A Guide to Development Exit Finance
Development exit finance is a type of bridging loan used to repay the outstanding finance on a property development once the project is complete.
It is commonly used if the existing development finance is coming to an end and the sale of the property has not completed in time. In this case, the development exit finance will be used to repay the finance currently in place or to release capital from the property so that the developer can move on to their next project.
Alternatively, where other types of finance can be expensive, development exit finance has lower rates and can reduce finance costs.
Development exit loans are becoming more popular for developers and investors given the current Brexit climate as they provide flexibility and allow them to keep building their portfolio.
How much development exit finance can I borrow?
Most lenders will offer minimum loans of £100,000 and there is no maximum lending limit. Typically, lenders will offer a 70% LTV (loan to value) on residential or mixed-use developments, and up to 70% LTV for commercial developments.
Additionally, if you own the property or land outright you may be able to access 100% of the development costs.
How long can I borrow development exit finance for?
Development exit finance is considered as a short-term finance solution. Most lenders will offer terms of 1 month to 3 years; however, the average term is 12 months.
How much do development exit loans cost?
As development exit finance is short-term finance, the interest payments are calculated on a monthly basis rather than an annual basis. You can expect to pay monthly interest from 0.4% and there is usually the option to pay the interest monthly or pay it rolled up into the total loan amount.
Most lenders will also charge an arrangement fee, which will vary based on the terms of the loan, the loan size and loan value. Typically, this is 2% of the loan amount and there are usually no early repayment fees.
A broker will be able to access a wide market of providers and negotiate the best deal for your development. If you choose to use a broker, you can expect to pay an upfront fee or 1-2% of the loan.
How Long Does it Take to get a development exit loan?
Development exit finance is generally fast to secure, providing the development is not too complex and the application is completed correctly.
Most lenders will provide the funds in as little as 2 weeks. Again, a broker will be able to help make the application process run smoothly and chase up providers if needed.
What do I need to get a development exit loan?
The application process for development exit finance is not as strict as other types of property finance. This is because the development is complete at the point of needing the development exit finance, meaning there is limited risk for the lender, and it acts as substantial security for the loan.
The exit strategy is the most important aspect of the application and lenders will want to know how the developer plans on repaying the finance.
They’ll also consider the type of property, the demand for it in the current market as well as the developers’ previous experience in commercial property.