A Complete Guide
- Development exit finance explained in a comprehensive 28-page guide
- Gain a full understanding of this type of specialist finance
- For brokers & direct clients
- For beginners & experts
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Development Exit Finance Explained
Your Complete Guide
In this guide, we will cover everything you need to know about development exit finance. We’ll explain what it’s used for, how it’s used, and how it fits inside a broader development strategy.
Some may assume our development exit loans work in the same way as development finance. This isn’t the case. In simple terms, our development exit loans are used to repay an existing development loan, and/or take largescale projects to their final completion stages.
This guide will go through how this works in practice in more detail.
What is a development exit loan?
Development exit finance is a type of short-term, unregulated bridging loan, devised to cover an original development loan. It is a product typically utilised towards the end of a development project and can also cover unexpected problems that may emerge.
These loans are designed with property developers in mind, who may need additional time to wrap up their plans, or who are under pressure to repay what’s owed to an existing lender but still need time to sell the units.
Development exit loans may be especially sought after in times of economic hardship, where supply chains are disrupted, demand among consumers wanes, or costs rise and additional funding or breathing space is required.
A development exit loan aims to “bridge the gap” between your original investment, and your eventual endpoint.
As Market Financial Solutions is an unregulated lender, our loans can be adapted to a range of circumstances providing incredible flexibility. While development exit loans are used for a range of common scenarios, they’re still a bespoke product. They can be tailored to fit in with your requirements. This will be the case regardless of whether you’re a first-time developer, or a professional with multiple projects behind you. Additionally, our development exit loans can be issued quickly, sometimes in as little as three days, where everything lines up.
How do they work?
Our development exit loans follow a simple process:
- If you reach the end stages of your development project and still need a bit of breathing space to find the right buyers or finish some minor refurbishment works, you can send us an initial query. This can be done online, over the phone, or via email. Once we receive your enquiry, one of our underwriters will respond within four hours. This underwriter will be on hand throughout the entirety of your loan and will also underwrite your deal from day one.
- We will gather initial details on your background and the properties/development project. Indicative terms will be issued and, if you’re happy to progress, we will move ahead with a more in-depth analysis of your investment and exit strategy. This analysis will form the basis of the Decision in Principle (DIP) that will be issued shortly after.
- From here, we’ll work with valuers to organise a visit to your development and look over the details. This part of the process will validate the terms of the DIP.
- We will then work with trusted lawyers to conduct the necessary due diligence, and make sure everything is accounted for. The necessary paperwork will be written up and sent to you in the final stages.
- Once we’ve dotted the I’s and crossed all the T’s, funds will be released, and you will be able to repay your development lender to address any unexpected costs that may be causing delays, buying more time to find the right buyers for your new assets, or a combination of elements.
While this process will be affected by your situation, the complexity of your development project, and the wider economy, funding could still be issued within three days of your initial enquiry; if all elements are ready to go. This will allow you to focus on finalising your development project with minimal stress.
What can development exit finance be used for?
Every one of our cases is assessed on their individual merits and circumstances. What matters to us is that your development strategy is viable, and that there’s a solid exit strategy in mind.
The funding itself can be used for any small, medium, or large residential, commercial, and semi-commercial development project, ranging between 4 and 100 units.
You need to remember however, our development exit loans cannot be used to fund any ground-up development works. This will likely require development finance, which we do not provide. Generally, development finance applications become regulated where 40% or more of the property (or properties) is used, or will be used, as a residence or dwelling.
One of our few requirements is that you will need the practical completion and building regulation to be signed off. Once we have this, you are free to use your funds to cover any permitted or light refurbishments works that need to be completed.
We also have no limitations on the type of property you use this capital for, so long as the development is based in England or Wales. You could use the loan for a collection of new builds, a block of flats, or a commercial building such as offices or a warehouse.
What is the difference to a development loan?
Development loans are used to fund ground-up development, or the construction of properties. Development finance can be used for a range of projects, including conversions, major renovations, and regeneration plans and can be both long and short-term in nature. They may even be split into two elements.
- The first being the purchasing of a development site. If it’s a ground-up project, this will likely involve a plot of land where construction will take place. This could also involve an existing development that’s due for a refurbishment.
- The second part of a development loan would fund the building work itself. The final bills will vary between projects.
