Why developers use exit finance
Development facilities are priced for construction risk. Once a scheme reaches practical completion, that risk has largely gone, but the development loan continues to accrue interest at the same rate, and may carry default terms if it runs past its end date.
An exit loan replaces the development facility with a bridging loan secured on the completed units. It is usually cheaper, and the new term gives you room to sell at the right price instead of accepting a quick sale to clear the loan.
Some developers use exit finance to release part of their profit or equity early, to put towards the deposit and costs of the next site. Whether that is possible depends on the value of the units and how much of the development loan remains outstanding.
When to arrange it
The best time to start is a few months before the development loan is due to end. Lenders need a valuation of the finished units, and the legal work involves a redemption from the existing lender, so leaving it to the last few weeks adds pressure.
Many exit lenders will lend at or shortly before practical completion, and some will consider schemes where minor works remain. What they need to see is that the units are, or will shortly be, saleable and mortgageable.
- Building control completion certificates, or a clear timetable for them
- New-build warranties, such as those from NHBC, LABC or Premier Guarantee
- Utilities connected and units ready for occupation
- A schedule of units with values and sales progress
How lenders size an exit loan
Exit loans are sized against the market value of the completed units, usually up to 70% to 75% of value, in line with other bridging. The valuer will look at the units individually and as a block, and at recent sales on the scheme and nearby.
Many exit lenders agree a release schedule. As each unit sells, an agreed amount, often more than the unit's share of the loan, is used to reduce the balance. This protects the lender as the security shrinks, and you keep the remainder of each sale.
Interest is usually retained or rolled up. Because the loan is repaid unit by unit, interest falls as sales complete, which can make the overall cost lower than the headline rate suggests. We compare the release terms as well as the rate when recommending lenders.
Arranging development exit finance step by step
Development exit finance follows the same broad steps as other bridging, with a few points specific to a finished scheme:
- Speak to us a few months before your development facility ends, with the redemption figure from your current lender
- Get an indicative comparison through Instant Quotes, based on the value of the units and the balance to repay
- Gather the completion paperwork: building control certificates, warranties, a unit schedule and sales or letting evidence
- The chosen lender instructs a valuation of the completed units and agrees a release schedule with you
- Solicitors complete the legal work and the redemption of the development loan, and the exit loan starts
Our guide to development exit loans covers the costs and timing in more detail. If the scheme is not yet finished and the development facility is running out, finish and exit finance can fund the remaining works as well as repaying the lender.
