Development exit finance explained
What is development exit finance?
Development exit finance is used to repay outstanding property development finance. once the project is nearing completion.
They are a type of bridging loan and are usually offered with rolled up interest for the full term of the loan.
These loans can usually be offered once the building is wind and watertight.
When is developer exit finance used?
There are three main reasons why this type of finance is attractive:
1. Firstly, the existing development finance facility is coming to an end and sales won’t be completed in time.
2. Alternatively, where development finance can be expensive, development exit finance can be used to reduce finance costs. This is becoming increasingly popular as rates drop, with our development exit finance rates starting at 0.43% per month.
3. Finally, our products can be used to release capital from a development before sales come through, allowing you to move on to your next project. We can arrange funds very quickly where fast completions are required on new projects.
Why is sales period finance cheaper than development finance?
This type of funding takes advantage of the fact that the level of risk decreases significantly as the project nears completion. As such, a new lender is generally happy to pass on the savings associated with a lower risk application to you, the borrower.
Key product features
|Max LTV||Up to 80%|
|Interest rate||From 0.43% per month|
|Charge types||1st, 2nd & 3rd considered|
|Term||1-36 months (maximum 12 months for regulated loans)|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||5 days – 3 weeks|
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Loans from £25,000 with no maximum loan size
Costs of development exit finance
What rate will I pay?
The rate charged depends on a few factors, with loan to value (LTV) being the main driver and the strength of your chosen exit strategy also being very important.
At 50% LTV, rates of 0.45% and below are common, with rates of 0.65-0.7% being the norm at 75% LTV.
The interest charged will be quoted based on the full term of the loan, but where your facility is repaid early, you will usually have any unused interest refunded.
What fees will I pay?
On top of the interest charged, you will be faced with a number of fees when setting up a new loan. The main ones are the following:
Lender arrangement fee – these fees are charged by the lender for setting up the loan and are generally payable on completion. This fee is usually 1-2% of the loan amount and can be added to the loan in most cases.
Broker fees – Some lenders charge a fee for using their service (we don’t). These fees can be as much as 1.5% of the loan amount.
Lender exit fee – Although these fees are becoming less common, some lenders charge an additional fee when the loan is repaid. Where this is the case, it is usually either the cost of 1 month’s interest, or 1% of the loan amount.
Valuation fees – As the properties are new, automated valuations aren’t usually possible, meaning a chartered surveyor must visit the property and produce a report. This fee is usually charged early on in the application process.
Legal fees – You are usually responsible for both your own and the lenders legal expenses in arranging the loan. These fees are usually paid once the formal offer has been issued.
How much can I borrow?
We can arrange finance from £25,000, with no maximum loan.
Loan to value (LTV)
We can usually arrange up to 75% loan to value on residential or mixed-use schemes and can even push to 80% for certain residential developments. We can fund up to 85% LTV for some property refurbishment finance projects.
How will my maximum loan calculated?
The maximum loan offered is based on both the LTV and the ability to exit the loan safely. For example, should the LTV limit of a chosen product be 75%, but your exit strategy could see you unable to raise this much, your loan amount would be reduced.
This tends to only be an issue where the chosen exit strategy is by way of refinance to a term loan.
Do I have to make monthly payments?
We can offer funding with the interest paid monthly, or rolled-up into the loan each month, leaving you no monthly payments to make.
Should rolled up interest be required, it is simply repaid at the end when the loan is repaid.
Where to get development exit finance
The lenders who are active in the developer exit finance market are mainly bridging loan lenders. These loans are a type of bridging loan, which means that bridging lenders tend to be very well placed to offer a fast service.
Some development finance lenders also offer these loans, although this is less common.
Should I use a broker or go direct to a lender?
As many lenders don’t disclose their exact rates online, finding the best deal can be tricky. That said, some brokers charge a fee for using their service and with loan sizes tending to be larger for property developments, these can really add up.
