Development Exit Finance: Avoiding Default When Sales Are Slow

Development exit finance is a specialist bridging product designed to refinance a development finance facility once construction is complete or substantially complete, giving the developer additional time to sell or let the completed units without the pressure of an imminent maturity default. In the UK market, development exit finance has become an increasingly important tool for developers navigating slower sales markets, and it represents one of the most effective strategies for avoiding default on a development loan.

The product works by replacing the existing development finance facility with a new, typically shorter-term loan secured against the completed development. Because the construction risk has been eliminated (the building is finished), the lending risk is primarily a sales or valuation risk, which means development exit lenders can often offer more competitive terms than the development finance facility they are replacing. Interest rates for development exit finance typically start from around 0.55% per month (6.6% per annum) for strong propositions, rising to 0.85% per month (10.2% per annum) for more complex situations.

The key distinction between development exit finance and the original development facility is timing and purpose. Development finance funds the construction phase; development exit finance funds the sales or letting phase. By separating these two phases, the developer avoids the situation where a facility designed for construction (with its stricter covenants and higher monitoring requirements) is being used to fund what is essentially a sales period. Development exit lenders understand that sales take time and structure their facilities accordingly, with terms of six to twenty-four months and more flexible repayment mechanisms.

The optimal time to consider development exit finance is before your development facility reaches maturity — ideally three to six months before the maturity date. If your build is complete but you have not yet sold sufficient units to repay the development loan, development exit finance allows you to repay the existing facility on time (avoiding default interest and enforcement) and gives you a structured period to complete the sales programme at a pace that maximises value rather than one dictated by the urgency of an approaching maturity date.

We also arrange development exit finance for developers whose builds are ninety percent or more complete, where the remaining works are minor (snagging, landscaping, fit-out of common areas) and do not represent significant construction risk. This allows the development facility to be repaid before maturity, with the final works completed under the exit facility. Some development exit lenders will hold back a small retention (typically five to ten percent of the facility) to cover the cost of completing minor outstanding works.

The trigger for considering development exit finance should be your assessment of whether the development facility will be repaid from sales proceeds before maturity. If the answer is "probably not" or "definitely not," act immediately. Do not wait until the maturity date is weeks away — the application and completion process for development exit finance typically takes three to six weeks, and rushing the process can result in suboptimal terms or, worse, a gap between the maturity of the old facility and the drawdown of the new one. In our experience, developers who plan their exit finance six months ahead achieve materially better terms than those who come to us as an emergency.

You should also consider development exit finance if your development lender has indicated that they are unwilling to extend the facility term. Some lenders have strict fund mandates that do not permit extensions, and others may have lost confidence in the project's sales prospects. In either case, arranging development exit finance with a new lender allows you to repay the existing facility on time and avoid the default consequences we describe in our guide on what happens when a development loan defaults.

Development exit finance is typically structured as a single drawdown facility, with the entire loan amount advanced on completion to repay the existing development facility. The loan is secured by a first legal charge over the completed development (replacing the development finance lender's charge), and may also be supported by a personal guarantee from the developer, although some lenders offer non-recourse facilities for strong propositions.

Loan-to-value ratios for development exit finance typically range from sixty-five to seventy-five percent of the current market value of the completed development, as determined by an independent RICS valuation. For a completed scheme valued at £4,000,000, a development exit lender offering seventy percent LTV would advance up to £2,800,000. If the outstanding development finance facility is £2,500,000, the development exit facility would repay this in full, with the remaining £300,000 available to cover the costs of the new facility (arrangement fees, legal fees, valuation) and provide working capital for the sales period.

Interest is usually charged on a monthly basis at a rate between 0.55% and 0.85% per month, and can be either serviced (paid monthly) or rolled up (added to the loan balance). For developers who need to preserve cash flow during the sales period, rolled-up interest is typically preferred, although it increases the total cost of borrowing. Arrangement fees range from one to two percent of the loan amount, and legal costs are typically £3,000 to £8,000 depending on the complexity of the transaction.

As units are sold, the net sale proceeds are used to reduce the development exit facility in a process known as sequential or partial release. The lender sets individual minimum release prices for each unit, below which the developer cannot sell without the lender's consent. These release prices are structured to ensure that the facility balance reduces proportionately (or preferably faster) as units are sold, so that the lender's LTV exposure is maintained or improved throughout the sales period.

Development exit lenders assess applications based on several key criteria: the quality and location of the completed development, the current market value as determined by RICS valuation, the sales evidence (reservations, exchanges, viewings, agent appraisals), the developer's track record, and the viability of the sales strategy within the proposed facility term. A development with two out of eight units already sold and strong comparable evidence supporting the asking prices will attract better terms than one with no sales and a declining local market.

The application process typically involves submitting a summary of the development (number and type of units, current value, outstanding debt, sales status), the developer's track record and personal financial position, an exit strategy showing projected sales timeline and values, and supporting documentation including the existing facility agreement, latest monitoring surveyor report, and EPC certificates for the completed units. We prepare and present these packages on behalf of our clients to ensure they meet the specific requirements of each lender on our panel.

