What is development exit finance?
Development exit finance is used to replace the original development finance. Development exit finance is cheaper, allows the developer more time to sale and raises extra funds for subsequent projects.
Development exit finance, also known as sales period finance, is a developer exit product created to improve a developers cash flow, relive pressure to sell units at a discount and reduce finance costs.
When is development exit finance used?
Exit finance should be used as soon as a development is complete and the development has not completely sold. By putting in place the exit finance a developer can extend the time they have to sale.
The product can also be used to increase borrowings prior to sale of a site in order to free up cash to allocate to a new project.
Advantages of development exit finance
- Lower rate of interest compared to initial development finance
- Extends the sales period
- Additional funds raised to allow a developer to move on to the next development project
- Rolled up interest meaning no monthly payments to make
- Repaid only when all units have sold
- 75% loan to value
- Rates starting at 5% (less for longer term exit finance)
- Loan size from £250,000 to £50 Million
- Freehold or leasehold property
- Adverse credit accepted
- Foreign nationals, expats and offshore SPV’s
- Term to 36 months
- Completion usually within 2 to 4 weeks
- UK coverage
- No exit fees
Development exit finance options
Once a development is complete the remaining units can be financed in 2 ways; development exit bridging finance or buy to let finance.
Development exit finance is form of bridging finance. Compared to development finance the risk to a lender is reduced as the property is complete and ready for sale. Therefore, the rate of interest reflects the reduced risk.
A developer may decide to retain some units of a development and hold as an investment. In this case buy to let finance can be utilised.
Buy to let finance is possible to 80% loan to value and interest rates are lower than development exit finance.
Our client had built 6 flats and had utilised senior debt at 9% and mezzanine finance at 15%.
The development had neared completion and 2 of the 6 units had sold.
The original development finance was due to end in 4 weeks.
Our client’s options were to extend the original finance or replace it with development exit finance.
Extending the original development finance would incur additional charges.
After investigating our client’s options, we were able to replace the development finance at a lower rate of 7.49%. The exit finance, also know as sale period finance, was put in place for a period of 12 months which would allow our clients plenty of time to sell the remaining units.
Do all the sales proceeds have to go to the lender?
No, lenders are flexible and will work with a developer to ensure you receive a % of each sale whilst also ensuring their debt will be repaid when the final unit is sold.
Are there valuation and legal costs?
As with any ‘remortgage’ the lender will need to ascertain the value of the property. It is possible to use the original surveyor which can often reduce the survey costs.
Solicitors will need to be instructed to ensure the lenders security is sound. The solicitor will repay the existing debt and register the charge in favour of the new lender.
Is there an exit fee?
Unlike development finance there are no exit fees. The lender will charge an initial arrangement fee.
Do you charge a broker fee?
Fox Davidson work with lenders that pay us a commission for introducing the business to them. We do not charge any fees for development finance, development exit finance or for most of our bridging products.
In the rare instance that a lender does not pay us a fee we will charge up to 1% of the loan amount.