Comparing all options on the table and then making a judgement based on both the total cost of each proposal and the support offered by a broker is the most sensible approach.
We offer full support throughout the application process and don’t charge any broker fees for development exit finance applications.
Development exit finance criteria
Who can take out development exit finance?
We can offer loans to individuals, partnerships, LLPs, Ltd companies, offshore companies and pensions.
Loans to non-UK nationals, expats and foreign nationals can also be offered.
Can you lend to first time developers?
Yes, we can lend to first time developers without issue.
Does my property have to be signed off by building control?
Not always, we can offer funding before practical completion sign off. Once the property is wind and watertight, you will be able to access the lowest rates in the market and start saving on finance costs.
Where this is done, we can often agree upfront with the lender to release further funds based on the value uplift on practical completion sign off.
The development exit finance process
When should I start looking for development exit finance?
When should I start looking for development exit finance?
We can complete applications very quickly. However, it makes sense to allow yourself time for the process to go through. A month should be more than sufficient for this.
We are happy to discuss your project far earlier than this to give you prices based on today’s market, to allow you to correctly cost your project.
What information would I have to provide?
The underwriting process is actually quite straightforward, with minimal information being required to supply funding.
Although it varies from application to application, we will generally require the following:-
- Details of the security
- Details of your marketing strategy
- Some details of the Directors and major shareholders of the borrowing entity
- Planning permission copies, or a link to the application on the planning portal
- Copies of new build warranties
- Details on your current loan
- A schedule of any remaining works
Will a valuation be required?
Yes, the lender will almost always want their own valuation, and with the properties being new build, an automated valuation isn’t possible.
Where your current project is being tracked by a monitoring surveyor, we may be able to use them for the new application – if they’re on the new lenders panel. Where the current lender is using a QS to monitor the scheme, a new valuation report will be required.
How will my project be valued if its part complete?
Lending is based on the current market value. On part complete loans, the property will naturally value at less than the GDV.
These schemes usually value at the GDV, minus the cost of remaining works and some profit, based on the level of works remaining.
What happens when I start selling the properties?
Unlike development finance, which sees all sale proceeds used to repay the loan amount, development exit lenders are generally happy to allow you to keep a proportion of the sales proceeds.
This allows you to control your cash flow during the sales process and move forward with your next project.
Of course, if you would prefer to repay the loan as quickly as possible, you can use 100% of any sales to reduce the loan balance.
How long does it take to complete?
We can usually complete development exit finance applications in 7-14 days. Our development finance experts will usually be able to quote an estimated completion time for your project during an initial conversation.
Where funds are needed urgently, we can generally work to your timescales to ensure that funds are there when you need them.
Why should I look to take development exit finance?
There are four main reasons, they are as follows:-
- You can generally release capital which will allow you to move forward with your next project. This allows you to keep your cash flow moving as fluidly as possible. If you’re running low on funds to complete the build, we may even be able to release capital to help with this.
- You will generally be reducing your borrowing costs when taking out exit finance. Where sales could be slow, this can represent significant cost savings, protecting your all-important margin.
- Exit finance allows you to choose a much longer sales period than is generally offered by development finance lenders. This takes the pressure off you to look for quick sales and allows you to retain much more control in securing the best possible price for your stock.
- As mentioned above, most lenders will allow you to keep a proportion of the sales proceeds from the first sale, meaning your cash flow is much easier to manage during the sales process.
Will I get a better deal if my project is completed?
Although there tend to be more options available for projects that have practical completion, we can generally get very low rates as soon as the project is wind and watertight.
There is some variance on this on a project-by-project basis. We’re always happy to talk this through to let you know the rates you’d be eligible for on your scheme both now, and when you reach practical completion.
What happens if I repay the loan early?
These loans are usually subject to daily or monthly interest, with the interest only due for the period that the funds are drawn.
This means that you will start saving on interest as soon as you pay off part, or all of the loan.
Exit penalties aren’t usually included in development exit loans.