How much does development exit finance cost?

What drives the cost of a development exit bridge

A development exit bridge replaces an existing development facility at or near practical completion. Its cost is built from a monthly interest rate and a set of fees, and the single biggest reason it is cheaper than the development finance it follows is that the construction risk has gone. The lender is pricing a finished or almost finished asset and a sales period, not a building programme, so the development finance costs that applied during the build step down once the scheme is complete.

It helps to separate the cost into two buckets: the price of the money, which is the monthly interest rate, and the price of arranging and securing the loan, which is the fees, valuation and legals. The rate is the recurring cost over the term. The fees are mostly one-off and settled at completion or redemption. The list below sets out every component you should expect to see quoted, and the rest of this guide takes each in turn.

• The monthly interest rate, indicatively lower than development finance rates
• An arrangement fee, charged as a percentage of the loan
• An exit fee, where the lender charges one, on the loan or on GDV
• A RICS Red Book valuation fee, paid by the borrower
• Legal fees for the lender's solicitor and your own
• A broker fee, where one applies, disclosed up front

All of these are quoted indicatively until a lender has seen the scheme, the gross development value and the exit. Nothing here is an offer of finance.

The monthly interest rate on a finished-scheme bridge

Interest on a finished-scheme bridge is quoted as a monthly rate rather than an annual one, because the term is short and the loan is expected to redeem as units sell or the scheme refinances. The headline point is that development exit finance rates sit below development finance interest rates for the same scheme, because the lender no longer carries build risk, cost overrun risk or programme risk. The asset is standing, valued and saleable.

We quote indicative rates only. The actual monthly rate a lender offers turns on how finished the scheme is, the loan to GDV requested, the strength of the sales or reservation evidence, the developer track record and the clarity of the exit. A near-complete scheme with strong pre-sales at a conservative loan to GDV prices keenest; a speculative scheme at higher leverage prices wider. The rate is the recurring cost, so the longer the loan runs before redemption, the more interest accrues. None of these figures is an offer of finance.

Arrangement, exit and broker fees on sales-period funding

Beyond the rate, sales-period funding carries a set of fees. The arrangement fee, sometimes called a lender or facility fee, is charged as a percentage of the loan and is usually added to the facility and settled at completion rather than paid in cash up front. The exit fee, where a lender charges one, is taken on redemption and is calculated either on the loan amount or on the gross development value, so the basis matters and is worth checking in the offer. Some lenders price a higher arrangement fee and no exit fee, others the reverse, so the headline rate alone does not tell you the full cost.

A broker fee applies where an intermediary charges one for arranging the finance, and it should be disclosed in writing before you proceed. The table below shows the cost components an exit facility quote typically itemises. The values are indicative bands for illustration, not a quote, and not an offer of finance.

Because several of these fees are charged on the loan or rolled into it, the right way to compare two offers is on the total cost over the expected term, not on the monthly rate in isolation. We set that out clearly so the comparison is like for like.

Valuation and legal costs on a completed-development loan

Two third-party costs sit on top of the rate and the lender fees on a completed-development loan, and the borrower pays both. The first is the valuation. The lender instructs a RICS surveyor to produce a Red Book valuation confirming the gross development value and the present value of the scheme as it stands. The valuation fee is a scale cost that rises with the size and complexity of the scheme, and it is paid up front because the lender will not issue terms without it. The valuation underpins the whole loan, because the maximum advance is sized against the GDV and the present value the surveyor confirms.

The second is legal fees. The borrower covers the lender's solicitor as well as their own, which is standard on commercial property lending. The legal work covers the first legal charge over the scheme, the title, the warranties and completion certificates, and the loan documentation. On a clean, well-documented finished scheme the legals run smoothly; missing warranties, an unresolved final account or a contested title add time and therefore cost. Assembling a complete document pack before the lawyers start is the simplest way to keep the legal spend down.

How retained interest sets the net loan on exit funding

On most exit funding the interest is not serviced monthly. Instead it is either retained, meaning the lender holds back an interest reserve from the advance to cover the term, or rolled up, meaning it is added to the balance and settled when the loan redeems. Both approaches mean the developer is not feeding monthly payments into the scheme from outside cash while units sell, which protects cash flow through the sales period. The trade-off is that retained or rolled interest reduces what you receive on day one or accrues on a rising balance.

This is why the gross loan and the net loan are different numbers. The gross loan is the headline facility sized against GDV. The net loan is what actually reaches you after the lender deducts the retained interest, the arrangement fee and any costs taken at completion. Knowing the net loan is what tells you whether the facility clears the existing development debt and leaves the working capital you need.

When you redeem, by selling the units or refinancing onto a term or buy-to-let loan, the rolled or retained interest, the exit fee where one applies, and the outstanding principal are all settled at redemption. A shorter actual term means less interest accrues, so a scheme that sells faster than the term allows usually costs less than the full quote.

How we arrange and price the development exit facility

We are a finance arranger and introducer, not a lender, and we are not authorised by the Financial Conduct Authority because the development exit facilities we place are unregulated commercial lending. We take a scheme to the funders whose appetite for the asset, the leverage and the exit fits best, and we present the cost as a total over the expected term so the monthly rate, the arrangement fee, any exit fee, the valuation and the legals can be compared like for like rather than on the headline rate alone.

If you want an indicative view of what a development exit bridge would cost on your scheme, the practical step is to confirm the build stage, get the RICS gross development value, and set out the exit. With those three in hand we can give an illustrative read on the loan to GDV, the monthly rate, the fees and the likely net loan. Every such figure is illustrative and not an offer of finance.