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Development Exit Finance

What is development exit finance? This guide runs through all the uses of financing to exit a development loan and the scenarios in which this could be a highly favourable solution.

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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Development Exit Finance

Any form of development finance will need to demonstrate a clear exit strategy. This shows the lender how the developer will repay the loan capital balance at the end of the term.

Development exit finance is one option used to cover the balance of the original borrowing sum.

Here we'll explain what development exit loans are, how they work, and the pros and cons. For more information about developer exit loans and whether this type of borrowing will be beneficial for you, please contact the mortgage brokers team.

Benefits of Development Exit Finance

There are a few primary reasons a developer might opt for a development exit loan:

  • It bridges the gap between when a development finance term ends and the date at which the developer can sell the property. Developers have longer to achieve the required sales without the pressure to move housing stock quickly and potentially have to take a price reduction.
  • Developer exit loans can be cheaper, with lower rates than standard development finance. The interest rates are lower, which can protect your margin and prevent a profitable development from becoming loss-making.
  • A developer can use development exit loans to leave their existing finance agreement and proceed with the next project quickly, even if previous developments are pending sale.
  • You can use development exit finance to release capital from a finished development, ensuring cash-flow liquidity and flexibility. There are also options to release capital to assist with funds to carry out completion.

One of the further advantages of developer exit loans is that most lenders will agree on the borrower retaining a proportion of the proceeds from each property sale - rather than committing to repaying 100% of the profits.

This flexibility makes development exit finance an appealing option where there are other cash-flow considerations.

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What are the Eligibility Criteria of Development Exit Finance?

Each lender is different, but as a rough guide, the below list shows the general terms you'd expect to find on developer exit loans:

  • Minimums start at £100,000 with no upper limit.
  • Lenders will typically accept a bad credit applicant.
  • Interest rates start from 0.48% up to around 0.55% on a 70% LTV loan.
  • Lending isn't limited geographically and is available nationwide.
  • Most developer exit loans run for up to 36 months as a maximum.
  • First-time developers are commonly accepted.

Lenders will process the application through a relatively straightforward underwriting process, requiring information such as:

  • The value and nature of the security offered.
  • Documentation showing planning permission.
  • Copies of warranties on new build developments.
  • Schedules of any outstanding works
  • Details of your current development finance.
  • Information about the directors/shareholders of the borrower.

Is There a Limit on Development Exit Loans?

Developer exit loans start from £100,000, and there isn't an upper ceiling. Revolution Brokers often arranges lending at around 75% LTV on residential or mixed-use developments, and in some cases, can achieve up to 80% depending on other criteria.

The value available depends on the security offered in the property and your intended exit route. Note that the higher the LTV applied for, the higher the interest rates will be too.

What Does Development Exit Finance Cost?

For most developers, the most competitive rates are available through specialist bridging lenders, with interest starting from around 0.48% per month. There are also other fees to consider:

  • Arrangement fees tend to be about 1% to 2%.
  • Larger developer exit loans will qualify for closer to the 1% charge.
  • Early repayment charges are usually not applicable.

The benefit here is that if you do manage to negotiate a sale or achieve a faster sale than anticipated, you can repay development exit loans whenever you wish, without any penalty.

Development exit finance is lower cost than development finance, and so nearly always represents a cost-saving. This exists because developments can be high-risk, owing to the potential for delays or unanticipated problems.

However, development exit loans are less risky since the development is complete, a current valuation figure will be available, and there is less potential for the project to stall, fail, or take significantly longer to complete than expected.

In most cases, you can either pay the monthly interest or roll it up into the loan balance, ensuring there are no regular outgoings until the loan is repaid when the development is sold.

How Quickly Can I Arrange Development Exit Loans?

Revolution Brokers can typically complete a development exit finance process in around one to two weeks. This timescale does depend on several factors, so we can give a more accurate estimate once we know the circumstances involved.

Where development exit finance is required urgently, we can often expedite the application process.

Ideally, it would help if you left as much time as possible to ensure sufficient time to arrange the development exit loans before the term ends, or the interest starts to accumulate any higher on your development finance agreement.

You can proceed with development exit loans before the project has been signed off by building control, provided the property is watertight and windproof. Many lenders will agree on partial fund releases at this stage, with balances available when the practical completion has been signed off.

Lenders will need an independent valuation before offering development exit loans, but you can streamline this by using the monitoring surveyor already tracking the project.

Valuations are based on current market value, with lenders looking at the GDV (gross development value) less the costs required for any outstanding works.

Professional advice on Development Exit Finance

If you're interested in securing development exit loans as a low-cost exit strategy for your existing development finance, please get in touch with Revolution Brokers.

As independent professional brokers specialising in commercial and development mortgages and financing, we can negotiate competitive deals to ensure you secure the best borrowing terms on the market.

Contact the team at 0330 304 3040, or drop us a message at [email protected].

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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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.

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