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Development Exit Finance - Solutions Without Selling


Development Exit Finance - Solutions Without Selling
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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin08 May 2020
    

The Covid-19 pandemic and resulting lockdown restrictions have left many developers unable to sell their properties. Being unable to sell means needing to continue to pay expensive development finance fees, without the ability to sell the property and pay off the lending.

Revolution Finance Brokers is receiving multiple enquiries about how to deal with this challenge. We'll look at some of your options here, but if you would like tailored advice give our team a call on 0330 304 3040 and we will work with you to find the best solution!

 

Switching Development Exit Finance Provider

One short-term option is to switch provider. Some products mean exponentially increasing interest rates once the initial term period has ended. If your lender is unable or unwilling to offer an extension, this can make the original short-term lending extremely expensive.

This option is a fast solution to the problem, and a switch can complete quickly. Switching development exit finance providers means paying off your existing lender, and avoiding those higher rates applicable after the original term. 

As a bonus, you have the flexibility of exiting the finance when you can sell, without early repayment charges that you would expect to pay with a regular mortgage.

 

Choosing a Buy-To-Let Mortgage

A buy-to-let mortgage is a form of development exit finance and can be a more secure option when your future sale date is still uncertain.

Longer-term buy-to-let mortgages are more cost-effective than short-term development exit finance, and allow you to generate income streams through rentals as soon as you have a tenant. This income helps to offset the interest costs by generating revenue while your sale is delayed.

Using a buy-to-let mortgage to repay your development finance means switching to a fixed-rate interest option and regaining control over your costs. One factor to look out for is early repayment charges, but even so these are often most cost-effective given low-interest rates available on the current market.

 

New Build Development Exit Finance

New-build developers face similar challenges, with the premiums usually payable on their first sale. As house prices have dropped, this has resulted in a market where developers have to consider the impact of being able to achieve lower sale prices than budgeted against.

While it may be acceptable to sell at a lower value, choosing an alternative development exit finance option allows developers to keep hold of those properties until the market bounces back and prices rise.

 

Desktop Valuations

As the housing market adapts to the post-pandemic climate, desktop valuations are becoming more widely available. Where this is not possible, new measures are being implemented to help physical appraisals resume.

In the meantime, most mortgage lenders are completing the underwriting process first, and then carrying out physical valuations later, which are mandatory for new-builds. This delay is likely to be short-term as valuers adapt to new working conditions. 

We know that restrictions are now lifting and that the housing market is swiftly adapting to aid a quick recovery. However, it is impossible to know how long the dip may last, and we would, therefore, recommend taking swift action to avoid incurring increasing development finance costs in the interim.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.

If you are struggling with development exit finance costs, have a lending product that you cannot sustain, or need a way to control costs until property sales recover, give us a call today!

Revolution Finance Brokers are finance specialists, and scour the market to provide independent advice to find the best options for your investment portfolio.

Call us on 0330 304 3040 or email [email protected] 

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.