Summary: The masterclass discussed the role of monitoring surveyors (MS) in the development finance market, emphasising their importance in protecting lenders and clients. Key points included the differences between quantity surveyors and monitoring surveyors, the need for realistic build costs and GDVs, and the challenges of modern construction. The discussion highlighted the importance of early identification of issues, such as structural problems and planning violations, and the necessity of viable exit strategies. Masthaven’s approach to development finance was detailed, focusing on residential properties and the importance of transparency and realistic expectations in project costs and market values.
(Mick’s World Cup pick is the USA, EJ is backing France, and Jim can’t see past Argentina.)
Inside the Mind of the Monitoring Surveyor
If you have ever wondered what a monitoring surveyor is really looking for when they walk onto your client’s site, this article is for you.
Development finance is, in Jim Baker’s favourite words of the last couple of years” “a challenging market.” And nowhere more so than in the development space, so the better brokers understand how a scheme is assessed, monitored and funded, the better placed they are to structure deals that get good outcomes for their clients.
In this session, Sales Director Jim Baker was joined by EJ, Head of Development Finance at Masthaven, and special guest Mick Naumann, Director at FRP, for a look under the bonnet of the monitoring surveyor’s role – from the very first site visit to what happens when a scheme goes wrong.
Monitoring Surveyor vs Quantity Surveyor: what’s the difference?
It’s a common point of confusion, so Mick started with the basics.
The quantity surveyor is employed by the borrower, pre-development, to assess the feasibility and costs of the proposed scheme and to identify the most effective route for the development. Their involvement is essentially day one (before works start) and they produce their report.
The monitoring surveyor, on the other hand, is employed predominantly by the lender, and stays involved throughout the course of the development. Their job is to protect the lender: identifying risks, flagging problems on site, suggesting solutions, keeping an eye on the exit, and advising on drawdowns and the release of funds as the build progresses.
How that works in practice is largely lender-led. Some lenders are strict: a fixed build period with a drawdown every month. Others are more borrower-led, releasing funds as the developer needs them to keep the scheme moving.
How does Masthaven use monitoring surveyors?
For EJ, the MS is there to protect both the lender and the client.
Masthaven Finance instructs the MS before completing a deal. The valuer will have already been out and reported on current value, GDV and an indicative build cost – usually with the familiar caveat: “refer to a monitoring surveyor”. The MS then sense-checks the whole picture. Is the scheme feasible within the budget? Within the terms? Does the facility need to increase?
And this is where the client protection comes in. If a client says they can build for £100k but the MS says the real figure is looking more £300k, then there’s an honest conversation about the gap and best to bridge it.
From there, the MS becomes the lender’s eyes and ears on the ground, supporting each drawdown throughout the loan and reporting back honestly, whether that’s: “all is on track” or “the client says July for completion but realistically it’s looking like September”. And that feedback is shared transparently with the client and the broker throughout.
What is the MS looking for on the very first site visit?
Mick’s first question on a brand-new scheme is simple: has the work started and if it has, should it have?
Developers sometimes start works while still waiting for planning, on the back of “favourable discussions” with the planning department. Basic strip-out and waste removal is one thing, but implementing works without planning consent is a serious warning sign.
Beyond that, it’s about the feel of the project: How organised is the site? Is health and safety in place? Is the hoarding right? Is site welfare set up? Are there people and materials on site, ready to go?
And crucially, it’s about the wider view. If the scheme next door is six months ahead of yours, will the market already be saturated by the time your client’s units are finished? Which leads neatly to the exit…
Why the exit matters more than anything
Mick put it memorably: there are always three values to a property. What the borrower thinks it’s worth. What the agent has told them it’s worth. And what it’s actually going to sell for. The monitoring surveyor focuses on the third one.
EJ agreed that the exit is absolutely critical from an underwriting perspective. Getting money out of the door is the easy part – the real question is how the money comes back. A refinance exit is relatively straightforward: will the build finish within term, and does the client have clean credit and good income? A sale exit is trickier, because a buoyant market today can look very different in 12-18 months when the development completes. That’s exactly where sensible loan-to-GDV levels come into play.
As part of its service to Masthaven, FRP sense-checks the GDV on day one and again at every visit this includes speaking to local agents. If you’re building two-bed flats and the agents are saying there are no buyers for two-bed flats, it’s time to talk alternatives: rental, refinance, or a different plan.
What can brokers do up front? The top three (well, four)
Asked for the top things brokers should sense-check before submitting a development deal, the panel landed on:
- Experience: a soft refurb on a three-bed house doesn’t naturally qualify someone for a 20-unit ground-up scheme. Present the borrower’s track record honestly.
- Realistic build costs: what are you building, what’s the square footage, and does the cost per square foot stack up? £100-£120 per square foot claims are rarely realistic today.
- A realistic GDV: everyone wants the deal to work, but there has to be a feasible exit behind the numbers.
- The exit itself: Jim’s addition, and one everyone agreed on.
It also helps to show the full picture up front: plans, confirmation the works align with planning, building control instructed, warranty provider appointed and, critically, contingency. Because there is always an unforeseen element.
