maximum senior and your day-one equity before anything goes to market. We sanity-check the cost plan, the GDV and the exit. Then we take the packaged case to the lender camps best suited to the sector, whether that is offices, warehouses, logistics, PBSA, care homes, retail, hotels, leisure, industrial, mixed-use, self-storage, data centres, life sciences, build to rent or healthcare. The aim is the cheapest viable structure, with senior doing as much of the heavy lifting as the numbers allow.

FAQ

Are you a lender? No. We are an arranger and introducer. We are not FCA authorised and this type of commercial development lending is unregulated. We place your scheme with the lenders most likely to fund it.

Why is my senior loan capped below 70% of cost? Because the loan to GDV test produced a smaller number than the loan to cost test, and the facility is always the lower of the two. If the finished value is tight relative to cost, the GDV cap will set your maximum.

Is the interest an extra bill on top of the loan? Not on a retained-interest facility. The interest is rolled up inside the loan to cost from day one, funded by the facility itself, so there are no monthly payments during the build. It does, though, use up part of your LTC headroom.

How much cash will I need on day one? The gap between total cost and your senior facility. On a 65 to 70% leverage that is indicatively 30 to 35% of cost, before you consider stretched senior, mezzanine or JV equity to reduce it.

Talk to us

If you have a commercial scheme and want to know your maximum senior facility and your day-one equity before you commit, talk to a development finance specialist. We will run both sizing tests on your numbers and tell you, in plain terms, what is fundable and where the cash needs to come from.

All figures in this article are indicative bands for the UK market in 2026, not an offer of finance, and your terms will depend on your scheme, your experience and the lender. This article was written by Matt Lenzie.