A development exit finance, however, is a short-term loan taken out by the developer and is used to repay the original development funding loan. Developers will often turn towards development exit loans when they are coming to the end of their development loan, but still require more time to:
- Find buyers and sell the properties
- Finish minor works, usually due to delays that have occurred on site earlier within the project
As a reminder, Market Financial Solutions only provide development exit finance, and not development loans.
Benefits of development exit finance
Development exit finance can be somewhat of an insurance policy against the unexpected. Development projects take time and, unfortunately, things can go wrong:
- Supply chains can be disturbed
- Builders could face material shortages
- Unexpected government changes could put your project under pressure
Responding to these kinds of challenges can be difficult, especially if you’re up against building deadlines, and eager renters and buyers. This is where development exit finance can provide you with additional breathing space, so you can organise your affairs, cover your costs, and focus on your exit strategy.
Our development exit loans offer great flexibility. Not only will they be tailored to your situation, but you’ll also be able to take advantage of a range of repayment options to suit your circumstances.
How quickly they can be delivered is also one of their key benefits. You won’t have to worry about deadlines two months away, when funding could be delivered in mere days.
What types of development strategies are there?
There are several development strategies available to property investors. Some will be relatively straightforward, while others may be more complicated.
More substantial projects could include brownfield or greenfield development. Brownfield development targets land that was previously commercialised, or otherwise developed on. Often, these areas need to be redeveloped as they’ve fallen into a debilitated state. This tends to happen where businesses abandon the region due to a struggling local economy.
Greenfield development involves developing on land that has never been worked on or was previously used for agricultural purposes. To build on this land, you will require approval from UK planning permission.
There are also build-to-rent projects which build homes specifically for the intention to rent the property once it is constructed. For a more tailored project, there is also build-to-suit. Here, a property is built to a tenant’s exact specifications.
These are just some of the more common examples, but there are several types of development projects out there for you to engage with.
What is development exit finance secured against?
Our development exit loans are secured against the development project you are working on. This can involve a broad range of residential, commercial, and semi-commercial properties.
Unlike mortgages, our funding is not directly linked to your income. This allows for flexibility and speed, but it also means you will need to have an exit strategy to cover the loan. For development exit, the exit can be the sale of the assets for example, or a longer term finance arrangement.
The adaptability of our product means that we can create a repayment scheme that works for you. For example, if you were to be building an array of houses, you could repay a chunk of your development exit loan with each property sale. This would then reduce your monthly payment charge.
You can read more about this in the costs of development exit finance section.
What information do you need for my application?
During the initial stages of your application, we’ll need some basic information from you. This will include standard profile details, such as your name, age, the security property address etc.
We will also require initial figures on the size of the loan you need, the term length you require, your preferred repayment options, and any other funding details. As your deal progresses, your underwriter will be in touch to request any further details as required. This will include paperwork confirming that building regulation has been approved and signed off, or confirmation of how leasehold titles will be organised upon completion, for example.
Throughout the process, you will be sent a number of documents to oversee and agree to. We will never proceed with a plan unless you’re completely happy with what you’re presented with.
But don’t worry, our underwriting team will be on hand to answer any questions you may have and conduct all the heavy lifting for you.
Who is eligible?
Our development exit loans are available to a broad range of applicants. This includes individual investors, self-employed borrowers, as well as Foreign Nationals. We can also issue funding to corporate borrowers, including Limited Companies, LLPs, SPVs, and offshore companies.
We can work with borrowers from any country, other than sanctioned states, so long as they’re aged between 21 and 85.
Our loans are suitable for property investors who may struggle to get funding from a mainstream lender. We’re happy to hear from developers who may have adverse credit, missed payments, and CCJs in their history. Also, so long as the strategy makes sense, we welcome first-time developers. Our flexibility stretches to new entrants and seasoned pros alike.
The common denominator shared between all these scenarios is our underwriting process. No matter what your situation, whether you’re a first-time developer or portfolio landlord, your application will be underwritten from the first day of your enquiry. You’ll also have an assigned underwriter who will dedicate themselves to understanding your situation, and finding a financial solution that is tailored to your end goals.
Lending criteria
Across all our bridging products, we have flexible lending criteria. As mentioned, at a minimum, you will need to be aged between 21 and 85 and be building properties located within England and Wales.
Beyond this, our criteria incorporates a broad range of scenarios. We can lend to individuals, corporate setups, overseas buyers and more. Also, we’re happy to hear from property investors who may have complicated circumstances to iron out.
