When finish and exit finance is used
Development projects do not always go to plan. Costs rise, programmes slip, contractors run into difficulty and development facilities reach their end date before the scheme is finished. When that happens, the existing lender may stop releasing funds, apply default interest or ask for repayment.
A finish and exit facility replaces the existing loan with one that is sized against the part-built scheme and its value on completion. It provides the funds needed to complete the build, then continues for a period after practical completion so the units can be sold or let without a rushed sale.
It differs from a development exit loan, which is used once a scheme is complete or very close to it. Finish and exit lenders accept more remaining construction risk, so they look closely at how much work is left and how it will be delivered.
How lenders size the facility
Lenders typically size the facility against the gross development value, commonly up to around 65% to 75% of that value, alongside a limit on the total cost. The day-one advance repays the existing lender, and the remaining works are funded in stages after inspection, as with development finance.
The key document is an independent assessment of the cost to complete, usually from a quantity surveyor or the lender's monitoring surveyor. It sets out what remains, what it will cost and how long it will take, including a contingency. Many lenders prefer schemes that are at least wind and watertight, as earlier stages carry more uncertainty.
As an illustration only: a scheme with a gross development value of £3,000,000, an existing loan of £1,500,000 and £400,000 of work remaining needs a facility of around £1,900,000 plus interest and fees. A lender lending up to 70% of GDV would have a ceiling of £2,100,000, so the case may be workable if the cost to complete and the GDV are supported.
Warranties, contractors and sign-off
A part-built scheme raises questions that a new one does not. Lenders will want to know:
- Whether a structural warranty has been in place from the start, as retrospective cover can be difficult or unavailable
- Whether building control has inspected the works to date
- Who will complete the build, and on what contract
- Why the scheme stalled, and what has changed
- Whether any contractors or suppliers have claims or liens
If the warranty provider has not inspected throughout, an alternative such as a professional consultant's certificate may be needed, and this can affect buyers' ability to get a mortgage. Resolving these points early is often the difference between a case that completes and one that does not.
Who it suits
Finish and exit finance suits developers whose scheme is well advanced but whose original funding no longer fits, whether because of cost increases, delays or a lender that will not extend. It can also suit buyers acquiring a part-built scheme from another developer, receiver or administrator, where the lender funds the purchase and the remaining works.
It works best when the reason for the problem is understood and has been dealt with, and when the remaining works and costs can be clearly defined. Schemes at an early stage, or with unresolved disputes, warranty gaps or planning issues, are harder to place and may need a different approach.
Exit and costs
The exit is usually unit sales, a refinance onto investment finance or a mix of the two. Lenders want to see that the term allows time to finish the works, obtain sign-off and then sell or let. Release schedules, setting how much of each sale reduces the loan, are common.
Costs include arrangement and exit fees, valuation and monitoring fees, legal costs and the existing lender's redemption figure, which may include default interest. Interest on the new facility is usually rolled up or retained.
We compare lenders on how they treat part-built schemes, the facility size and the release terms, then present the cost to complete, the history of the scheme and the exit clearly. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and checks.