What are the real red flags… and are they deal killers?
Mick was keen to quash the rumour that the monitoring Surveyor’s desk is “the place deals come to die”.
There will always be issues: structural problems, works outside planning, delays. The question is never just the issue itself; it’s the solution. What’s the plan? What will it cost? Does the deal still fit within its terms, and is there enough headroom to absorb it?
EJ echoed the point: things will come up as that is the reality of development. What matters is transparency. If costs are overrunning, say so early and say honestly whether there’s money to put in. If the client has built outside planning (often with the best of intentions, like adding a bedroom to increase value) the conversation becomes: what are you doing about a planning amendment, and how do we get to a fully completed, fully compliant development?
Mick’s warning: what you really don’t want is corner-cutting. A GDV built on a high-spec finish falls apart if the developer runs out of money at exactly the point in the build where the most money needs to be spent.
Is a low build cost always a deal killer?
No. But it always needs explaining.
There can be genuine mitigating circumstances: a seasoned developer with their own team, their own labour, and access to cheap materials may legitimately build below market rates. It’s case by case.
But if a first-time developer is simply repeating what a contractor has told them, the lender has to underwrite the worst case: what would it really cost if someone else had to step in and complete the build? If that number still works within loan-to-GDV parameters, the deal can proceed. If not, it’s a conversation about the client putting funds in or using other assets as additional security.
EJ also offered brokers a useful tell: a very low build cost often reveals a lack of experience. Experienced developers tend to be “there or thereabouts,” sometimes even erring high because they know exactly what a quality finish costs.
Fixed price contracts: are they really fixed?
Technically, once a fixed price contract is in place, any overspend is for the contractor to absorb. In Mick’s experience? “Rarely is that actually the case.”
Renegotiation is increasingly common – hardly surprising when material costs have risen around 40% in the last five or six years, making it near impossible to price a build accurately 12 months out. Beyond materials, the usual suspects for overruns are lack of experience, poor planning, optimistic tender pricing from contractors competing to win the work, unforeseen costs, and rising labour.
The MS aims to identify unrealistic costs on day one, using industry-standard price-per-square-foot benchmarks plus common sense, so the terms and the deal can be adjusted before anyone is committed.
Is modern construction ready for mainstream lending?
Like anything new, it’s an education. Mick sees the pros: speed, efficiency, off-site manufacture while groundworks continue but also a fundamental monitoring problem: lenders being asked to fund modular units that are still sitting in a factory. Until that unit is on the plot it’s meant to be on, there’s nothing stopping it being craned onto someone else’s development. His view: the borrower funds it to that point, and drawdowns follow once it’s on site.
From Masthaven’s side, EJ confirmed modern construction is never an automatic no. The test is the exit: is it widely mortgageable? If plenty of lenders would refinance it, or plenty of mortgage lenders would fund a buyer, why say no? But if only one lender in the market will touch it – there’s a “99% chance” the answer is no, because nobody knows whether that lender’s appetite will still be there in 12 months.
And if it all goes wrong?
Worst case, FRP also offers a receivership arm, but receivership is disruptive, which is why they’ve developed what Mick calls a “pre-receivership” approach: an asset management product built around early conversations and an assisted exit.
There’s significant key person risk in any development – the borrower holds the relationships with building control, the warranty provider and the contractors. Keeping that build team in place and making sure building control has visited within the last 3 to 6 months, can be the difference between a managed exit and starting again from square one.
What challenges are developers facing right now?
Asked to sum up the current pressures on developers, Mick pointed to four.
Rising build costs are the obvious one, with material prices up around 40% in five or six years, pricing a build accurately even 12 months out has become genuinely difficult.
Reduced GDVs are the second. His advice is to stay sensible with the numbers and take agent valuations with a pinch of salt, because there’s a real gap between what a property is said to be worth and what it will really sell for.
Then there’s market saturation: if several similar schemes are all finishing at once, the exit gets a lot harder and lastly, broader market uncertainty, given that a buoyant market today can look very different by the time units are ready to sell.
His way through it though is for property developers to find the right stock that’s genuinely selling, and don’t limit the market by building for too narrow a buyer.
Final thoughts
The message from this Masterclass was consistent from start to finish: realistic numbers, a credible exit, and open communication solve most problems before they become deal killers.
The monitoring surveyor plays an important role – they are there to make sure a case that completes is one that can finish, sell and repay. Get the experience, build costs, GDV and exit lined up honestly at the start, and everything downstream runs far smoother.
Where should brokers focus their pipeline with Masthaven?
If you are looking for a development finance lender, we are actively welcoming residential cases. From standard schemes to clients building their own dream home, our regulated development finance product has it covered – with lending right across England, Scotland and Wales.
So, if you have a development case you’d like us to sense-check, speak to your Masthaven BDM or drop us a line.
If your client needs a mortgage solution that tackles debt consolidation, credit arrears and capital raising all in one, get in touch with the Masthaven Finance team today – we’re ready when you are.
