Development Exit Finance

So what are the benefits of Development Exit Finance?

Development Exit Finance is a type of bridging loan designed to help property developers reduce costs and maximise profits during the final stages of a development project. It allows developers to refinance their existing, often more expensive, development loans with a lower-cost option once the project has progressed significantly, usually with 10% of build tasks remaining.

Development finance is typically sourced to fund an entire project from start to finish, which makes it riskier - and therefore more expensive - especially at the early stages. Exit finance, however, offers a cost-effective alternative by allowing you to switch to a cheaper loan once the project is largely complete, for example, when the property is wind- and watertight. The reduced risk at this stage translates to more favourable rates from lenders.

How Does Exit Finance Work?
Development exit finance works by replacing your existing development loan with a new, more affordable one because most of your project is completed, and the risk for lenders is lower, resulting in reduced interest rates; This switch to an exit loan can lead to immediate savings for the builder, as development loans typically accrue interest monthly.

By refinancing with development exit finance, you stop paying the higher interest on your original loan and/or gain additional flexibility to complete any remaining work or take a longer time selling the property; This ensures you maximise the final value of your development.

Example
Consider an experienced developer who secures a 12-month development loan to purchase and renovate a property. After completing 90% of the project, they still have five months remaining on their finance term. Instead of continuing with the more expensive loan, they switch to development exit finance, reducing their interest costs while marketing the property for sale; The savings can then be reinvested in their next project.

Key Uses of Development Exit Finance - There are three primary reasons to consider development exit finance:

1. To Save Money While Selling the Property
For high-value or bespoke properties that may take longer to sell, minimising holding costs is crucial and development exit finance offers lower interest rates, helping you reduce expenses while your property is on the market. In some cases and scenarios, you can even raise additional funds to enhance your marketing efforts.

2. To Avoid Rushed Sales
If it seems unlikely that your property will be completed and sold within your existing loan term, development exit finance can provide you the breathing room to finish the project to a higher standard without being forced into a rushed sale just to meet repayment deadlines; This helps ensure you achieve full market value.

3. To Fund Your Next Development
Development exit finance can allow you to release equity from your completed project, which can then be reinvested into a new development and this can enable you to keep your business moving forward without waiting for the property to sell.

So, what are the Costs Associated with Development Exit Finance?
Development exit finance is structured similarly to bridging and development loans, so the costs involved should feel familiar to most developers. Here’s a breakdown of typical (As of October 2024) expenses:

• Lender’s arrangement or facility fee: Usually around 2% of the loan amount.
• Loan drawdown/admin fee: Often a flat fee, typically around £295.
• Redemption fee on your existing loan: Around £120.
• Exit fees: Some lenders charge up to 1.25% of the loan amount upon repayment, but SHEDyt Partners can avoid working with lenders that impose these fees.
• Survey/valuation fees: Costs can vary depending on the complexity of the project.
• Legal fees: Usually around £850 + VAT.

The biggest cost to consider is the interest rate, which can vary depending on the specifics of your project; However, rates for development exit finance are often significantly lower than those for initial development loans.

Interest Rates for Development Exit Finance
While the exact interest rate depends on your individual circumstances, SHEDyt's Partner can offer market-leading rates starting as low as 0.55% (Correct as of October 2024)

How Much can a Property Developer Borrow?
Development exit finance allows you to borrow between £100,000 and £25 million, depending on the size and nature of your project. Typically, lenders offer up to 75% loan-to-value (LTV), although for certain refurbishment projects, this can go as high as 90% gross LTV. The amount you can borrow is largely determined by how easily the property's value can be realized upon sale.

Can First-Time Developers Get Development Exit Finance?
Yes, first-time developers can access development exit finance, though options may be more limited. SHEDyt Broker Partners, work with lenders who are open to working with less experienced developers, provided they have a clear and realistic development timeline in place.

How to Apply for Development Exit Finance
You can secure development exit finance either by approaching lenders directly or by working with a specialist broker. Going directly to a lender may require extensive documentation and may not give you the best comparison of available rates. Working with SHEDyt's Development Finance Exit Partners can streamline the process by leveraging our relationships with multiple lenders and ensuring they can quickly source the best deal for you.

How Quickly Can Development Exit Finance Be Arranged?
Depending on the complexity of your case, development exit finance can be arranged within a week and complex cases may take up to a month or so.

Ready to Apply for a Development Exit Loan?
A SHEDyt associate can help you assess your needs and guide you through the application process, working with lenders to secure the best terms for your project. If you’re interested in learning more, you can speak to one of our advisers for a free, no-obligation consultation by using this product link Development Exit Loans for Property Developers or book a meeting here > shedyt.youcanbook.me