Development Exit Finance

The UK is seeing something of a resurgence of property development recently, with many government figures showing an explosion in construction activity since the pandemic.

With the huge rise in demand for property, as well the government’s current strategy of encouraging house building by making it easier to be approved for planning permission, there have been noticeable lots more housing developments going up across the country.

It’s also meant that a lot more investors are now seeing building property as a viable investment and money making pursuit, and subsequently it’s meant that many lenders are responding to this demand with more specific types of finance specialised for developers and investors who are looking for more suitable ways to finance their projects.

Given that recent figures put yearly property growth at more than 10% it’s no surprise that many developers are now looking to increase their exposure to the UK property market.

Having said that, arranging finance for a development can be quite complex, and can take some time to agree and re-arrange if necessary, and that’s why many of our developer clients come to us, as we have access to a range of finance products suited to their needs, with relationships with many different types of lenders across the market.

What is development exit finance?

In simple terms, development exit finance is used to pay off outstanding finance or loans on a property development once it’s been completed.

There can be a number of reasons for this, however, the main reasons we see our clients coming to us for development exit finance are:

• Their existing development finance is coming to an end and the sales of the development haven’t completed yet. In this circumstance it could be that the existing lender isn’t willing to extend the finance terms, or that they’re offering terms or interest rates that aren’t competitive.
• Cheaper finance – Again, sometimes shorter term finance can be quite expensive, and this situation many of our clients will use development exit finance to get better rates, certainly at the moment with much lower base rates.
• A different use is to release capital from an existing development so that the developer can move on to their next project before the completed sales of their existing project.

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What are development exit loans used for?

As mentioned above, these types of development exit loans, or development exit finance, are broadly used to release capital once a development is completed.

That may be because an existing arrangement is coming to an end, clients are looking for a better finance rate, or the developer wants to release capital to start a new project before all the units have been sold from an existing development.

They can be used for a variety of reasons, however, and if you want to discuss your situation in more detail, we’d suggest getting in touch with one of our finance advisors who can understand the detail of proposal more.

How does development finance work?

In essence it’s not that dissimilar to any other type of development finance or loan, in that the first stage would be to speak to a broker to discuss your circumstances and ensure that development exit finance is the right choice for you.

Secondly, we’ll assess whether you meet the criteria for development exit finance, and if you do we’ll then proceed forward with your application where you’ll be asked to provide some documentation such as, for example, valuations, proof of income and ID.

Once we’ve received your application, we can then go out to our panel of lenders are present you with some agreements in principle to allow you to choose either the best rates or the best terms for you and your development.

As opposed to more traditional finance where the proceeds of any sales are expected to go towards the repayment of the loans, development exit finance providers are usually happy to let you keep some of the profit in these arrangements, but this is something that a finance provider would discuss with you in more detail.

Once a loan is agreed, the paperwork will be completed, and the funds will be released to you.

Criteria

Loans for developer exit are usually from £100,000 and have no maximum, but this will depend on you and your circumstances. Adverse credit is accepted, and it’s generally accepted that a lot more focus is given to your track record of success and the development itself, rather than just your personal credit rating.

Rates start at about 0.5% and up to about 1%, again depending on firstly the Loan To Value (LTV) and then the size and value of the loan, the length of time and your personal circumstances.

Lending is available across the UK and terms can be up to 36 months with new developers accepted.

Development finance calculator

We have included a calculator to give you a better idea of what the cost implications would be depending on the amount of the loan, the LTV, the interest and the length of the loan.

This is meant to give you a guide of costs, but if you’d like to get a more reliable and specific indication of costs then it’s better to get in touch with a broker.

How much can a property developer borrow?

Theoretically this amount is unlimited, but as discussed earlier this will depend on the overall value of the development, where you are with regards to completing your development, your credit rating, and your previous success rate.

There is no ceiling to the amount you can borrow, it’s simply contingent on your own circumstances, experience and your development.

How much will it cost?

In most cases you’re likely to pay an arrangement fee of between 1% and 2%, paying less for larger loans, and higher up the scale if you’re not borrowing quite as much.

You’ll then pay a monthly interest rate usually between 0.5% and 1%, but again this totally depends on your situation and your development. If you’ve got a good success rate and you’ve got a good development likely to sell, then you’re likely to be offered a better rate of interest.

Aside from that most lenders for this type of development exit loan don’t charge early repayment fees or exit fees, so they’re preferable in many ways to more traditional development finance.

How long will it take to complete?

This type of development exit loan is actually quite quick, relatively speaking, compared to other types of finance and we can usually have your finance done and agreed within 7-14 days.

If you need the finance even more quickly than that, then we may be able to speed things up for you, all being well, and criteria being met.

We work with the largest development finance lenders

As an experienced broker we have great relationships with all the biggest development exit loan companies, and more often than not operate as the preferred partner, meaning that we can get our clients exclusive and preferential rates.

We work with a diverse panel of lenders, with many you wouldn’t normally have access to via traditional means, and so we can always ensure than we’ll have access to the best lenders on the market.

Development finance for developers in Scotland

One of the key benefits of this type of finance is that it’s available all across the UK and that means our clients in Scotland can also access our exclusive rates and deals.

Summary

This type of development exit loan is really positive with our clients that are either near completion or have completed their development and are looking to release equity.

This type of finance is extremely useful and flexible and is usually cheaper than traditional development finance.