Development Exit Finance
From our very first discussions Steve listened to our requirements and our long-term goals and he provided us with a comprehensive plan of action for the type of mortgage that he thought would meet our needs. He was spot on! Throughout the process he communicated with us regularly, discussed and updated us throughout the whole process and gave us a level of service over and above our expectations. Steve is an extremely knowledgeable and professional financial adviser. He keeps himself up to date with the market and any new financial products that become available. We would have absolutely no hesitation in using and recommending Steve in the future.
What Costs Are Associated With Development Exit Finance?
What Costs Are Associated With Development Exit Finance?
When seeking development exit finance, it’s important to take all of the associated costs into account. These include:
Interest rates – From 0.55% per month.
Lender arrangement fees. These are charged by lenders for making the loan arrangements and typically are paid on completion. These fees could be between 1% and 2% of the loan and are often able to be added onto the loan.
Broker fees. Some brokers also charge arrangement fees which can be as much as 2% of the total amount of the loan.
Lender exit fees. At the time of repaying the loan in full, some facilities charge an extra fee, which may either be 1% of the total loan amount or the equivalent of a month’s interest.
Valuation fees. New property developments require a Red Book Valuation to be carried out on a 180-day sale basis. Valuation fees are charged before carrying out the survey.
Legal fees. Typically, property developers take responsibility of both parties’ legal work, with the fee being paid when the facility reaches completion. Should the facility fail to complete, abortive fees are likely to be charged.
Adverse Credit. Can be considered.
Product Feature Range
Key features
| Max LTV | Up to 85% |
| Interest rate | From 0.14% per month above BoE |
| Charge types | 1st, 2nd & 3rd considered |
| Term | 1-36 months (max 60 months for regulated loans) |
| Interest type | Added to the loan, deducted or serviced |
| Completion timescale | 3 days – 4 weeks |
Criteria
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age subject to exit strategy.
- Adverse credit accepted (on a case by case basis)
- Loans from £1,000,000 with no maximum loan size with Madison Carter Finance
Development Exit Finance Calculator
The ability to adapt and change as a property developer is essential to your success, and to stay flexible, having an eye on your exit strategy is key. Being too committed to one project could lead to missing out on other potentially lucrative opportunities which present themselves.
Staying competitive requires you to maintain financial agility, and that is where development exit finance can prove to be a vital tool that allows you to fulfil your outstanding financial obligations.
This useful tool allows a property developer to move onwards from projects that have not yet fully completed while tying up their existing finance loose ends. Nevertheless, despite its ability to help resolve projects that have reached maturity, development exit finance isn’t always the right choice, and careful consideration is required of the full implications of taking on this financial product before taking the plunge. That’s another reason property development loan advice is essential.
Not only can exit finance be used as demonstrated above to maximise the amount of equity a developer can draw from a property.
The developer exit finance package can repay the current lender, allowing the developer to leave the project if it has become necessary to do so, either because the current lender requires their funds as the facility has come to an end, or to take advantage of a better opportunity that has presented itself.
Exit finance gives the property developer the opportunity to refinance the project to either release equity, buy more time, or transfer to a cheaper finance option as the site is already or almost completed.
Development exit finance gives developers another option as an alternative to committing to a project until its completion. Although the cost may be high of exiting the project before it completes, and exit finance loans may be cheaper, nevertheless, they present a valuable opportunity to exit projects and consolidate an ongoing project’s costs.
Property development as an industry can present some unexpected complexities. While the concept may appear straightforward – borrowing money to buy some land then building on it before selling it at a profit – the reality can be far more complicated.
For example, a large property development may be mostly sold but with a few empty spaces still available for sale, or a property may mostly be completed but a couple of finishing touches are still needed before the property can be sold on.
When situations like these arise, there’s not really any need to stick with the existing development finance arrangement that was put in place to help build the property. Development finance packages consist of large amounts of capital used to construct the project from scratch. As a result, it comprises a very large percentage of the total value of the property.
A loan this large may not be necessary once the project has almost reached full completion, and the developer can benefit if they consolidate that borrowing into a single exit finance package instead.
