Never in the history of the UK housing market has there been such ferocious demand for affordable homes. Getting on the property ladder remains a distant dream for millions, as an entire generation faces the prospect of renting privately for life.
Meanwhile, the UK’s property development finance, investment and lettings community is reaping quite the windfall. To such an extent that more than 50% of all private landlords intend to expand and/or diversify their portfolios over the next 12 months.
Given the current state of the UK economy and the escalating living-cost crisis, this is a surprising and impressive figure.
But what is becoming increasingly clear is how inventory that was thin on the ground is all but drying up entirely. Recent figures from the Department for Levelling up, Housing & Communities suggest that the number of dwellings actually completed between October and December last year was actually down 11% from the year prior.
All of which should technically come as welcome news to construction companies and developers, as demand for their services has never been higher. Even so, 2022 has brought about more than its fair share of challenges for even the highest-profile property development companies, prompting many to pause or even shelve their projects entirely.
On-going Uncertainty
Throughout the pandemic, developers were forced to contend with elevated material costs, supply chain complications and major labour shortages. Many of which have perpetuated, if not escalated due to the ongoing crisis in Ukraine.
Uncertainty has become the norm, leading to the disruption or postponement of hundreds (if not thousands) of property development projects across the UK.
For those affected, deep financial concerns are understandable. But when it comes to financing a project that takes longer to complete and/or sell than expected, development exit loans can provide welcome breathing room.
What is a Development Exit Loan?
In a typical example, let’s say a developer has funded a major property development project with a short-term development finance facility. Their planned exit strategy involved the completion and sale of their development by November 2022, at which point the loan would be repaid in full.
Due to unforeseen circumstances, the project is now unlikely to be completed on time – perhaps overrunning by a couple of months. Worse still, the agreed sale of the development has fallen through, as the buyer they lined up has pulled out of the deal.
This leaves the developer in something of a predicament, as their development finance loan is due for repayment by November. In scenarios like these, a development exit loan can help.
A development exit loan is issued to enable developers to meet their own repayment obligations, and avoid defaulting. Loan terms vary (in accordance with the requirements of the borrower), but can provide as much time as needed to come up with a new exit strategy.
For example, finding a new buyer for the development, or transitioning the development exit loan onto a longer-term repayment facility.
Either way, development exit loans can provide much-needed financial support and breathing room in time-critical scenarios. The facility can be arranged in a matter of days, and is charged at as little as 0.5% (or less) per month.
Where Possible, Act Early
While development exit loans can be arranged at short notice, it is always better to act early where possible. If you anticipate any potential repayment issues on your initial development finance facility, they should be raised with an experienced broker at the earliest possible stage.
Acting early provides the best possible chance of gaining access to a competitive exit loan in a timely manner. After which, you will have all the time you need to ensure that your product is successfully completed, and to come up with a new exit strategy for repayment.
