The majority of property development finance is structured assuming that the build is completed, the units are sold, and the facility is repaid. This works well if it’s the developer’s intention and the sales achieve the desired values and sales rates. Where developers want to retain completed development units rather than selling everything immediately, it can be a little more complicated.
This approach is, however, becoming more common in the market. Some developers are keen to hold stock in strong rental locations that they develop in. Others want to retain the best-performing units for long-term income, or reach practical completion to find the market has softened and units are not selling quickly or the prices are harder to achieve within a reasonable time frame. These scenarios are workable, but the finance has to be planned properly to avoid frustration.
While practical completion is a key development milestone, it’s not always the end of the development funding conversation.
At practical completion the construction risk has been mitigated, and the asset might now be income-producing (or very close to it), and the developer has something tangible to refinance to redeem the development facility. However, lenders don’t all treat completed development stock in the same way, and the number of units, aggregate value of the units, freehold status, lease structure, or presence of any mixed-use assets, can all produce different valuations, different leverage, different legal work, and different exit options.
This is the point at which some developers find frustration and inflexibility. The decision (or option) to retain units shouldn’t be made at the end of the project.
Why Property Developers Retain Completed Units
For many developers, including larger PLC housebuilders seeking to return profits to shareholders, selling all the units in their newly completed schemes is their preferred exit. Doing so repays the senior debt, crystallises profits, takes the liability of the balance sheet, and releases capital for the next acquisition.
But some developers, particularly smaller or private developers, feel there is a stronger commercial strategy by building a long-term investment portfolio rather than relying entirely on recycling development profits. Retaining units on buy to let mortgages can create passive income, give exposure to leveraged capital appreciation, and reduce reliance on continually finding the next project to replace the last one. This is particularly relevant where the developer knows the location of their development intimately, rental demand is strong in the local market, and the units have been built (or converted) with a spec that will attract tenants.
The strategic decision to build recurring income alongside some project profit can be hugely beneficial in the long-term. It can strengthen the developer’s wider business over time, making the business more resilient to changes in market conditions. This approach works particularly well where retained units sit in an SPV with straightforward shareholding, simple lease structures and sensible gearing.
For some developers, retaining units was a necessity where homes didn’t sell at the prices required, but for others retaining units is an intentional choice and part of their strategy. A developer might look to sell the largest houses on a scheme to recover capital quickly, but try to keep smaller flats with stronger rental yields if possible. Another might sell residential elements, but retain the commercial unit in a mixed-use development.
Tax also plays a part in decision-making, and this requires separate advice from an accountant. The finance question, however, is narrower: can the completed stock support the debt required, and on terms that make sense for the developer’s wider plan?
Why the exit strategy should be planned before completion
All development finance lenders expect an exit. What’s less obvious, however, is how much the exit strategy can influence the right development lender from the start.
Lenders who are most comfortable underwriting a clean unit-sale strategy might not be the most suitable lender if the real plan is to retain 60% of the finished block. Another lender might be flexible around partial redemptions, unit releases, phased sales, or a refinance of the balance. The key is for these discussions to take place early enough for the lender to assess the risk and for the facility to be documented accordingly.
Timing is critical when planning a development exit. Ample time should be set aside to allow for valuations to be booked, tenancy assumptions to be checked, and lease structures to be reviewed and documented. Planning conditions may still need to be discharged, warranties need to be activated, building control requires sign-off, and solicitors may need to deal with title splits and Land Registry applications. If time runs out when the development is complete and any of these items are outstanding, developers sometimes use development exit finance to buy themselves more time to deal with these issues and sell the units or refinance any retained units.
If the intended strategy does include retaining units through a refinance into a buy to let or portfolio, there are further considerations. The borrower, the SPV, the rental coverage, the valuation basis, rental stress testing, and the lender’s appetite for exposure to newly completed units are just a few.
Most development lenders won’t allow the development facility to drift beyond the agreed term whilst the developer decides what route to take, and extension fees can hurt. Lenders will typically expect formal updates on the sales progress, current debt, expected redemptions, and any retained stock. Lack of strategy or weak explanations at this juncture can make refinances more challenging, as it can appear like a rescue exercise to new lenders rather than a controlled and planned exit. This could change the tone of conversations with new lenders, even if the underlying property is strong.
The ideal approach is to work backwards from the intended exit strategy. If the plan is to sell half the units and keep half the units, the development facility, legal setup, sales release and any exit buy to let refinance can all be considered in the round.
How development finance works when retaining units
Development exit finance is a useful tool to act as a bridge between the build facility and any long-term debt or term loan. Exit loans can repay the original development finance lender and reduce the cost of capital after completion through a lower interest rate as the construction risk has been mitigated. This could give the developer crucial time to sell or refinance the remaining units without having to service an expensive expired development loan or hefty extension fees.
These products are usually used once the units are complete but unsold. Risk still exists as the exit isn’t complete, but the build risk is diminished. Sales might be slower than expected, or the developer might be letting the units to stabilise the asset before refinancing the retained properties.
As well as repaying the original development loan, exit finance can also allow for partial redemption where some units are being sold and some retained, or as sales complete. As above, they can also provide time for tenancies to be put in place to stabilise the asset.
A good exit finance application sets out a clear strategy and plan: details around the current facility, outstanding balance, completed works, any remaining works (including professional or legal works to make the properties saleable), projected sales (including cashflow position after each), units to be retained, and expected or actual rental income.
Refinancing as Individual Units, MUFB, or Portfolio
Where units are being retained, developers might have several options available when it comes to financing the completed assets, depending on the asset, title, leases, rental profile, borrower structure, possible future sale plans, lender valuation methods, and various other factors.
