What Is Development Exit Finance?
**Development exit finance** is a short-term loan that replaces your [development finance](/services/development-finance) facility once construction is complete (or near-complete) but before all units have been sold. It bridges the gap between the end of your development facility term and the receipt of sales proceeds.
Development finance is expensive. Rates of 8-12% per annum on the fully drawn facility balance create substantial monthly interest charges in the final months of a project when all funds are deployed. Development exit finance replaces this expensive facility with a lower-cost product, typically at rates of **5-8% per annum**, saving the developer significant interest during the sales period.
This product sits at the intersection of development finance and [bridging finance](/services/commercial-bridging), and understanding when and how to use it can materially improve your project economics.
When Do You Need Development Exit Finance?
Development exit finance is relevant in several scenarios:
Your Development Facility Is Expiring
Most development finance facilities have terms of **12-24 months**. If construction has completed but not all units have sold, the facility may be approaching its expiry date. Rather than requesting an extension from the development lender (which may be expensive or unavailable), exit finance provides a clean transition.
Units Are Selling Slowly
The property market does not always cooperate with development timelines. If sales are taking longer than projected - perhaps due to market conditions, seasonal factors, or mortgage availability - exit finance provides breathing room without the cost pressure of the development facility.
You Want to Reduce Finance Costs
Even if your development facility has time remaining, the interest saving from switching to exit finance can be substantial. On a £2m drawn balance, the difference between 10% and 6% per annum is approximately **£80,000 over 12 months**.
Your Development Lender Wants to Exit
Some development lenders prefer to exit the facility once construction is complete. They may decline to extend the term or may impose punitive extension rates. Exit finance provides an alternative lender to take over.
You Want to Refinance Some Units and Sell Others
A common strategy is to sell some units and retain others for rental income. Exit finance can bridge the period while retained units are refinanced onto [commercial mortgages](/services/commercial-mortgages) or buy-to-let products.
**Key Takeaway:** Development exit finance is not a sign that something has gone wrong. It is a legitimate and increasingly common tool used by experienced developers to manage the transition from construction to sales, reduce costs, and protect profit margins.
How Development Exit Finance Works
Facility Structure
Development exit finance is structured similarly to a [bridging loan](/services/commercial-bridging):
- Single advance to repay the existing development facility in full
- Interest calculated monthly on the outstanding balance, either serviced (paid monthly) or rolled up
- Partial redemptions - as units sell, the proceeds are used to reduce the loan balance
- Short-term duration - typically 6-18 months
- No further drawdowns - the full facility is advanced on day one
Typical Parameters
| Parameter | Typical Range |
|---|---|
| LTV (on completed value) | 65-75% |
| Interest rate | 5-8% pa |
| Arrangement fee | 1-1.5% |
| Exit fee | 0-1% |
| Term | 6-18 months |
| Minimum loan | £250,000 |
How Partial Redemptions Work
As individual units sell, the net sale proceeds (after estate agent fees, legal costs, and any other deductions) are paid to the exit finance lender to reduce the loan balance. Most lenders require a **minimum release price** for each unit, ensuring that the remaining loan remains adequately secured by the unsold units.
The minimum release price is calculated so that the LTV on remaining unsold units does not exceed the agreed maximum, even as the overall facility reduces.
**Example:**
- Total exit facility: £1,800,000
- 10 units, each valued at £280,000 (total value £2,800,000)
- LTV: 64%
- Minimum release price per unit: £180,000
- As each unit sells, £180,000 goes to the lender, and the balance reduces accordingly
Costs and Savings
Interest Saving Example
Consider a completed development with 10 units and an existing development facility of £2,000,000 at 10% per annum:
**Without exit finance (keeping development facility):**
- Monthly interest on £2m: approximately £16,700
- If units sell over 9 months (average balance £1.1m): total interest approximately £82,500
**With exit finance at 6% per annum:**
- Monthly interest on £2m: approximately £10,000
- Same sales profile (average balance £1.1m): total interest approximately £49,500
- Exit finance arrangement fee (1%): £20,000
- Net saving: approximately £13,000
The saving increases on larger developments, longer sales periods, and wider rate differentials.
When Exit Finance Does Not Make Sense
Exit finance involves arrangement costs, so it may not be worthwhile if:
- Only 1-2 units remain unsold (the sales period is very short)
- Your development lender offers a competitive extension rate
- The arrangement fee exceeds the projected interest saving
- Total remaining sales period is less than 3-4 months
Run the numbers carefully. As a rule of thumb, exit finance is cost-effective when the outstanding balance is **£500,000+** and the projected sales period is **4 months or longer**.
**Key Takeaway:** Exit finance saves money on the interest differential, but the arrangement fee and legal costs of setting up a new facility must be offset against the saving. Model both scenarios (extend vs exit finance) to determine the best approach for your project.
