Development exit finance

Development exit finance is a short-term loan taken out at or near the end of a build to repay the development lender. It gives the developer time to sell or let the finished units on their own timetable. Because the build risk has largely gone, an exit loan is often priced lower than staying on development finance after completion.

Exit loans are also called development exit bridges or sales period loans. They are secured on the completed units, usually by a first charge, and repaid as units sell. They are business lending, so they are usually unregulated.

A development exit loan is used when the build is finished or close to it but the units have not all sold before the development loan term ends. It is also used when a developer wants to start the next project and needs to release capital, or when the build lender's pricing rises after practical completion.

Some developers arrange an exit loan before completion so it is ready on the day the build loan ends. The timing depends on the stage reached, as explained in the guide what is development finance.

Exit lenders want evidence that the scheme is complete, or that only minor works remain. That usually means building control sign-off or a completion certificate, a warranty provider's final inspection, and a valuation of the finished units. They also look at the sales evidence, how many units have sold or reserved, and the agent's pricing.

The loan is usually based on the value of the unsold units. If several units are already reserved, lenders may lend a higher share because the repayment route is clearer.

Costs include monthly interest, arrangement fees, valuation and legal fees, and sometimes exit fees. Interest is often rolled up or retained, so there are no monthly payments while units are marketed. Each sale usually repays a set amount to the lender, called a release price, which is agreed at the start of the loan.

Comparing the cost of an exit loan with staying on the build loan helps, especially where several units remain unsold, because extension fees and default rates on development finance can be high. The development finance rates page explains how pricing is built up. Release prices are usually set above each unit's share of the loan.

Sometimes. If the exit loan is larger than the amount owed to the build lender, the difference can be released to the developer. That can fund the deposit on the next site before every unit has sold. Lenders limit this to a share of the unsold units' value and want a realistic sales plan before agreeing it.

Releasing profit adds to the debt secured on the scheme, so it raises the risk if sales slow, and lenders may hold back more from each sale to compensate until the loan is cleared. Development finance brokers can compare exit lenders' terms on a particular scheme.