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What is a Development Exit Bridging Loan?

26-07-2022|Anthony Gougeon

Where property is concerned, speed and flexibility is everything. That’s why the team at Ultimate Finance offer a range of residential Bridging Loans designed with the needs of developers in mind, with a decision in principle available within just 24 hours, and a fully credit backed offer within 72 hours.

The unregulated Bridging Finance solutions offer a simple short-term funding solution with up to £3m available through many types of Bridging Loans tailored to a specific challenge: Development Exit, Purchase Bridge, Development Finish and Exit, and Refurbishment. With loans offering up to 75% LTV, rates start at only 0.74% per month, a rate that the lender has committed to freeze for the first half of the year and throughout Q3 2022 despite rising base interest rates.

Having recently announced a 14% increase in new business levels for Bridging Finance on H2 2021, and with businesses currently still facing challenges such as rising costs and supply chain issues, Ultimate Finance offers a closer look at Development Exit Bridging Loans as a strategic tool to help developers meet their ambitions.

What is a Development Exit Bridging Loan?

A Development Exit Loan is a Bridging Finance solution designed to support developers at the end of a project by replacing existing development finance, reducing finance costs, and releasing additional equity for cashflow and / or subsequent projects.

Where a property development has completed or reached a stage near completion but not yet sold and the initial development funding is due for repayment, a Development Exit Bridging Loan provides an opportunity for additional time to sell the units with a financing structure defined by flexibility, speed and lower cost. The value that additional time offers can be significant in maximising returns at the end of a project for final snagging on units, to maximise sale price, or secure tenants.

Why consider a Development Exit Bridging Loan?

Today many development projects are experiencing delays due to many factors, notably the impact of the pandemic, Brexit and the Russian invasion of Ukraine on the availability of materials and labour. Development Exit is an effective solution proven to keep developers in control of their project and protect profit margins through additional breathing space and a reduction in interest payments.

Development Exit finance is typically most valuable under one of the following circumstances:

  • Delays in completing sales or securing long-term Buy To Let finance
  • Development project overruns and delays
  • Development project costs going over budget
  • A desire to release additional capital from a completed project

The main benefits that developers see from using a Development Exit facility are:

  • Repay an existing development finance facility that is at the end of its term and avoid extension or late repayment fees
  • Protect or increase margins by replacing existing finance with lower cost funding – this is possible as a completed development represents a lower risk to a lender than the original development finance
  • Extended period to secure an exit (sales or buy-to-let) without the pressure of a looming repayment deadline – this can help avoid the need to sell quickly at a discount
  • Quick access to capital – Development Exit solutions can be put in place very quickly and often in no more than a week, which can be advantageous where an existing facility is at the end of term
  • Cashflow benefits as Development Exit financing can be secured on the basis of retained interest which protects cashflow by not needing monthly interest payments to be paid in cash until the final repayment
  • Equity release – given that up to 75% LTV can be secured through a Development Exit facility, this can enable the release of equity generated through the uplift in value through the development project and generate additional capital to use towards future projects without it being tied up until the final exit is delivered

In current market conditions, there are many factors that can work against a development to add time, cost and delays to a project. The key advantage of Development Exit finance is therefore to provide valuable time for a developer to complete their project, secure their desired exit without additional pressure on cashflow or time constraints, and provide capital through equity release for future projects. Development Exit finance can also be used in situations where many of these features are present but the development isn’t yet fully complete and additional funding is needed for finishing works – this is covered through Development Finish & Exit financing and has many of the same benefits as a typical Development Exit facility.

Find out more about Ultimate Finance’s Bridging Finance proposition.

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