Why developers use them
Development facilities are priced for construction risk. Once the build is finished, that risk has gone, but the development rate and any default interest still apply if the facility runs past its term while units sell. A development exit loan refinances the debt against the completed units at bridging rates, which are often lower.
- Avoid default interest if sales take longer than the facility term
- Reduce the monthly cost of holding unsold units
- Avoid selling at a discount to meet a deadline
- Release equity to start the next scheme
When they are available
Exit lenders usually lend at or near practical completion. Many want building control sign-off and a new-build warranty in place, while some will lend shortly before completion with a small amount of work left. Lenders that fund the remaining work as well offer finish and exit finance.
Leverage and terms
Development exit loans are sized against the value of the completed units, commonly up to around 70% to 75% loan to value. Terms are usually up to 12 to 24 months. Lenders release their charge on each unit as it sells, in return for a set amount, often a percentage of the sale price or a minimum release figure.
What lenders need
- A valuation of the completed units
- Building control completion certificates and warranty cover notes
- The current development facility redemption figure
- Sales evidence: reservations, exchanges and agents' marketing advice
- Your plan for units that may be let rather than sold
Planning it early
Consider an exit loan when setting your development term, so you choose a term that fits the build rather than the full sales period. Start comparing exit lenders three to four months before practical completion. See bridging exit strategies, then compare terms on Instant Quotes.
Costs to compare
Development exit loans follow the usual bridging pattern: a monthly rate, an arrangement fee, a valuation and legal costs, and sometimes an exit fee. Interest is commonly retained or rolled up and repaid from sales. Compare these with the cost of staying on the development facility, including any default interest or extension fee if sales run past the term, and with the cost of selling units quickly at a discount.
Also check how the release payments on each sale are set. A release figure that takes most of each sale's proceeds repays the loan quickly but leaves less cash for you along the way. See how much a bridging loan costs.
Letting some units
If sales are slow, some developers let units and refinance them onto buy-to-let or portfolio mortgages, keeping them as investments. Exit lenders will consider this as a route where rents and the mortgage criteria support it. A mixed exit, selling some units and refinancing the rest, is common and acceptable to many lenders when evidenced.
Common questions
When can I get a development exit loan?
Usually at or near practical completion, often once building control sign-off and the warranty are in place.
Can a development exit loan release equity?
Often, yes, where the value of the completed units supports more borrowing than the development facility balance.
How is a development exit loan repaid?
From unit sales, with a release payment as each unit sells, or by refinancing retained units onto investment mortgages.
What happens if development finance expires before the units sell?
Speak to the lender before the end date. Options include an extension, a development exit loan, or a refinance onto investment finance for any unsold units. Default interest can apply if nothing is agreed.
This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.