Valuation is a critical part of the process. The development exit lender will instruct an independent RICS valuer to assess the current market value of the completed development — both as individual units and as a single lot (in case the lender needs to sell the entire development to a single purchaser). The valuation determines the maximum loan amount and is therefore the most important factor in the underwriting process. If the valuation comes in below the developer's expectations, the available facility may not be sufficient to repay the existing development loan in full, and the developer may need to inject additional equity to bridge the shortfall.

In our experience, the most common reason development exit finance applications fail is a valuation shortfall. This can occur because the original GDV assumptions were optimistic, because the market has softened since the development finance was arranged, or because the valuer takes a conservative view of achievable prices. To mitigate this risk, we recommend obtaining an indicative valuation from a local RICS surveyor before formally applying for development exit finance. This costs £500 to £1,500 but can avoid the abortive costs and time wasted on an application that is unlikely to succeed. Submit your project through our deal room for an initial assessment of development exit finance availability.

The total cost of development exit finance includes the arrangement fee (one to two percent of the facility), legal fees (£3,000 to £8,000), valuation fee (£2,000 to £5,000), and interest charges during the facility term. On a typical facility of £2,500,000 with a twelve-month term at 0.65% per month, the total interest cost if the facility runs to maturity would be approximately £195,000. Adding a 1.5% arrangement fee (£37,500) and legal and valuation costs of approximately £8,000, the total cost of the facility is around £240,500.

This must be compared with the alternative of extending the existing development facility. A typical extension costs 0.25% to 1% per month of the outstanding balance, plus continued interest at the facility rate (which may increase during the extension period). On the same £2,500,000 facility at 9% per annum with a 0.5% monthly extension fee, a twelve-month extension would cost approximately £225,000 in interest plus £150,000 in extension fees, totalling £375,000. In this example, development exit finance is significantly cheaper than extending the development facility.

However, the comparison is not always straightforward. If the existing development lender offers a short extension (three months) at a modest fee, and the developer is confident of selling sufficient units within that period, the extension may be more cost-effective than refinancing. The key variables are: the extension fee, the interest rate during the extension, the expected sales timeline, and the costs of arranging the alternative facility. We model these scenarios for our clients to help them make an informed decision.

There is also a less tangible but important benefit of development exit finance: removing the stress and uncertainty of dealing with an increasingly impatient development lender. Once the development facility is repaid, the developer's relationship with the original lender is concluded, and they can focus on achieving the best possible sales outcome without the cloud of potential enforcement hanging over the project. This psychological benefit should not be underestimated, particularly for developers managing their first or second project.

Development exit finance is available for a wide range of completed property types, although the terms vary significantly. Residential developments (houses and flats for individual sale) attract the most competitive rates, with lenders comfortable at seventy to seventy-five percent LTV and rates from 0.55% per month. This reflects the relatively liquid nature of the residential sales market and the strong comparable evidence available for valuation purposes.

Mixed-use developments (residential units over commercial ground floor space) are also eligible, although lenders may apply a blended approach — higher LTV and lower rates for the residential element, and lower LTV with higher rates for the commercial element. If the commercial space is pre-let to a tenant with a strong covenant, this significantly improves the terms available. An unlet commercial unit in a development exit finance structure is viewed as a higher risk by lenders.

Commercial and industrial developments can also be refinanced using development exit finance principles, although the product may be described differently (for example, commercial bridging finance). The terms reflect the typically longer void periods and less liquid disposal market for commercial property, with LTV ratios of sixty to sixty-five percent and rates from 0.75% per month being typical. The lender will want evidence of active marketing and indicative offers or terms from prospective tenants.

For build-to-rent developments, the exit strategy is letting rather than selling, and the development exit facility bridges the period between completion and stabilised letting (typically six to twelve months). Once the development is fully let and producing rental income, it can be refinanced onto a long-term commercial mortgage or investment facility. Build-to-rent exit finance is a growing niche, and we have seen several new lenders enter this space in the past twelve months, improving the terms and availability for developers in this sector.

At Construction Capital, we arrange development exit finance for developers across the UK, from single-unit conversions to multi-million-pound residential schemes. Our process begins with a thorough assessment of your current position — the outstanding facility amount, the completed development value, the sales status, and the timeline to full exit. Based on this assessment, we identify the most appropriate lenders from our panel and prepare a comprehensive application package.

We present your application to multiple lenders simultaneously, creating competitive tension that drives down costs and improves terms. Because we have established relationships with development exit lenders and understand their specific criteria, we can target the lenders most likely to offer the best terms for your particular situation. A developer in Hampshire with four completed houses and two already sold will be presented to different lenders than a developer in Greater Manchester with a block of twelve flats and no sales.

The typical timeline from initial enquiry to funds advanced is three to six weeks, although we have completed urgent cases in as little as ten working days where the developer's position is straightforward and the documentation is readily available. If you have a development facility approaching maturity and need to explore exit finance options, contact our deal room as early as possible. The earlier we begin the process, the more options we can present and the better the terms we can negotiate on your behalf.