For our development exit loans specifically, we can issue funding for projects with between 4 and 100 units. The funding can be used to pay off existing development finance to provide additional time to sell the properties or bridge the gap between completion and securing long-term funding.
Foreign Nationals can also use our loans even if they have no UK credit footprint. If you’re situated in Europe, Asia, or anywhere else (Barring sanctioned countries) and want to complete on an English or Welsh development project, we may be able to help.
Remember, throughout your time with us, you’ll have an assigned underwriter who will be able to go through all our criteria details with you. They will break down how we may be able to adapt the loan to your circumstances, if your details fit in with our lending parameters, and how else we may be able to support you.
The costs involved
From a specialist finance viewpoint, we offer transparency on your costs from the get-go. Our development exit loans, along with all our bridging products, have an arrangement fee. We don’t have admin fees, and the commitment fee you will pay is refunded on draw-down.
Should you be looking for additional funds to cover any outstanding refurbishment or business fees for your project, our team are happy to work with you to find a financial solution that can take these into consideration.
There may be an exit fee involved, with the price determined on individual applications. The applicable rate will be based on different elements, including your specific LTV, your background, and various economic factors.
The costs associated with the initial development could include anything from material and machinery charges, permits, and architect fees. There may also be holding costs involved. Ongoing bills may need to be paid to cover the properties or land as your development progresses. Chiefly, this may involve taxes.
From a business perspective, you’ll also need to think about sales and marketing costs. For example, considering filling your properties or selling them when the project is complete. A budget may need to be set aside to advertise your new development to the appropriate audiences.
You will also need to consider labour costs. You’ll likely have to work with builders, contractors, surveyors, and lawyers throughout your development. All these professionals will need to be paid.
While we can provide absolute clarity on our own fees and costs, we can’t have any say or guidance on the external bills you’ll need to pay. If you’re concerned about spiraling costs, you’ll want to seek guidance from experts in the field, financial planners, and/or accountants.
Is development exit finance cheaper than development finance?
If you’re at risk of not finishing by an agreed deadline, or you unexpectedly need to extend your project, there will likely be charges to pay; and are often quite extensive. These fees will likely dig into your cash flow and budget.
Development exit loans could be a cheaper alternative to these extension charges, which then allows you to find the right buyers and/or finish minor works to the property. However, this will be dependent on your individual circumstances.
Our funding may also be able to help you avoid costly changes in the wider economy. For example, say a base rate vote is coming up and, chances are, rates will be hiked. Our development exit funding could help you wrap up the final elements of your project quickly before costs have a chance to rise any further.
How long does it take to get a dev exit loan?
This largely depends on you and your circumstances. The more complicated your deal, the longer it’ll likely take to issue funding. If everything is accounted for from day one, we can provide capital in as little as three days.
Typically, though, most of our specialist deals are wrapped up within a few weeks. If your investment is heavily dependent on a quick turnaround, it’ll be best to let your underwriter know of this immediately.
We always vow to work as quickly as possible and if you’re completely open with us, we’ll know what to prioritise. Also, should any unforeseen complications threaten to slow down the deal, we will do our best to adapt and continue at pace.
We will always be reachable. Any questions you have will be addressed within hours. We promise to never leave you struggling against a chatbot, unanswered phone or automated system.
When is a good time to start looking for development exit finance?
As it provides developers with additional breathing space, many look at development exit loans when they are nearing the end of their development finance term; usually towards the end of a project. If you start thinking about exit funding early on in the process, it leaves a lot of time for things to go wrong or plans to change – however it is beneficial to know what options there are for you to utilise should you need to.
As you approach your final deadlines, you’ll likely have a better idea of where you stand, and how profitable your development could be. If everything is going to plan, and you have tenants/buyers in place for every single unit you’ve built, you will likely not need development exit finance at all.
However, say you’re a couple of months out from your completion deadline and you still need to find occupants for the last few units. Without them you cannot repay your development lender. In this case a development exit loan could provide the time you need, without the worry of costly extension fees, or late delivery charges.
Why should developers get their exit strategies organised?
There are many obvious reasons to get an exit strategy organised with plenty of time to spare. Without an exit strategy, you may be at risk of seeing your costs spiral. It may also delay any returns you receive on your development project. You may also struggle to access finance at all.
Developers will also likely have many partners they work with who will have their own bills to pay. Development loan providers, construction firms, architects, and more will all likely be facing their own deadlines and mounting costs. Their profitability may be dependent on your project completing on time, and as efficiently as possible.
