On paper, property development might seem simple. You buy a plot of land and build a property on it. Or you buy an existing property and renovate it. That property investment is then let or sold.
However, developers are often hit with delays during such projects. These delays can, in turn, cause financial headaches.
Typically, an individual or group will borrow money to purchase the plot and finance the work that needs to be carried out. This is called development finance.
When they sell the finished property, they repay that money, hopefully with profit leftover. But if there are delays and they need to repay the original loan before the property is ready to sell, what can they do?
This is where development exit loans come in. These are increasingly popular bridging loan products, which act as a short-term financial solution for developers coming to the end of a property project.
Why use a development exit loan?
There are various reasons why developers or property investors might need development exit loans. As mentioned, they might have hit a delay on their project, meaning the property cannot be sold in the timeframe agreed with the original lender.
It is quite possible that their existing loan provider would charge a large fee to extend the terms of the original loan.
A short-term development exit loan from a bridging lender like MFS can be used to repay the existing debt. This will give the developer more time to complete the project, sell the property, and then repay the bridging loan.
Or perhaps the property is complete but selling it is taking longer than expected. After all, property chains are very common in England, meaning a sale can be delayed because the buyer is also waiting to sell a property.
Again, development exit loans can help. The developer can take out a loan, repay the initial development finance they borrowed, and then when the sale does go ahead, the development exit loan can also be repaid.
There is another important factor here: cost. Development finance is often expensive. This is because the lender must account for the risk involved in funding the yet to be started development work. And as mentioned, extending a loan can incur large fees.
So, a development exit loan can be cheaper than the original loan – by replacing the more expensive debt with a more affordable one and avoiding extra fees, the developer will protect their profits upon the eventual sale.
Bridge to exit
In April, MFS launched a new development exit product. There are a number of reasons why this has proven popular with our clients.
Firstly, we can arrange loans within days of receiving an enquiry. For a developer who must meet a deadline to repay their original finance, we can help.
Secondly, our bridging loans are flexible. The exact terms can be adapted to meet the needs of each client.
Thirdly, it buys a developer time. Whether more time is needed to finish the development or so the sale can go through, a development exit bridging loan can provide another 12 months or more for a project to be completed.
We know that every property and every sale is unique. That is why we use our expertise to assess each case on its merits. And we then tailor our short-term finance solutions to you.
For more information about MFS’ new development exit product, get in touch with a member of the team today. Or, check out our new Client Lending Guide for Q2 2021 – it will tell you more about our loans, our processes and our strengths.