This example illustrates how development exit finance can help make a development that is virtually completed more profitable. Let’s imagine that a newly constructed apartment block cost £15 million to build. This amount was sourced via development finance over the project’s course.
Now the building is complete and ready to accept its first residents, and although most of the apartments have been sold, there remains a couple that have yet to attract a purchaser. The property development is now in a difficult situation, since they can’t repay the loans in full until buyers have been found for the whole property.
While the majority of the money required to repay their creditors has been gained, the loan cannot be fully repaid, and repayments will not be met once the term of the loan has expired.
Of course, non-repayment of the loans is out of the question, since the lender may repossess the assets. Therefore, seeking out a refinancing option is the best course of action since it enables the developer to retain the ownership of the assets while also being able to satisfy their financial commitment to the lender. This is where development exit finance comes into play.
It allows the developer to rapidly satisfy their creditor while also minimising the costs of maintaining the loan. Since the majority of the money is already in place to complete the repayments, only a small development exit loan is needed and the rate is likely to be more affordable and buys more time to sell. This could be as little as 12 months for a marketing period or to finished the development project.
There are several factors that dedicate how long it will take to complete development exit loans. These include the complexity and size of the project, how creditworthy the borrower is, and the lender’s own requirements.
On average, though, it takes between 3 days and 4 weeks for a development exit loan to complete and funds to be drawn down. If any delays or complications arise, it may take longer.
What Will Happen When The Properties Begin To Sell?
Development finance loans see all of the proceeds of sales go towards repaying the total loan amount. Development exit finance, on the other hand, operates differently, with most lenders typically allowing property developers to retain a portion of their sale proceeds.
As a result, it’s possible to control cash flow throughout the selling process. On the other hand, if a property developer wishes to repay their loan as fast as possible, they can use all of the sales proceeds to reduce their loan balance.
These loans give property developers sufficient funds to complete their construction project then exit during the development stage. The benefits of taking out development exit financing include:
Access to valuable funds: A development exit loan can give property developers the funds they need to complete their project even when other finance options like a traditional bank loan are unavailable.
Speedier completion: When developers have the funds they need in hand via development exit finance, the project can be completed more quickly, thus increasing ROI.
Reduced risk: A development exit loan can enable developers to manage the risks associated with construction projects by supplying an ongoing funding source that allows the focus to remain on project completion.
Higher returns: When projects are completed on budget and on time, a higher ROI is possible. Also, the interest rate may be cheaper than that for development facilities.
How long does it take to complete the loan?
The length of time it takes to complete a development exit loan can vary depending on a number of factors, such as the size and complexity of the project, the lender’s requirements and the borrower’s creditworthiness. On average, it can take 3 days to 4 weeks to complete a development exit loan, to draw down funds. It can take longer if there are any complications or delays.
It’s best to speak with one of our advisors to get a more accurate estimate of how long it will take to complete the development exit loan for your specific project.
How much can I borrow?
Good question. The answer will very depending on the term or time the exit loan is required for. The gross loan is typically 75% and depending on the time reduces the net loan as the retained interest will eat the day one funds available. Madison Carter Finance Bridging Loans has access to an exclusive 75% net loan facility for special clients. Speak to an advisor today to find out more 020 7431 7606
What happens when I start selling the properties?
Unlike development finance, which sees all sale proceeds used to repay the loan amount, development exit lenders are generally happy to allow you to keep a proportion of the sales proceeds.
This allows you to control your cash flow during the sales process and move forward with your next project.
Of course, if you would prefer to repay the loan as quickly as possible, you can use 100% of any sales to reduce the loan balance.
Why should I look to take development exit finance?
Development exit finance, also known as a construction exit loan, is a type of loan that can provide developers and builders with the funds they need to complete a construction project and exit the development stage. There are several reasons why you might consider taking a development exit loan:
Access to capital: Development exit loans can provide you with the funds you need to finish a project, even if other financing options, such as traditional bank loans, are not available.
