Development Exit Finance: Refinancing a Completed Development

Development exit finance is a refinance facility taken out once a development is at, or close to, practical completion. It repays the outstanding development loan in full and replaces it with a facility priced for a finished asset with a clear sales or letting plan, rather than for a live building site. Lenders describe the point of practical completion as the trigger, evidenced by a certificate from the project's monitoring surveyor or building control sign off.

Because the construction risk is behind you at that point, a development exit loan is priced like short term bridging finance rather than at development rates, and it typically runs for as long as it reasonably takes to sell or let the completed units, commonly several months to around a year or so.

A development loan funds the build itself, released in stages against work completed, and is priced to reflect the risk that a scheme might overrun on cost or time. Development exit finance only comes into play once that build risk has passed. It is a single drawdown against a finished, valued asset, not a staged facility against ongoing works, and the exit is the sale or letting of the units rather than practical completion.

The two are easy to confuse because they can sit with the same lender back to back, but they answer different questions. A development loan asks whether the scheme can be built. Development exit finance asks whether the finished scheme can be sold or let within a sensible timeframe, and prices accordingly.

It suits developers whose original development loan's term is running out, or has already run out, before every unit has sold, and who do not want to keep paying development rates on units that are simply waiting for the right buyer. It also suits developers who want to capital raise against a completed scheme, releasing equity to start the next project without waiting for every unit on the current one to sell.

It is a poor fit if the scheme is not genuinely complete, since lenders will want evidence of practical completion before they will price at exit rates rather than development rates.

Lenders look first at evidence of practical completion, usually a monitoring surveyor's certificate or building control sign off, alongside an up to date valuation of the finished units. They then look at the sales or letting evidence, agent instructions, asking prices against comparable local sales, reservations already taken, or, for a let strategy, achievable rents, to judge how realistic the exit timeline is.

The outstanding balance on the original development loan and the loan to value of the exit facility against the finished scheme are checked too, along with your track record on similar schemes where relevant. A clean, evidenced exit plan is what moves a case through underwriting quickly.

Development exit finance itself needs its own exit, and there are three common routes.

• Sale of the completed units. Proceeds from each unit sold repay a corresponding share of the loan, often with the facility structured to release units individually as they complete.
• Refinance onto buy to let or portfolio finance. Where units are being retained as rental property, the exit facility is repaid by a longer term buy to let mortgage or portfolio facility.
• Refinance onto a commercial mortgage. Where the scheme is retained as a commercial asset, for example serviced units or a mixed use block, a commercial mortgage can repay the exit loan.

Development exit finance is normally unregulated commercial lending, since it is secured against a development, investment or commercial asset rather than a home occupied by the borrower, and we arrange it directly. The regulated and unregulated split still matters at the margins though. If a scheme includes a unit that you, or an immediate family member, intend to occupy, the refinance on that specific unit is a regulated mortgage contract, and must involve a firm directly authorised by the Financial Conduct Authority, who carries out the regulated activity. We introduce that element of the case; we do not advise on it ourselves.

Pricing is set case by case against the loan to value, the strength of the sales or letting evidence, and how quickly the scheme is expected to clear, so we never quote a rate without seeing a case first. What we can say is that development exit finance is priced like short term bridging finance rather than at development rates, reflecting the fact that construction risk has passed. Costs typically include monthly interest, often with an option to roll it up so it clears when the units sell, an arrangement fee, and a fresh valuation of the finished scheme.

Because the term is set against a realistic sales or letting timeline rather than a fixed calendar date, most facilities also allow units to be released and repaid individually as each sale completes, rather than waiting for the whole scheme to clear before any of the loan is repaid.