Refinancing a completed development

Why a finished scheme has to refinance off development finance

Development finance is short-term debt written for the build, and it falls due at or shortly after practical completion. Practical completion, or PC, is the point a surveyor certifies the building is complete and fit for occupation. At that moment the developer holds a finished asset but a maturing loan, and the question becomes how to refinance development finance before the original facility runs past its term and a penalty or default rate bites.

Two things change at completion that make a refinance both necessary and worthwhile. The development loan reaches the end of its term, so it has to be repaid or replaced. And the build risk has gone, so the completed scheme is materially less risky than it was during construction, which means the debt against it can be repriced lower. We arrange the refinance as an unregulated commercial facility secured on the finished scheme.

Development exit bridge or straight onto term debt

The first route is a development exit bridge, a short-term facility that repays the development loan and runs across the marketing and sales period. It is the right choice when the exit strategy is unit sales, because it gives a 12 to 18 month runway to sell at full value rather than discounting to hit a hard maturity date. It is cheaper than the development finance it replaces, and being sized on gross development value it can release equity from completed units for the developer's next scheme. Specialist development and bridging lenders active in this market are geared to replace maturing senior debt at pace, though we place each case with whichever funder fits.

The second route is to refinance straight onto longer-term debt. Where the developer intends to hold the scheme, or part of it, as an investment, there is little reason to bridge first. A term loan or a buy-to-let mortgage values the finished, let asset and repays the development facility in a single move, settling the debt onto a longer horizon at investment pricing. This avoids paying for a bridge and then a second refinance, provided the units are let or readily lettable and the income supports the lender's cover tests.

The two routes are not exclusive. A common structure on a held scheme is a development exit bridge for a short period while the units are tenanted, followed by a refinance onto term or buy-to-let debt once the rent roll is in place and a lender will value the asset on its income.

Refinancing retained units onto a buy-to-let mortgage

Where a developer keeps units rather than selling them, the natural take-out is a buy-to-let mortgage or, across several units, a portfolio buy-to-let facility. This is the build-to-rent logic at a smaller scale: the finished units are let, the income is established, and a BTL lender refinances them onto a long-term mortgage that repays the development loan. A portfolio landlord can refinance a block of retained units onto a single facility, and the rental income services the debt.

Timing turns on the income and the lender's requirements. Some BTL lenders will refinance shortly after practical completion once the units are complete and either let or readily lettable, while others want to see tenancies in place and a short period of rental history before they will lend at their best terms. The loan is sized on the investment value and tested against the rent through an interest cover ratio, so the achievable rent, not just the capital value, sets how much the refinance releases. Challenger banks and specialist buy-to-let lenders are among those active in BTL and portfolio refinancing for retained development stock.

What exit funding sizes to on GDV and LTV

A development exit bridge is sized against gross development value, the aggregate open-market value of all the completed units confirmed by a RICS valuation. Loan to value is quoted against that GDV, and the indicative ceiling sits around 70 to 75 percent, sometimes described as loan to GDV, or LTGDV. Because the facility is set against finished value rather than residual build cost, it can release equity from completed units that was locked in the development loan. High-LTV bridging at up to 90 percent exists in the market, but it is rare on development exit, more costly, and usually involves additional security, so the indicative 70 to 75 percent band is the realistic planning figure.

The figures below are illustrative only and are not an offer of finance. The actual loan to value, rate and fees depend on the asset, the location, the strength of the sales evidence and the developer's track record.

A term loan or buy-to-let mortgage is sized differently, against the investment value of the let asset and capped by the rental income through the lender's cover test, so the equity it releases depends on the rent the units achieve rather than the GDV alone. We model both before you commit so the route you choose is the one that releases the most equity at a cost the scheme can carry.

Refinancing at or near practical completion

You do not always have to wait for full practical completion to refinance. A near-complete scheme can sometimes be funded just ahead of PC where the surveyor confirms a short, defined path to completion, which is the finish and exit approach: a bridge that funds the last works and then runs across the sales period. This bridges the gap to full sell-out or a term refinance for a scheme that is almost there but has snagging or a handful of final units to complete.

Once PC is certified, the refinance is cleaner and cheaper because the surveyor has signed the building off and the risk is letting and selling rather than building. The sequence below is the orderly path off development finance, whichever take-out the developer chooses.

1. Reach practical completion, or a defined near-complete position the surveyor will confirm.
2. We arrange a fresh RICS valuation to establish gross development value, or the investment value where units are let.
3. We size the new facility, a development exit bridge on GDV or a term or buy-to-let loan on investment value.
4. Drawdown redeems the development facility in full before its maturity bites, taking a first legal charge.
5. The developer sells the units under the bridge, or holds and lets the retained units under the term debt.

How we arrange the sales-period funding and the take-out

We work out whether the priority is an orderly sales period, a long-term hold, or a mix of the two, then arrange the facility that fits. For a sale-led scheme we place sales-period funding that repays the development loan and gives a realistic runway, with the interest retained or rolled so the facility carries itself while units are unsold. For a held scheme we arrange the term loan or buy-to-let mortgage that settles the debt onto a long horizon, and where it helps we structure a short bridge first and line up the term take-out behind it.

DevExit is a finance arranger and introducer, not a lender, and not authorised by the Financial Conduct Authority. We arrange and place the refinance with the funder whose appetite fits the completed scheme, working with lenders and the wider broker market, including high-street and challenger banks, specialist development and bridging lenders, private debt funds and whole-of-market finance arrangers. Any figures we quote are illustrative only and not an offer of finance.