Faster completion: With the necessary funds in hand, a development exit loan can help you complete your project faster, which can increase your return on investment.
Reduced risk: Development exit loans can help you manage the risk associated with a construction project by providing a steady source of funding and allowing you to focus on completing the project.
Higher returns: A project completed on time and on budget, can result in a higher return on investment. The rate of interest maybe cheaper than a you are paying for a development facility.
It’s important to keep in mind that development exit finance may have higher interest rates and more strict requirements than traditional bank loans, so it’s crucial to consult with a financial advisor and understand the terms of the loan before taking it.
Can I achieve better terms if my project has hit practical completion?
Lenders may be more willing to provide financing for a completed project because it presents less risk and the lender can see exactly what they are financing. Completed projects are easier to run an analysis evaluated for its value, which can make it easier to determine the loan amount and terms. Terms will be more favorable if the project has already hit practical completion.
If the project has already completed and generating revenue, the lender will be more willing to provide financing because there is a steady stream of income to exit the loan.
However, keep in mind that this may not always be the case, as lender’s criteria and policies may vary, and it’s always best to consult with a financial advisor or lender to understand the terms and conditions of the loan.
It’s also important to have a clear plan for repaying the loan, as well as an understanding of the cash flow and projected income from the project, to ensure that you can make the loan payment(s) on time.
What happens if I repay the loan early?
If you repay a development exit loan early, it can have some benefits for you as a borrower, depending on the terms of the loan and the lender’s policies. Some lenders may charge a penalty for early repayment, while others may not.
An early repayment fee. These fees are usually a percentage of the outstanding balance of the loan, and can vary depending on the lender.
However, not all lenders charge a pre-payment penalty, and some may even offer incentives for early repayment. For example, some lenders may offer a lower interest rate if you agree to pay off the loan early.
It’s important to check the terms of the loan agreement and to consult with the lender to understand the costs and benefits of early repayment. It’s important to have a strategy in place to ensure that you can afford the lump-sum payment that is required.
Overall, repaying the loan early can help you save on interest costs and help you to own the property sooner, but it’s important to weigh the pros and cons before making a decision.’
Can I get a quote for this to be re written so not simular?
How does developer finance work?
A property developer will take out a development facility and with a term attached to it. If the time has ran out then the lender will require there funds with interest back.
The project has hit practical completion or about to and the current lender requires the funds back or sales are thin on the ground. Some property developers use development exit finance to release equity on day one. This helps increase cashflow or and extends the marketing period so they buy more time for the sales to complete.
Exit loans can be a cheaper rate of interest than the original facility. The construction may need more capital to complete the project thus the need for construction exit loan.
What happens if I repay the loan early?
When the develop exit loan is arrange the developer will require the loan for a term i.e 12 months. The time will reduce the amount of net-loan available on day one. Thus, you will pay for what you use but many have a minimum term* a refund maybe payable.
How long does it take to complete the loan?
We say typically 4 weeks but we have transacted quicker. It comes down to the stage of the project and the turn around for documentation from the property developer to satisfy the underwriters.
What happens when I start selling the properties?
This will depend on the terms agreed in advance to complete the loan but property developers do release equity on day one. This helps with cashflow.
What other cheaper financial products are available?
Mezzanine Finance is just one option for obtaining short-term financing. There are other alternative, such as engaging a private lender to bridge the financial gap – that could be us. This could involve using our own resources or you leveraging on other assets.
UPDATE: Next Development Finance Terms?
- Loan term: Up to 36 months
- Loan size: £3-40m
- Up to: 70% LTGDV
- Up to: 90% LTC
- Location: England, Scotland & Wales
- Interest Rates – Fixed 9.99% to 60%, 10.49% to 65%, 11.99% to 70% LTGDV
- Variable Tracker – BBR + 5% to 60%, BBR + 5.5% to 65%
- Asset Class: Residential C3, PBSA, Care, BTR/PRS
The Financial Conduct Authority (FCA) may regulate your loan. If your loan is regulated we can deal with your application. It must be submitted through an FCA regulated intermediary.