Refinancing a development loan when the facility matures

What a lender reads: a plan or a problem

A scheme being refinanced rather than sold gets read carefully, because a refinance can be a considered next step or a sign that the exit has slipped, and a lender wants to know which. The signals that read as a plan are a completed or progressing build, a valuation that supports the new loan, a stated destination the numbers back up, and a developer who came early rather than in the last fortnight. The signals that read as a problem are the reverse: a stalled build with no revised programme, an exit already missed, a valuation no longer covering the outgoing balance, and a facility near default. This distinction decides whether a lender engages and how it prices. A refinance arriving as a tidy handover to a sensibly chosen facility is a straightforward underwrite; one that arrives as a rescue, with the incumbent development finance lender already applying default interest, is priced for that risk and harder to place. We frame it as a plan by packaging the build evidence, the valuation and the intended exit before the deadline, so the lender reads a controlled transition rather than a fire.

How much each route advances against the finished scheme

How much the refinance releases depends entirely on which route it takes. An exit bridge is measured against the completed scheme's gross development value, running indicatively up to a 70 to 75 percent loan to GDV, and that figure is frequently higher than the development loan being cleared because the asset is now valued as finished homes instead of on cost, so the headroom can free equity above the outgoing balance for the next site. Term or buy-to-let debt works the other way: its loan to value is held down by the rental income the units generate, since an interest coverage ratio has to be met, so a scheme with strong capital value but thin rent is limited by the rent rather than by the valuation. A fresh development facility is sized on the remaining cost to complete plus a slice of the end value, drawn in stages against monitored works, so the day-one advance tracks what is left to build. We model all three routes so the developer can see which one releases the most proceeds. Those figures are illustrative, move with the lender and the scheme, and depend on principal sign-off.

Refinancing before expiry against refinancing after it

The single largest cost lever on a development loan refinance is timing, and it is not the headline rate. Refinance before the original facility expires and the developer negotiates from strength: the incumbent development finance lender is repaid on schedule, pricing on the new facility reflects an ordinary underwrite, and there is no black mark on the credit file. Let the facility expire first and three costs stack up. The outgoing lender typically switches the balance to default interest, which is materially above the contract rate and accrues daily until repayment. The relationship sours, which matters because development is a repeat game and a lender that has had to chase a redemption remembers it. And the missed redemption can surface on the credit file and in the next lender's underwrite, tightening pricing on the refinance. Beyond timing, expect the ordinary costs on the new facility: an arrangement fee indicatively around 1 to 2 percent, a fresh valuation, and legal costs for both sides. We disclose our broker fee in writing and quote the all-in cost, and the strongest saving we arrange is almost always the one from moving early.

Exit bridge against term debt against a fresh development facility

The three routes are not competitors so much as answers to different questions, and picking the wrong one is expensive. An exit bridge answers I am selling: monthly-priced, sized on gross development value, and it lifts the redemption deadline so the units can sell at full value instead of at a discount, but it is the wrong tool for a developer who means to hold on a monthly rate for years. Term or buy-to-let debt answers I am keeping and letting: annually priced, driven by rental cover, cheap to hold, but it needs a completed, lettable scheme and enough rent to pass the coverage test. A fresh development facility answers there is work left to do: it funds the remaining build in stages, but will not cheaply hold a finished asset or fund a sales runway. The decision tree is simply this: unfinished works route to a development facility, a finished scheme being sold routes to an exit bridge, and a finished scheme being kept routes to term debt. We model each so the choice is made on cost and fit, and the bands here are indicative, not an offer of finance.