Comment: The essential guide to development exit loans

The latest RICS UK Residential Market Survey says the average time taken for a property to sell, from listing to completion, is currently 19 weeks. This is the joint longest since this series was introduced in 2017, and it’s even longer in the South East, where the average is up to 21.5 weeks – that is approaching six months.

This is not great news for vendors who are looking to sell their own home, but it is even worse news for property developers who rely on selling units within their scheme to pay off their development finance.

The current property market is therefore driving demand for development exit loans, which can help developers to manage their cash flow while they market a completed scheme. So, what do you need to know?

Many developers are in a position where they are asset rich and cash poor, particularly when they near the end of completing a development. Their options at this stage depend on their intentions for the scheme.

If they are retaining the development to let out developers will usually refinance onto a longer-term solution. For those who are selling the properties they have developed, there is the option to buy extra time and release equity with a development exit loan.

A development exit loan is a short-term loan that allows a developer to refinance their completed scheme, often at a lower rate than their development finance facility. This can provide a saving on interest payment and give them more time to achieve the best sales price and most investors also release equity from the scheme to use towards future projects.

It provides developers with the flexibility to take money out of scheme before they have sold the properties and can often be completed in a matter of days.

Another option developers can consider, particularly in this market, is holding onto their assets and letting out the property, in which case they can think about refinancing onto a buy-to-let mortgage.

If you have developer clients who are not sure which route to take, one option is to speak to a specialist distributor that has expertise in both short-term finance and BTL. They will then be able to provide information on both options so that your client can make an informed decision as to their next step.

Kit Thompson, director of short-term and development finance, Brightstar Financial

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