It’s also worth having your exit strategy well planned out given that tougher legislation could always be introduced. Planning reforms may force developers to provide more housing in a timely, efficient manner. There may not be much leeway for projects which aren’t planned out with the long term in mind.
My development has gone wrong, can specialist finance help?
Specialist finance can help with many unexpected problems that need to be addressed asap. Say a construction company you’re working with realises there is a problem with the refurbishment plans they’ve put in place. They may need additional funding to fix the issue, or extra time to amend any mistakes made. Our bespoke funding, which can be issued in mere days, can help with this and provide some breathing space.
A development can also be beset by wider economic problems. A building company or architectural firm you’re working with could unexpectedly go out of business. Specialist finance can keep you afloat while you work through these problems or find alternatives.
You may also have unforeseen issues with your would-be tenants or buyers. If they pull out, our funding can provide breathing space while you find new occupants.
What exit strategies are available?
There are many exit strategies available to you. For a development exit loan, this could include the selling of your new development, moving onto long-term finance, or the selling of other assets you may own.
While these may be some of the most common examples, there is also a range of alternative options. For instance, various cash redemptions can be used, so long as they’re secure. Examples include capital from a pension lump sum, money from an inheritance, or the liquidation of other assets such as a share portfolio.
Remember, while we’re open to a range of sensible exit strategies, you must have a clear and feasible plan in place before we issue funding. For developers, this will likely involve focusing on the length of their project, the values of their properties following a refurbishment, and demand in the wider market.
Repayment options for development exit loans
We have a range of repayment options available. You’re free to choose an option that best suits your circumstances.
You can sell all your properties and then repay your loan in full at the end of your term. Alternatively, you can pay in sections. If you had to sell 10 houses and after three months you sold 3 properties, you could repay this section of the development exit loan back. This option would reduce your monthly interest costs, as well as potentially reduce the number of months to have to repay your loan for.
Please note that our minimum term is 3 months, and that you may need to consider an exit fee. Your dedicated underwriter will be available to discuss these options with you whilst arranging your development exit loan.
You also have three options for managing your interest rate:
- You can opt to have your interest rolled-up, where all the interest involved is paid at the end of the term.
- You could also choose our part-serviced option, where part of the interest will be rolled up, with the remainder serviced on an ongoing basis.
- The 3rd option is paying interest monthly, where three months are rolled and deducted.
Our underwriters will be able to break down exactly how these options work, and what they’ll mean for your investment strategy.
Ultimately though, the decision will be yours. If you’re unsure of what the best option may be for your budget, you may want to seek guidance from qualified financial planners and/or accountants.
Alternative finance products for property developers
On top of development exit loans, we have a range of specialist products available that could help property developers.
This includes our permitted & light development bridging loans. Where you may have more substantial refurbishment plans on the horizon, such as conversions or work that requires planning permission, this funding can allow you to progress quickly.
We also have refinancing options available. Our refinance loans can help where you need to reorganise your plans, where chain breaks occur, or where exit strategies are majorly delayed.
Outside of our bridging products, we also have bespoke BTL mortgages. These bring bridging-like speed and flexibility to the BTL market, allowing landlords to expand their portfolios as efficiently as possible.
While we have several options available, they all share a tailored ethos. Your underwriter will be able to work with you to find out exactly which of our products fits your circumstances. A financial intermediary could also help you with your plans, and deal with a lender for you.
Should I use a broker?
Brokers can help you identify the best specialist finance option for your development exit plans. But, whether you should use them or not will depend on your specific circumstances.
Generally, there are a number of benefits of using a broker. They can do a lot of the legwork for you, saving you time in the process. Their market expertise can also allow them to find you the best deal possible for your situation. They also might have access to certain products that direct clients don’t.
They’ll be able to negotiate on your behalf and may have built-in relationships with lenders like Market Financial Solutions and other third parties. This could all result in an efficient, streamlined process.
Brokers will likely levy certain fees and charges for their services. It will be up to you to weigh up if these costs are worthwhile over the long term. At Market Financial Solutions, we’re able to work with brokers and direct borrowers alike.
Useful tool: Loan calculator
Our loan calculator is free-to-use and can help you calculate how much you could borrow, what your repayment costs will look like, and whether we’ll be able to provide you with the development exit loan you need.
The calculator requires a few basic details on the development you’re working on. As figures are entered, your potential costs will be updated in real-time. Please remember though, the results will be estimations. For exact figures, you’ll need to reach out to, and work with one of our underwriters.
