Residual stock loans for unsold developments

What lenders assess on completed but unsold stock

Residual stock lenders underwrite a finished scheme, so the case turns on practical completion and the credibility of the remaining sales. They want confirmation of practical completion and building control sign-off, the warranties and certificates on the completed units, the number and value of unsold units, and the sales already exchanged or under offer. They look at the sales absorption rate on the scheme to date and at comparable evidence that the local market can absorb the remaining stock at the values assumed. Because the build risk is gone, they size the facility against gross development value and the value of the residual units rather than against build cost. They assess the exit from the outset, because a residual stock loan only makes sense if the units will sell within the term or refinance onto term debt. We package the completion evidence, the sales history and the residual valuation, and we line up the exit so the facility has a clear destination rather than an open end.

Equity release on a finished-scheme bridge

Against completed but unsold stock a facility runs indicatively up to 70 to 75 percent of value, measured on a loan to value or loan to gross development value (LTGDV) basis against the residual units. Because the development loan being repaid is usually smaller than the value of the unsold stock by this stage, there is often surplus equity above the senior debt, and the facility can release that equity from the units already sold for the developer to deploy on the next site. Interest is usually retained or rolled up so that holding the void units does not drain cash while they are marketed, with the loan repaid plot by plot as units sell across the term. Pricing sits between development finance and an investment term loan: cheaper than the construction-priced debt it replaces, because the build risk is gone, but dearer than the long-term loan a retained unit would refinance onto, because the units are not yet sold. We model the sell-down, the equity released and the interest cost across the expected term. All bands are illustrative, vary by lender, asset and scheme, are subject to principal sign-off, and are not an offer of finance.

What sales-period funding costs and what drives it

Replacing a maturing development loan with an unsold units facility usually lowers the cost of capital immediately, because the scheme is now built and de-risked, while buying time for the last units to sell at full value. Expect a lender arrangement fee, indicatively around 1 to 2 percent of the loan, a valuation reflecting the residual stock position, and legal costs for both sides covering the first legal charge over the SPV's units. The cost is driven mostly by how long the sell-down takes, so a scheme with a strong sales absorption rate clears the debt sooner and pays less interest overall. Because interest is often retained or rolled up rather than serviced monthly, the headline rate matters less than the all-in cost across the expected term. We disclose our broker fee in writing, compare the all-in cost against the value protected by selling at full value rather than at a discount, and never claim an exclusive panel or a fixed tie to any lender.

Developer exit finance against development debt and a term loan

Unsold units finance is the right structure for the specific window between a completed scheme and a fully sold one. Development finance is the wrong tool once the build is finished, because it is priced for construction risk that no longer exists, which is exactly why replacing it with a residual stock loan lowers the cost. An investment or buy-to-let term loan is the cheapest money for a unit the developer keeps, but it is not the answer for stock the developer intends to sell, so sales-period funding carries the residual inventory until it sells down. Developer exit finance and a residual stock loan describe the same family of lending: developer exit finance is the broad label for repaying a development loan at practical completion, while a residual stock loan is the version sized specifically against completed but unsold units. We assess the sell-down realistically and only arrange unsold units finance where it genuinely lowers the cost or buys the time the remaining stock needs.