When to Arrange Exit Finance
Timing Is Critical
The optimal time to arrange development exit finance is **2-3 months before your development facility expires** or **when construction reaches practical completion**, whichever comes first. This allows time for:
- Exit finance application and terms: 1-2 weeks
- Valuation of completed units: 2-3 weeks
- Legal process: 2-4 weeks
- Total: 5-9 weeks
Do Not Wait Until the Last Minute
If you wait until your development facility is about to expire, you will be under time pressure, which weakens your negotiating position and may force you to accept less competitive terms.
Plan Your Exit from the Start
Experienced developers plan the exit strategy from the outset, including the possibility of exit finance. Discuss exit finance options with your broker when arranging the original development facility so you understand the potential timeline and costs.
Lender Options for Development Exit Finance
Specialist Bridging Lenders
Many bridging lenders offer specific development exit products. They understand the nature of the security (a completed but partially unsold development) and are comfortable with the partial redemption mechanism.
Development Finance Lenders
Some development finance lenders offer exit products as a natural extension of their development lending. This can simplify the process if the same lender handles both stages.
Key Lenders in the Market
Lenders with appetite for development exit finance include:
- Specialist bridging lenders offering exit-specific products
- Shawbrook, Hampshire Trust, and Aldermore with development exit facilities
- Allica Bank, Paragon, and Investec for larger schemes
- LendInvest, Redwood, and Kent Reliance for mid-market facilities
A broker with relationships across these lenders can identify the most competitive option for your specific situation. [Contact our team](/contact) to discuss development exit finance.
What Lenders Assess
Completed Development Quality
The lender (or their valuer) will inspect the completed development, assessing:
- Build quality and finish standard
- Individual unit values supported by comparable evidence
- Practical completion status - is the development genuinely finished?
- Snagging - are there outstanding defect issues?
- Common areas - are shared spaces complete and presentable?
Sales Progress
- Units sold and exchanged to date
- Units reserved or under offer
- Marketing activity - is the development actively marketed with a reputable agent?
- Sales rate - are units selling at the projected pace?
- Price evidence - are achieved prices in line with GDV assumptions?
Market Conditions
- Local market trends - transaction volumes, price movements
- Competing developments - other new build schemes in the area
- Buyer demographics - first-time buyers, investors, downsizers
- Mortgage availability - are buyers able to secure mortgages?
Borrower Position
- Overall financial position of the developer
- Interest servicing - can the borrower service monthly interest if required?
- Other commitments - does the developer have other projects requiring capital?
Strategies for a Smooth Exit
1. Start Marketing Early
Begin marketing the development **before practical completion**. Off-plan reservations or exchanges provide certainty and may eliminate the need for exit finance entirely.
2. Price Competitively
The cost of holding unsold stock (interest, service charges, insurance, maintenance) erodes your profit daily. A competitive asking price that drives faster sales often generates more net profit than holding out for a higher price over a longer period.
3. Maintain Show Units
Keep show units immaculately presented. First impressions drive sales, and a well-staged show unit can be the difference between a viewing and a sale.
4. Use an Experienced Agent
Appoint a local estate agent with new build sales experience. They understand the new build market, buyer profiles, and how to position your development against competitors.
5. Consider Incentives
If sales are slow, consider buyer incentives:
- Furniture packages - fitted furniture included in the sale
- Stamp duty contribution - particularly effective for first-time buyer developments
- Deposit contributions - help with the buyer's deposit (within lender rules)
- Rental guarantees - for investor buyers, guarantee rental income for a period
6. Explore Bulk Sale
If several units remain unsold and the holding costs are mounting, consider a **bulk sale** to a property investment company or housing association. This achieves a faster exit at a discounted price, but the certainty and speed may outweigh the discount.
**Key Takeaway:** The best development exit strategy is one you never need - sell all units during the build phase. But when exit finance is needed, plan it early, price units competitively, and work with experienced sales agents to minimise the sales period.
Development Exit vs Term Extension
When your development facility is approaching expiry, you have two options:
| Factor | Term Extension | Development Exit Finance |
|---|---|---|
| Interest rate | May increase (penalty rates) | Usually lower than dev finance |
| Arrangement cost | Extension fee (0.5-1%) | New arrangement fee (1-1.5%) |
| Legal cost | Minimal | New lender's legal fees |
| Flexibility | Same lender, same structure | New lender, fresh approach |
| Partial redemptions | May be restricted | Standard feature |
| Time to arrange | Quick (2-4 weeks) | Longer (5-9 weeks) |
The right choice depends on the rate differential, the projected sales period, and the terms offered by each option.
Summary
Development exit finance is a valuable tool for managing the transition from construction completion to unit sales. By replacing an expensive development facility with a lower-cost exit product, developers can protect their profit margins during the sales period.
The keys to effective use of exit finance are early planning, realistic sales projections, competitive unit pricing, and working with a broker who can access the most suitable lenders for your specific situation.
If your development is approaching completion and you want to explore exit finance options, [get in touch with our team](/contact) for expert advice.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*