Our calculator is split into two sections:
- There are boxes towards the left of the screen which will require the figures for your development. This includes the property/properties value, any outstanding mortgage payments if there are any, and the loan amount you require. You’ll also need to select an expected term for the loan, which, for our development exit product, can range between 3 and 24 months.
- Once these details are entered, you can vary the interest rate and arrangement fee percentage to see how they’ll affect your repayments. You’ll also need to select your preferred interest payment plan, with rolled up, part serviced, and pay interest monthly options available.
As you enter this information, the results will update in real-time. They will show your estimated monthly interest payment, LTV percentage, net loan amount, and gross loan amount.
If you want to discuss the results further or get the ball rolling on your development exit loan application, you’ll need to contact us.
The industry in focus
“Data from the National House Building Council shows that 2022 was the best year for new home registrations since 2007.” (Development Finance Today)
“Opportunity in Wales, with lower numbers needed to sort supply and demand imbalances: According to research commissioned by the Welsh Government, it estimates that to meet the housing needs of Wales more than 14,000 new homes are needed every year for the next 15 years. This is in addition to existing unmet needs and far in excess of current levels of supply. According to the Wales.Gov website only 5,273 dwellings were completed in 2022.” (Wales247)
“Opportunity in student housing: Unite has said it “cannot keep pace” with soaring demand for student housing. The student housing developer revealed that 90 per cent of its rooms for the 2023/24 academic year had already been sold at the end of March, compared with 78 per cent last year, while it expects rental growth of 6-7 per cent in the next academic year.“ (Construction News)
“Regionally, commercial appetites for development sites are at their strongest in the East of England where demand sits at 43.9%.” (Property Reporter)
“The constant rise of online retail and e-commerce is contributing to strong demand for warehouse and industrial units, with demand currently measuring 32.3% across the nation, making it the second most in-demand avenue of commercial investment – with demand rising as high as 43.9% in the West Midlands.” (Property Reporter)
“And despite the common narrative that more and more people are shunning the office to work remotely from home, and stories of major brands and companies promoting a flexible working environment, demand for office space remains healthy. National demand for office space currently sits at 30.3% across England, but rises as high as 44.9%, again in the West Midlands region.” (Property Reporter)
“Build-to-rent looks to be a win-win for both tenants and investors alike and with more than £75 billion forecasted to be invested in this corner of the property industry come 2025, it’s showing no signs of slowing down.” (Landlord Today)
Case study
We have long standing relationships with many of our brokers, who regularly come to us with new clients and fresh challenges. We pride ourselves on always trying to find bespoke solutions to any property investment issue we face. This is why one broker introduced us to a property developer who required funding to redeem an existing development finance facility.
Originally, the client took out a development loan to build four new build flats. The original loan’s terms were entirely suitable, and the project should have completed without a hitch. But, the client had been unlucky with their timing.
The building schedule ended up being severely delayed by the pandemic. The client, through no fault of their own, faced a looming term deadline. The pressure was on to repay the initial lender, and we had to act quickly.
The BDM involved partnered up with our underwriting team. Together, they got to work in finding the best solution possible for the client’s circumstances. As we investigated the client’s background, it became clear that we could help, and we knew where to turn to progress.
We worked with our trusted panel of valuers to have the project’s valuation report completed within three days. This allowed us to instruct the lawyers to act in mere days after the initial enquiry.
Internally, we also adapted to changes we saw in the wider market. At the time, other bridging lenders tended to only lend on 180-day values. However, if it is possible, we always try to provide flexible underwriting to meet a client’s needs.
Prior to this claim, we saw a steady rise in property values, and taking the market trends into account at the time, we approved the facility at 75% loan-to-value (LTV) on the Open Market Value.
This bespoke solution worked for both us and the client, who was thrilled with the outcome, and commended us on our communication, speed, and flexibility.
Conclusion
Property developers will likely come under the spotlight over the coming months. We’re not building enough homes to meet demand and the pressure is on to reverse this. The powers that be are focusing their efforts on the development side of the market. Both legislation and support schemes are being introduced to encourage building.
There’s incentive to act, but with these incentives likely comes competition. If development numbers rise, resources may end up stretched, while more players will be competing over buyers and renters.
Those who will be able to reach the finish line first will have a key edge. Our development exit loans could provide you with the advantage.
Disclaimer
Market Financial Solutions are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice. The information in this content is correct at time of writing.