Development exit finance allows you to repay your original development finance once your project has been completed and before the development has been sold. This is usually a short-term, specialist bridging loan provided at a lower rate than your development finance. It’s an excellent way to reduce your costs, improve your cash flow and benefit from more time to sell your development.
Why use development exit finance?
The most common ways to repay your development finance are from the sale of the completed property or site, by arranging long-term refinancing or refinancing via a development exit product. There are various reasons to consider using development exit finance as your exit strategy. Here are the main ones:
- It relieves the pressure of having to make quick sales. Your development finance term may be nearing its end and you haven’t completed the sale of your development. Development exit finance gives you a longer sales period. This takes away the pressure and prevents you from having to accept low prices.
- It reduces your borrowing costs and increases your profit margin. You benefit from lower rates than with your initial development finance. This is because your project has been completed and is considered less of a risk to the lender. Particularly when you’re finding sales slow, this can save you a significant amount of money.
- You can release some capital earlier. Rather than having to wait until a sale has been completed, you can free up some of your capital. This allows you to move on from the project you’ve just finished to a new one.
- You can keep some of the sale proceeds. This is different from development finance in which all of the sale proceeds are used to repay the loan. Lenders are more flexible with development exit finance so you will be able to keep a percentage of the sale proceeds. If you have some units to sell in Bexleyheath, for example, the lender will let you have a percentage of every sale knowing that the loan will be fully repaid when the last unit is sold.
Are there fees to pay?
There are some costs to consider when applying for development exit finance:
- Arrangement fee: Most lenders charge an arrangement fee. This varies depending on the size of the loan you need and the loan-to-value (LTV) ratio.
- Valuation fee: In just the same way that a lender has to check a property’s value when you apply for a remortgage, your lender needs a new valuation of your development project to be carried out for the exit loan. You can use the same surveyor as before so this may help to keep your costs lower.
- Legal costs: The legal aspect of the transaction needs to be carried out by a solicitor and their legal fees are your responsibility.
- Interest rate: As previously mentioned, this will be a lower rate than you have been charged for the development finance. The interest is usually rolled up so that you don’t need to worry about making monthly payments.
You won’t need to pay an exit fee, which is different from development finance. This means you won’t be penalised if you repay the loan early.
What if you haven’t completed your project?
If you need extra funding to finish the work on your project, you can apply for finish and exit development finance. For example, you may still be building some units in Bexley but your existing development finance is nearly depleted. Finish and exit development finance is a short-term loan to provide you with additional funds to complete your development. The loan term gives you enough time to finish the work needed and sell the development afterwards.
Consult a specialist broker
Every development project is different and your broker will look at the specifics of your case and your requirements before approaching a lender. With considerable expertise in this field, your broker in Kent, London or Edinburgh can help secure the best development exit finance to suit your circumstances.