When nearing completion, there is a range of things that can affect your overall finance for the project, such as delays and finalising sales. All of this can affect the profitability of your development.
Delays can lead to:
- Higher interest rates
- Servicing interest monthly
- Extension fees
Getting exit finance will require approaching a specialist lender who deals with this type of finance. To access development exit finance, you should be looking into it three months before your development finance exit deadline. This provides time for a broker to find the most suitable lender for you who can provide your development exit finance.
Typically, lenders only provide development exit finance to developments that have reached the practical completion stage.
It would make sense to have a broker involved so he can package the deal and approach many lenders to get the finance quickly and at the best rate.
Here at Property Finance Partners we have vast experience in exit finance and work with the whole market lenders to get the best possible deal available. For more information contact us on 020 3393 9277
What is Development Exit Finance?
Development exit finance is for repaying finance for property development once the project is near complete.
Reasons for Development Exit Finance:
- The loan is coming to an end, and the sale of the development won’t be completed in time.
- You want to reduce finance costs by borrowing for a lower interest rate, therefore avoiding expensive extension fees. Exit finance rates tend to start around 5%, and so you can make a lot of savings on the borrowing cost. The interest in development exit finance is also retained, and so allowing you to focus your money on completing the build. When a project nears completion, naturally, interest rates are lowered due to the risk being lower.
- Provides a bit more leeway by buying you some more time. This can allow final-finishing and marketing to go ahead successfully. More time also prevents a loss of money when thinking about sales. Often prices are reduced in order to get quick deals, with development exit finance you have more time for sales to go ahead at desirable prices, also allowing you to remain in your lender’s good books by.
- To get rid of capital from a project before the sales come through, this can enable you to move onto the next project quickly by freeing up your equity.
- You can pay off your existing development finance.
Development exit finance is like a bridging loan, offering the same qualities that a bridging loan offers (short-term, fast (finance arranged in under a week), and flexible borrowing). It doesn’t usually come with any early repayment charges and tends to be between 1-18 months.
Avoiding Higher Interest Rates:
Unexpected delays in completing a development can lead to delays in you repaying your loan to a lender. Therefore, impacting your interest rate, increasing the cost of your borrowing. If your project is almost complete, you can ‘leverage the improved LTV to refinance at a lower rate’.
Servicing Interest Monthly Summary:
If your loan with the lender is paid at the end of the development and the price was already decided on, rather than a monthly repayment. Then delays can cause the lender to demand that you start paying monthly interest due to your overrun of the original loan terms.
Avoiding Extension Fees:
Lenders will often incur an extension fee if you branch out from the loan’s initial agreement. These fees can be significant, and it can be cheaper to refinance.
Features of Development Finance?
Development Exit Finance
- Fast Capital Access
- Rates from 0.40%
- Interest Monthly
- Rolled, Differed Interest Option
- Up to 80% LTV
- Short Term Finance
In order for this to work to your advantage, you should find a broker that has experience development finance.
Read a detailed article on property development finance explained.
If you need development exit finance contact Property Finance Partners who are experts in all types of property finance. Call 020 3393 9277