Development exit finance for finished and nearly finished schemes
Development exit finance is a short-term loan that repays your development facility once the build is complete or nearly complete, giving you more time to sell the units or refinance them. It is for developers whose development loan falls due before the sales or the long-term mortgage have gone through. It only helps if the units can realistically be sold or refinanced within the new term.
- Repays the build loan
- A new short-term loan clears the development facility once the scheme is complete or close to it.
- Time to sell
- It gives the sales or a refinance time to complete without an expiring facility forcing the pace.
- Paid down by sales
- Each unit sold reduces the loan until the balance is cleared.
- Second set of costs
- It brings new fees and interest, so compare it with an extension before you commit.
On this page
- What development exit finance is
- When developers use it, and when it does not fit
- How it works step by step
- What lenders look at
- How repayment works as units sell
- Exits: sell the units or keep them
- Development exit finance, an extension or a bridging loan
- Costs to expect
- Risks to weigh
- What to have ready before you enquire
What development exit finance is
Development exit finance is a short-term loan, secured on a finished or nearly finished development, that repays the original development finance facility and gives you time to sell the units or refinance them. In practice it is a type of bridging loan designed for completed schemes. Where a little work remains, some lenders will include the money to finish it, which is sometimes called finish and exit finance.
We are a broker. We introduce you to lenders that offer this kind of loan, and the lender provides the money and sets the terms.
When developers use it, and when it does not fit
- The development loan is about to end. The build is done, but the facility falls due before the sales or the refinance have completed.
- Sales are slower than planned. More time lets you hold your prices instead of discounting to meet a deadline.
- You want to release equity for the next site. A lender looking at finished units may lend more than the balance of the development loan, which can free some of your capital before the units sell.
- You want to avoid default interest or a rushed sale. Development facilities usually cost more once they run past their term.
Exit finance is often priced below development finance because the build risk has gone. It still brings a second set of fees. It does not fit where the remaining sales are about to complete, where substantial work is left, or where the units are priced above what buyers will pay.
How it works step by step
- Start before the facility expires. Tell us where the build stands, what has sold or been reserved, the balance to repay and the date it falls due.
- We approach lenders with the scheme and your plan to sell or keep the units, and come back with outline terms.
- The lender's valuer reports on the finished units and on how readily they should sell or let.
- Your development lender confirms the amount needed to repay it, and solicitors prepare the new lender's first charge over the units.
- The new loan completes and repays the development facility in full. Any agreed surplus is paid to you.
- As each unit sells, the lender is repaid from the proceeds and releases its charge over that unit.
- The last sales, or a refinance of the units you keep, clear the balance.
What lenders look at
- Practical completion or works remaining. Whether the scheme is finished and, if not, what is left, what it will cost and who will do it.
- Building control sign-off and warranty. The completion certificate, and the new-home warranty or professional consultant's certificate that buyers' mortgage lenders will ask for.
- Sales evidence and pricing. Your asking prices against completed sales of comparable homes nearby, and your agent's view of demand.
- Reservations or exchanges. Which units are reserved or exchanged, at what prices and with what deposits.
- The valuation. The lender relies on its own valuer's figures, which may be lower than your asking prices.
- Your plan and timescale. How long you expect to take to sell or let each unit, and what you will do if that slips.
How repayment works as units sell
There are usually no monthly payments. Interest is added to the loan or deducted at the start, and the debt is repaid from sales.
| Stage | What happens to the loan |
|---|---|
| Day one | The exit loan repays the development facility, and interest starts on the new balance. |
| Each sale | The lender receives the release amount agreed for that unit, often most or all of the net proceeds at first, and removes its charge so the buyer can complete. |
| Later sales | The balance and the monthly interest fall with each repayment. Once the loan is cleared, the remaining proceeds are yours. |
| Units you keep | A long-term mortgage on those units repays whatever is left. |
The release amounts are set out in the lender's offer, so check them against your cash-flow plan before you accept.
Exits: sell the units or keep them
Most exit loans are repaid by unit sales. If you plan to keep some or all of the units, the exit is a refinance instead:
- a buy-to-let mortgage for individual homes you will let
- a portfolio landlord mortgage where you will hold several let properties
- a commercial investment mortgage for commercial or mixed-use units that are let
The Prudential Regulation Authority's 2016 underwriting standards say that a borrower with four or more mortgaged buy-to-let properties should be treated as a portfolio landlord. The lenders it regulates are expected to assess the whole portfolio in that case. Long-term lenders assess the rent as well as the value, so test the figures early. A refinance that raises too little leaves part of the exit loan unpaid.
Development exit finance, an extension or a bridging loan
| Option | What it is | When it fits | What to watch |
|---|---|---|---|
| Development exit finance | A new short-term loan on the finished scheme that repays the development facility. | The build is complete or close to it, and the sales or refinance need more time. | New valuation, legal and arrangement costs. The lender will want the sign-offs in place. |
| Extending the development loan | Your existing lender agrees more time on the same facility. | A short delay, with sales already exchanged or close to it. | Extension fees and possibly a higher rate. The lender can refuse, and an extension does not usually release equity. |
| A bridging loan | A general short-term loan secured on property. | One or two remaining units, or other property you can offer as security. | It may not be set up to release several units one at a time as they sell. |
Compare the total cost of each route over the time you realistically need, not only the monthly rate.
Costs to expect
The cost is made up of:
- interest, usually quoted per month and charged on the balance outstanding, so it falls as units sell
- the new lender's arrangement fee
- a valuation of the finished units
- legal fees, for your solicitor and the lender's
- any exit fee due to your development lender when it is repaid
- any exit fee or broker fee on the new loan, which should be set out in writing before you commit
The lender's offer sets the rate and fees. For an illustration of how short-term interest adds up, put your own figures into the bridging loan calculator. It assumes interest on the full loan for the whole term, so it overstates the interest where sales reduce the balance early.
Risks to weigh
- Sales are still slower than hoped. Interest keeps accruing on the unsold units and eats into your profit.
- Values fall. If prices drop, the sale proceeds may not clear the loan. The official UK House Price Index is built from completed sales, not asking prices, so it shows how sold prices in an area are moving. Its latest months are provisional.
- The new term also runs out. You would face the same problem again, with more costs behind you and fewer options.
The loan is secured on the units, and directors are often asked for a personal guarantee as well. If it is not repaid by the end of the term, the lender can repossess and sell the units. Set the term and the prices on cautious assumptions, and line up a second exit, such as letting and refinancing, before you need it.
What to have ready before you enquire
- The scheme address and a schedule of units with sizes and asking prices
- The current development loan: the balance, the date it falls due and any second charge
- The practical completion certificate, building control completion certificate and warranty
- A list of any works remaining, with costs
- Reservations, exchanges and your agent's sales report with comparable evidence
- Your plan for each unit: sell or keep, by when, and the expected rent for any you will let
Send us the details and we will say whether an exit loan, an extension or another route looks the better fit. If your next step is another site, see land finance.