Selling vs refinancing units at the end of a scheme

How development exit finance frames the sell or refinance choice

A scheme reaches practical completion with the build risk gone but the senior development loan still due. The development facility was priced for ground-up construction, conversion or refurbishment risk, so it carries a high rate that no longer reflects the finished asset. Development exit finance is a bridge that redeems that senior debt at or near practical completion. Because the build risk has gone, it is cheaper than the development loan it replaces, and it is sized on gross development value, indicatively up to 70 to 75 percent of GDV.

Once that exit funding is in place, the real question is what to do with the finished homes. The choice to sell or refinance development units is the central exit decision of any scheme. Selling means a sales period or marketing period that redeems the loan unit by unit and crystallises profit. Refinancing means moving retained units onto a term loan or a buy-to-let mortgage and holding them for rental income. Most developers do some of each, and a finished-scheme bridge lets the split be decided as the market tells you what the units are worth.

When selling completed units to repay senior debt wins

Selling is the cleaner route when the profit sits in the sale rather than in the hold. It repays the senior development loan in full, returns the equity and the margin, and frees the capital and the personal guarantees for the next site.

• You need the capital and the profit out to fund the next ground-up development or acquisition.
• The completed units value strongly against GDV and demand in the local market is firm.
• The stressed rental cover is thin, so a buy-to-let or term lender would only advance a low loan to value against rent.
• You want to clear personal guarantees and close the scheme rather than run a portfolio.
• Capital Gains Tax on a held investment would erode more of the return than the trading profit on a sale.

The risk in selling is time. A slow sales period can push a developer toward a fire-sale or forced-sale discount to redeem the development loan before it matures. That discount is the single largest avoidable loss at the end of a scheme, which is exactly why a development exit bridge sits underneath the sales strategy.

When refinancing retained units onto buy-to-let or a term loan wins

Refinancing wins when the units earn more held than sold. The test is the interest coverage ratio: a buy-to-let mortgage or a term loan is stressed on rental cover, and the rent must clear the lender's ICR, commonly around 125 percent for a basic-rate borrower and higher for higher-rate or limited-company structures. Where the rent covers the debt comfortably, holding the units captures yield now and capital growth later, and the refinance releases equity by replacing expensive development debt at a cheaper rate.

• The rental income clears the stressed rental cover with headroom, so a lender will advance a sensible loan to value.
• You want to release equity from the retained units and keep the asset working rather than crystallise a gain.
• The location supports rental demand and capital growth over a hold period.
• A buy-to-let mortgage on residential units, or a term loan on a mixed or commercial block, prices well below the development exit rate.
• You can hold inside a structure that manages Capital Gains Tax and the additional Stamp Duty Land Tax already paid at acquisition.

Refinancing a completed development before every unit is sold is common. You can sell part of the scheme to repay a slice of the debt and refinance the retained units onto term or buy-to-let finance, so the development exit loan is cleared by a blend of sales and a refinance rather than by sales alone.

How a development exit bridge buys time before you decide

The strongest reason to put exit funding in place is that it removes the deadline. The original senior development loan has a hard maturity, and as it approaches, the lender's pressure grows. A development exit bridge redeems that senior debt and resets the clock with a term that typically runs 12 to 18 months to cover the sales period. With the development loan gone, there is no forced-sale pressure, so units can be marketed to full value and the sell or refinance decision can be taken unit by unit as offers and rental evidence come in.

Sizing, rate and term on a finished-scheme bridge

A finished-scheme bridge is sized against the completed value, evidenced by a RICS valuation, and is cheaper than the development finance it replaces because the construction risk has gone. The figures below are illustrative, for orientation only, and are not an offer of finance.

Interest is usually retained or rolled up rather than serviced, which protects cash flow while units are unsold. On a held block with early lettings, part of the interest can be serviced monthly from rent instead. Arrangers across the market, from FD Commercial and Planet Mortgages to Adler Green, Assetz Capital, ABC Finance, Envelop Finance, UK Commercial Finance and Willow Private Finance, all frame this finish-and-exit stage as a refinance or sell decision, and we place each case with the funder whose appetite fits the scheme.

Costs, tax and cover the sales-period funding must clear

Whichever route you take, the numbers have to clear the costs. A sale carries agent and legal fees and, on a held-then-sold asset, Capital Gains Tax; selling as trading stock is taxed as profit instead. A refinance carries a fresh RICS valuation, lender and legal fees, and the rent must pass the lender's interest coverage ratio before the buy-to-let mortgage or term loan completes. The Stamp Duty Land Tax sits with the eventual buyer on a sale, while the developer keeps the duty already incurred when holding.

• Compare net sale proceeds after fees and tax against the equity released plus the rental income from holding.
• Check the stressed rental cover before assuming a refinance will clear, because a thin ICR caps the loan to value.
• Decide between rolled-up interest, which protects cash flow, and monthly payments serviced from rent on let units.
• Treat the development exit bridge as the tool that buys time, not as the long-term debt, and line up the term or buy-to-let take-out in advance.

We arrange and structure the exit, whether that is sales-period funding to repay the development loan, a refinance of retained units onto term or buy-to-let debt, or a blend of the two. We are an arranger and introducer, not a lender, and the finance we place is unregulated commercial lending. Every figure here is indicative and not an offer of finance.