Much has been written about the stamp duty holiday and the role that bridging finance can play in helping to save transactions and enable homebuyers to beat the deadline. Rightly so. Short-term property lending is a valuable tool for brokers that can help their clients to meet their objectives and potentially save money in the process.

However, savings are not limited to the potential maximum of £15,000 in stamp duty. Bridging finance can have a much more significant financial impact for some clients — particularly developers, and particularly at the moment.

A development exit loan is a type of bridging loan that allows a developer to refinance their completed scheme, often at a lower rate than their development finance facility. This is because, unlike development finance, a development exit loan is usually taken once the properties have been built and so represents a smaller risk to the lender.

As well as delivering a saving on the interest rate, a development exit loan can give developers more time to achieve the best sales price and improve their returns. In addition, most investors use development exit loans to release equity from a scheme that they can then use to finance the start of a new project — ensuring they get the most from their capital.

Extra challenges

Property developments are frequently subject to delay, and often developers are approaching the end of the term on their development finance before they are in a position to redeem the loan. This is exacerbated currently because multiple national lockdowns and social distancing guidelines have made it even harder for developers to complete schemes on time.

In this situation, bridging finance can be used to enable developers to exit their development finance, complete a scheme and release capital.

Bridging finance used in this way can also help developers to save transactions, similar to how it is used by homebuyers in a chain. For example, ASTL member Tuscan Capital recently provided a £2.2m facility to aid a developer facing expensive forfeit-of-deposit costs.

The situation occurred when the developer had exchanged contracts for the purchase of a site — complete with residential planning consent for multiple units — in an area of north London. The completion date was looming but the client faced delays on the finalisation of his existing 20-home residential project in northwest England. This project was held up because the first national lockdown had led to difficulties in sourcing essential building materials. As a result, the developer didn’t have the capital that he had planned to use to complete the new purchase.

In this situation, the lender was able to refinance the over-running development and to release extra capital to enable the acquisition of the London site to complete.

If you work with clients who are developers, don’t assume that their requirements start and end with development finance. This is a highly specialised and important part of the short-term lending market, but it doesn’t operate in isolation and is used most effectively when combined with bridging finance, providing investors with a flexible way to manage cashflow and move between transactions.

This will be particularly important as we emerge from the pandemic, and brokers have a big role in delivering bridging solutions to their developer clients.

Vic Jannels is chief executive of the ASTL