For brokers, one of the most common questions in property finance is when to recommend a development exit loan versus refurbishment finance. Both are short-term funding tools designed for property projects, yet the purpose and value of each is different. Knowing which route to use will save your client time, money, and stress. Considering the ins and outs of each, the advantages and scenarios where each apply helps you position the most suitable solution from the start.
What is development exit finance?
Development exit finance is used by property or site developers who have completed or nearly completed a development project but need additional time before selling on or to refinance the current borrowing. It allows them to repay their existing development loan, often at a lower rate, while improving your cash reserves or releasing equity for their next project. In many cases, it also reduces pressure from high-cost development lenders who expect rapid repayment once construction finishes.
A case example is where a developer may have built a block of flats that are 90% sold but still under warranty review or snagging. A development exit loan buys them breathing space to complete the process without fire-sale discounts or stress.
What is refurbishment finance?
Refurbishment finance, by contrast, is for properties that need light to heavy improvements before being sold or refinanced. It covers everything from cosmetic upgrades to structural work. These loans are used at the start of a project rather than at the end.
Light refurbishments may include kitchen or bathroom replacements, redecoration, or new flooring. Heavy refurbishments might involve extensions, layout changes, or converting a property into multiple units. The lender releases funds based on the current and predicted value once the works are complete, ensuring the deal remains secure until everything is completed and sold on.
Vital difference: Use of facility and times
The biggest difference between the two products is timing. Refurbishment finance generally kicks in prior to, or during the works, whereas development exit finance is used after the works are finished. One funds improvement, the other releases equity or lowers costs once improvement is complete.
As a broker, recognising where your client sits at a particular moment in time helps you recommend the right facility immediately. Offering the wrong facility may lead to avoidable delays or unnecessary refinancing costs.
Cost comparison and rate differences
In general, refurbishment loans tend to be levied with a higher interest rate than that of development exit loans. This is because the risk is higher during the building phase. Development exit finance, remains the cheaper option since the property is already finished and that makes placing a value on it easier.
However, other costs also matter. Refurbishment finance may involve stage payments, valuations at each phase, and monitoring fees. Development exit loans are simpler and funds are provided to you in one lump. Explaining these differences in a clear manner will help ensure that your client avoids surprises later.
Typical loan terms and structure
Refurbishment finance terms are usually between 6 and 18 months, depending on the scale of work. Development exit loans often last between 3 and 12 months, covering the period while the property is marketed or refinanced.
Both are short-term, interest-only products, but exit loans do generally get approval much quick with a simpler underwriting process as since the asset is complete. It’s always worth comparing lenders’ flexibility on extensions, early repayments, or partial sales during the term.
When to recommend development exit finance
Development exit loans are best suited when:
- A project is finished but needs time to get to market and sell.
- The developer wants to release equity to start their next project.
- The borrower’s current lender is applying pressure to redeem.
- The borrower wants to improve cash flow by switching to a lower rate.
They are advantageous in the sense where a developer may be juggling multiple sites or waiting for new planning permissions. The ability to refinance smoothly without disruption helps them maintain momentum across projects.
When to recommend refurbishment finance
Refurbishment finance would be better suited where:
- Your property still requires work to reach its full value.
- The borrower wants to increase rental or resale value through improvements.
- The client is converting a property for a different use altogether.
- The project involves a buy, refurbish, and refinance (BRR) strategy.
It is an ideal solution for property investors seeking short-term capital to boost the property’s value before refinancing onto a longer-term mortgage. Brokers who understand the intricacies of such deals are better positioned to help clients unlock higher profits.
Common mistakes you should avoid
An often found mistake happens where there is misjudging of where the project sits in its lifecycle. Recommending refurbishment finance too late, or exit finance too early, can delay completion and add costs. Another common mistake is ignoring the client’s cash flow requirements. You need to be aware of any ongoing commitments a client has, as they may prefer an exit loan even if the sale is close, simply to access liquidity faster.
Brokers should also watch out for valuation mismatches. Overestimating the completed value could result in a shortfall and may force last-minute changes. Always work with experienced valuers and confirm the lender’s expectations based on the current market and projected sale values.
How to assess which suits your client
Start by analysing against the vital factors: project stage, capital requirement, repayment plan.
- If the project is ongoing, refurbishment loan facilities would be better placed.
- Where the build is already complete and marketing is under way, development exit finance makes sense.
- If your client needs to release funds for another project while selling, exit finance provides the flexibility they need.
Understanding what your client wants to achieve as the end result is key. Sometimes a combined approach utilising both may be best suited, starting with refurbishment finance and then moving to an exit loan once the works are complete. Lenders who can accommodate both products offer the smoothest experience.
Supporting the process for the client
Your role not only lies in pointing your client to the right product, but to ensure the whole journey is as seamless as is possible to be. This means managing expectations on timeframes, valuations, and dealing with lender instructions. Prepare your client to maintain strong documentation, from builder quotes to marketing plans. Communication between borrower, broker, and lender keeps deals on track and helps you to proceed on future transactions with more ease.
Move forward in the way that best suits the client
Both development exit finance and refurbishment finance play essential roles in the property investment cycle. Factor in the timing, project expectations, and impact on their cash reserves. Brokers who understand how it all works for the client will add real value, helping clients avoid unnecessary costs and delays.