Development Exit Finance

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Home » Bridging Loans » Types of Bridging Loan » Development Exit Finance

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What is development exit finance?

Development exit finance is used to repay outstanding finance against a property development once the project is complete. There are three main reasons why this type of finance is attractive:

1. Firstly, the existing development finance 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 0.48% 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.

Read on below to find how development exit finance could benefit you.

Criteria

Below are the main criteria points to consider when taking out development exit finance.

1 Loans from £100,000 with no maximum loan
2 Adverse credit accepted
3 Rates from 0.48% – 0.55% at 70% LTV
4 Lending available across the UK
5 Terms available for up to 36 months
6 First time developers accepted

How much can I borrow?

We can arrange finance from £100,000, with no maximum loan. 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.

The amount you can borrow depends on the value of the proposed security and the planned exit route.

Generally speaking, the higher the loan to value required, the higher your interest rate will be.

How much will it cost?

Options for development exit finance come from our extensive panel of bridging loan lenders, and our rates start at 0.48% per month.

Most lenders will also charge an arrangement fee, which will vary depending on the lender, loan size and loan to value. Arrangement fees of 1-2% are common, with the fees of 1% generally reserved for larger loans. There are generally no early repayment charges or exit fees on these types of loans, meaning you can repay whenever you like with no financial penalty.

In most cases, development exit finance is cheaper than development finance and as such, will represent a cost saving for you. This is because property development can be a high-risk business, with the risk of delays and unexpected problems rife.

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.

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.

Do I have to make monthly payments?

We can offer funding with the monthly interest serviced 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.

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.

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.

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 todays market, to allow you to correctly cost your project.

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 interest 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.

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.

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.

Call us today

Call us on 01922 620008 to receive advice from our development finance experts.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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