Development exit loans for completed schemes

What a lender needs to see on a completed scheme

The lender behind a development exit loan is assessing a completed, sellable building instead of a long trading record, which is exactly why this finance can reach a developer who would not have secured the original ground-up development facility on track record alone. Most lenders relax once the scheme hits practical completion, since the build risk that set the price of the development loan has fallen away. They ask for the completion certificate, the building regulations sign-off and structural warranties, plus an independent valuation of the finished asset, and above all a credible exit: a sales programme with realistic pricing and a sensible absorption rate, a lettings plan, or a refinance route onto term or buy-to-let debt. On a part-finished scheme the bar rises, because the lender has to price the works still outstanding, so the rate lands somewhere between a construction rate and a finished-scheme rate. The single thing lenders scrutinise hardest is not the borrower but the repayment route, because a development exit loan with no realistic way out simply moves the redemption-date problem a few months down the road. We confirm and document the exit before the loan draws, so it clears on time rather than being rolled again and again. All criteria vary by lender and scheme and none of this is an offer of finance.

Sizing the loan on GDV and the equity it frees

We size a development exit loan against the completed scheme's gross development value with the loan to GDV ratio landing illustratively between 70 and 75 percent, reaching the top of that range where the asset is strong and fully finished. That advance often tops the development finance being cleared, because the building is now valued as finished rather than at cost, and the difference between the two is trapped equity the loan can free. A developer can channel that freed capital straight towards the deposit or land cost on the next scheme, recycling equity long before the final unit legally completes. What drives your cash position is the net advance: on day one the net loan is the gross facility less the lender's fees and any interest that has been retained or rolled up, so it pays to model net against gross before committing, which is exactly the job of a development exit loan calculator. Interest is normally retained or rolled up over the term, which leaves nothing to pay out of sales proceeds until units start selling, though some developers still service it to hold the balance down. Before we approach any lender we model the deal against GDV, the equity it unlocks and the net advance across the expected term. Every band here is illustrative, varies by lender and scheme, is subject to principal sign-off, and is not an offer.

A worked example, the monthly saving on a two million pound facility

The clearest way to see what a development exit loan does to your cash position is a worked figure, and the one that follows is purely illustrative. Take a completed scheme still carrying a two million pound development finance facility priced at roughly 1.1 percent per month for construction risk. That facility costs in the region of 22,000 pounds a month to hold while the units sell. Refinance the same balance onto a development exit loan at an indicative 0.8 percent per month and the monthly interest falls to around 16,000 pounds, a saving of about 6,000 pounds a month, or roughly 36,000 pounds across a six month sales runway, before the value of removing the redemption-date pressure is even counted. Alongside the monthly rate, allow for the lender's arrangement fee, indicatively in the region of 1 to 2 percent of the facility, an independent valuation, both sides' legal costs, and on occasion an exit fee. Time is the biggest lever on the total, since a facility carried for three months costs a small fraction of one carried for eighteen, so a credible sales plan counts for more than hunting the lowest headline rate. Our broker fee is disclosed in writing and we price the full cost stack across the expected term. These figures are indicative only and not an offer of finance.

Development exit loans against the cost of a forced sale

The real alternative to a development exit loan is rarely another lender, it is what happens if you do nothing and the redemption date arrives. Staying on the development finance past practical completion is the expensive default: it keeps charging construction-risk pricing the asset no longer warrants, and when the term expires the lender can push a sale on its timetable rather than yours. That is where a forced sale eats profit, because units sold quickly to clear a facility routinely go for well below open market value, and the discount on a single scheme can dwarf a year of interest. A development exit loan is cheaper than that outcome on every axis: it lowers the monthly carry, moves the deadline out to match the genuine sales runway, and hands the timing of each sale back to the developer. It is better suited than a plain bridging loan too, because it is underwritten specifically on a finished scheme and its exit rather than as a generic short-term bridge. Where the finished units are to be held and let, the eventual route is normally a refinance or remortgage onto buy-to-let or investment term debt once the rental income beds in, with the exit loan carrying the asset until that income is there. We arrange a development exit loan only where it truly cuts the carry or wins the scheme the time it needs, and never as an offer of finance.