How development exit finance works
Development exit bridging is structurally similar to a standard bridging loan - it is a short-term first-charge facility secured against completed residential units. The key differences from a purchase bridge are: (1) the security is completed units rather than a single property; (2) the lender assesses the number of units sold, unsold, and reserved alongside the gross GDV; (3) the exit is via unit sales (not a refinance) so lenders are comfortable with a rolling repayment as sales complete rather than a single repayment event.
- Loan secured against unsold completed units - typically 65-70% of the completed value of those units
- Sales evidence (completion statements, reservation contracts) supports the GDV assessment
- Development finance facility is redeemed in full on day one of the exit bridge
- Exit bridge interest accrues on the outstanding balance as units sell and the loan reduces
- Practical completion certificate typically required - development must be legally complete
- Building regulations sign-off and warranties (NHBC or architect's certificate) must be in place
When development exit finance makes sense
The decision to use development exit finance is primarily financial - compare the monthly cost of development finance versus the exit bridge rate, and multiply by the expected remaining sales period. If the saving is material, exit finance is usually the right choice. The factors below typically tip the case toward exit finance.
- Development finance rate above 1.0% pm - At 1.0% pm on a £3m facility, monthly interest is £30,000. At 0.65% pm exit bridge rate, monthly interest is £19,500. Saving: £10,500 per month.
- 3+ months of sales remaining - Exit finance involves arrangement costs (typically 1.5% of the facility). These need to be recovered from the monthly saving. At £10,500 pm saving, the arrangement cost is recovered in 4-5 months.
- Development lender unwilling to extend - If the development lender has declined to extend, exit bridging provides the only way to meet the repayment demand without a distressed asset sale.
- Development lender's extension rate is punitive - Lenders extending development finance after the original term often charge a penalty rate - sometimes 0.20-0.40% pm above the contracted rate. This makes the case for exit finance even stronger.
- Units reserved but not yet completed in sales - Exit bridge lenders will advance against reserved units (with solicitor confirmation) - reflecting the near-certainty of those sales. This maximises the exit bridge facility.
How to calculate your saving
Use this formula to determine whether development exit finance is financially beneficial.
Step 1: Current development finance monthly cost = Remaining facility balance x Development rate. Example: £2,800,000 x 1.05% = £29,400 pm.
Step 2: Exit bridge monthly cost = Exit facility x Exit rate. Example: £2,100,000 x 0.65% = £13,650 pm. (Note: exit bridge facility is lower than development finance balance because sold units have already reduced the development finance balance, and the exit bridge only covers the unsold units.)
Step 3: Monthly saving = Development rate cost - Exit bridge cost. Example: £29,400 - £13,650 = £15,750 pm saving.
Step 4: Cost of the exit bridge = Arrangement fee + legal costs + valuation. Example: £2,100,000 x 1.5% + £5,000 legal + £3,000 valuation = £39,500 total cost.
Step 5: Payback period = Total exit bridge cost / Monthly saving. Example: £39,500 / £15,750 = 2.5 months to break even.
If the remaining sales period is 4+ months, exit finance saves money. If it is 2 months or less, the saving may not justify the cost.
Lender criteria for development exit finance
Development exit lenders focus on completion status, the value of the unsold units, the strength of sales evidence and warranties. The factors below set out what they require.
- Completion status - Development must be practically complete, or near-practical-completion. Most lenders require a PC certificate or confirmation from the architect/employer's agent that practical completion will be achieved within 30 days.
- LTV on unsold units - Up to 70% of the open market value of the unsold completed units. Lenders will value each unsold unit individually. Reserved units (solicitor's letter confirming reservation) are assessed at the reservation price.
- Sales evidence - Lenders require a sales schedule showing: units sold (completion dates and prices), units reserved (reservation prices and expected completion dates), and unsold units (with current marketing evidence).
- NHBC or warranty - Structural warranty (NHBC Buildmark, Premier Guarantee, or architect's PI-backed certificate) is required on all units. Without a warranty, most exit bridge lenders will not engage.
- Minimum units - Most exit bridge lenders set a minimum of 3-5 unsold units as security. Single-unit schemes are harder - some lenders treat a single unsold new-build unit as a standard bridging loan rather than development exit.
- Maximum LTV - 70% of completed value on the unsold units. This is distinct from development finance LTGDV - the exit bridge lender assesses the completed value, not the original GDV at project outset.
Case study: 18-unit residential scheme, Bristol
A Bristol developer completed an 18-unit residential scheme in Month 20, with 11 units sold. Development finance at 1.1% pm had 4 months remaining. Doulton arranged a development exit bridge at 0.63% pm against the 7 remaining units. The 3 reserved units were advanced at reservation prices (solicitor's letters provided).
All 7 remaining units sold by Month 26. Net saving after exit bridge costs: £23,740. More importantly, the developer avoided a potential forced extension negotiation with the development lender, which had indicated it would charge a 0.20% pm premium for any extension.
- Scheme - 18-unit residential new build, Bristol. Practically complete Month 20.
- Development finance - £4.2m at 1.1% pm. 4 months remaining on term.
- Sales position - 11 units sold and completed. 7 units remaining - 3 reserved, 4 actively marketed.
- Completed value (7 units) - £3,080,000 (£440,000 average per remaining unit)
- Development exit arranged - £2,156,000 (70% of £3,080,000)
- Exit rate - 0.63% pm vs 1.1% pm development finance
- Monthly saving - £10,290 pm (£46,200 - £35,910)
- All units sold - Month 26 (6 months after exit bridge drawn)
- Total saving - £61,740 over 6 months minus £38,000 arrangement cost = £23,740 net saving