Development exit finance for new-build housing schemes

What lenders check before funding a phased housing exit

Exit lenders are most comfortable once the houses have reached practical completion, since the construction risk behind the development finance has dropped away, and on a housing scheme they underwrite the estate title by title rather than as one asset. They want the completion certificates, building control sign-off and the NHBC or equivalent structural warranty on each plot, a valuation broken down by house type, and a sell-down plan priced realistically, with an absorption rate the local market will bear across the mix. Where roads, drainage or open space are not yet adopted, they will look at any Section 38 or Section 104 agreement and the bond securing it, because unadopted infrastructure and retained obligations affect both value and saleability on the plots still to sell. They assess the developer's track record, but they are lending against finished, saleable houses, so a developer only a scheme or two in can still fund where the plots are genuinely complete and the exit is sound. We confirm and document the sell-down and any retained obligations before the facility draws.

Sizing the loan against value across the site

Housing exit finance is sized against the aggregate value of the completed plots, indicatively as high as 70 to 75 percent of the scheme's gross development value, and on a larger estate lenders will often work instead to net development value, trimming the headline aggregate for selling costs, incentives and the time it takes to absorb the remaining plots. That basis usually leaves more headroom than the maturing development loan does, because the houses are valued on completion now rather than at cost, so the surplus above the senior debt can be freed as equity from plots already legally completed for the developer to roll into the next site. The facility runs for the expected sell-down, typically six to eighteen months, and interest is normally retained or rolled up, keeping monthly cash flow off the hook while the estate is still selling. Each plot that completes part-redeems the loan, so the balance outstanding and the interest on it step down together. Bands here are all illustrative, differ by lender, site and house-type mix, depend on principal sign-off, and are not an offer.

The monthly carry and how each redemption cuts it

The reason for moving onto an exit bridge is the saving: refinancing off construction-priced development finance onto value-led short-term finance usually trims the monthly cost and takes away the maturity pressure that would otherwise force a discounted bulk sale. Indicative pricing runs at roughly 0.65 to 0.95 percent per month, a modelling band, never an offer, with interest normally retained or rolled up in place of being serviced. Beyond the rate, budget for a lender arrangement fee of indicatively about 1 to 2 percent, a valuation, both sides' legal costs including the per-plot release work, and on occasion an exit fee. Across a phased sell-down the total behaves differently from a single-block exit, since interest accrues on a balance that drops with every plot that redeems, so a site selling briskly across its house types is far cheaper to carry than one where the larger plots stall. Time is the main lever, so a credible sell-down plan counts for more than the headline rate. We set out our broker fee in writing, and set out the complete cost picture across the sell-down, and never invent lender numbers. the figures are working models, not offers of finance.

How a housing exit differs from a single-block exit

A housing scheme exit and an apartment block exit share the same purpose but behave differently in practice, and the difference is the sell-down. A single block is usually one building and, where sold whole, can repay in one or a small number of events, so the facility is often a straightforward hold across the marketing period. An estate is a collection of individual titles that complete and redeem plot by plot, frequently across several house types selling at different speeds, so the exit facility has to part-redeem, price a release per plot and keep the retained security ahead of a balance that shrinks unevenly. A housing site also carries obligations a block rarely does, such as roads, drainage and open space held under a Section 38 or Section 104 agreement and secured by a bond, which run on after practical completion and bear on the value and saleability of the plots still to sell. We map the estate onto a facility built for that phased, title-by-title mechanic rather than one designed for a single asset.