Individual Buy to Let Mortgages
Where it works well: Separate titles, standard buy to lets, clean leases, and a plan to sell individual units later.
Main drawback: More legal work and potentially slower completion across multiple loans.
Practical points: Can preserve future saleability if each unit stands on its own.
Portfolio buy to let finance
Where it works well: Developers retaining several units across one or more SPVs.
Main drawback: Rental stress testing and portfolio exposure can restrict leverage.
Practical points: Useful where the borrower is a portfolio landlord and already holds investment property.
Multi-unit freehold block mortgage
Where it works well: One freehold block with several self-contained units held under one title.
Main drawback: Some lenders may apply a block or investment valuation rather than valuing units on the aggregate value of all the units combined.
Practical points: Often simpler than multiple charges, but valuation treatment needs checking early.
Commercial investment mortgage
Where it works well: Mixed-use blocks, commercial property elements, or property with lease income rather than standard tenancy income.
Main drawback: Pricing, valuation, and legal work may differ from residential investment finance.
Practical points: Commercial leases, tenant covenant, and lease length become central.
Retained Units Valuations
The lender’s valuation basis is sometimes the dictating factor in which refinance route to take. Although developers are likely to have assessed values on the basis of individual unit values, lenders being asked to finance the whole block may look at the asset like an investment instead.
If this is the lenders valuation approach, in some cases the discount can be to reflect the vacant possession value and possibility that a resale is more likely to sell to another investor rather than break-up value to individual buyers, however there are lenders who will consider the aggregate value of all the units individually if the asset is strong and the borrower is experienced and has sufficient net worth and security.
Where units are already let, the passing rent and an investment yield may help to support a higher valuation, closer to the market value. A strong tenancy profile, for example professionals or families in residential, or established companies with a strong balance sheet in commercial assets, also help to support the investment case.
Being newly built stock can also create its own challenges. Some lenders are cautious around newly completed units, particularly where there is limited comparable evidence and especially if the local market is slow or the development is targeting values materially exceeding nearby second-hand property values.
An experienced specialist property finance adviser would usually support developers in assessing their options early and trying to find the best approach for the circumstances.
Retained units in commercial to residential conversions
Commercial to residential development conversions can face additional scrutiny compared to ground-up new builds, although they are not inherently more difficult to refinance. New build schemes are purposely designed from the outset taking account of the unit layouts, services and access. Lenders may, however, spend more time considering conversions to see how cleanly the existing building has been repurposed.
Although investors may have always intended to retain the units, with conversions lender’s will still expect many of the same practical requirements as new builds. These will include (but not be limited to):
- Planning consent (or permitted development lawful development certificates)
- Discharge of any planning conditions (if applicable)
- Building regulations approval/sign-off
- Fire separation, strategy, risk assessment and EWS1 form (if applicable)
- Acoustic treatments
- Service media/easements, access arrangements, rights of way, rights of light issues
- Lease plans, freehold/leasehold structures
- Bin stores, cycle stores, plant rooms (as applicable)
- EPC’s
Although none of these items are unusual, some investors believe that some of these items are only required where they intend to sell the properties – this is not the case, and lenders will want to see that the conversion has been undertaken professionally. As the exit lender is being asked to fund the finished asset, unresolved details can slow or stall a refinance application.
Common mistakes when refinancing retained development units
- Leaving refinancing too late. This is the mistake we see most often, and which creates most of the avoidable cost to developers. Rather than the lender, valuer, broker, solicitors and borrower all working against the clock once the development loan is close to expiry, it’s best to start the process early.
- Treating exit finance and long-term finance the same. Development exit finance and long-term investment finance solve different situations. Exit finance is a useful tool to repay the original development lender to reduce pressure, allow sales to complete, or to give time for the units to be let. Buy to let mortgages, portfolio finance, or multi-unit freehold blocks (MUFBs) provide longer-term finance at more competitive rates. It is possible to jump straight from the original development facility into a long-term mortgage, but the build must be complete and ready to value, and titles, leases, rental evidence and completion documents must be ready.
- Not agreeing retained units with the development lender. If the intention is to retain units, having flexibility with the development facility or lender will help when it comes to unit releases and partial redemptions. If the lender is expecting a full sale redemption at expiry, extension or partial-exit discussions can be challenging or expensive, or development exit finance may be required if the long-term finance is not ready yet.
- Relying on unit aggregate values. As discussed above, lenders may use different valuation criteria and the aggregate value of the units, the block/investment value and the vacant possession value are not always the same. Even high-quality developments can find the refinance value to fall well below the anticipated GDV if the lender selected treats retained units as an investment block rather than aggregate values.
- Paperwork and documentation failures. Lenders being asked to fund retained units will want the finished assets to be fully lendable, not just practically complete. This means that EPCs, building warranties, building control sign off, lease plans, tenancy agreements, service charges, title and lease registrations (as applicable), planning conditions, management arrangements and a variety of other matters are closed off and fully documented.
How Adler Green helps developers plan the exit
Adler Green works with developers on development finance, development exit finance, bridging loans, buy to let mortgages, portfolio landlord mortgages, and commercial mortgages. Development exits can involve all of these areas of specialism, therefore requiring expertise in each of them. Retained development units are also usually a more specialist area and not typically dealt with as a standard buy to let mortgage.
A developer looking to retain flats after a build may well need development exit finance first because the original build facility wasn’t quite long enough to cater for the refinance period, or because there were delays with some of the development documentation. They may then move to buy to let mortgage or MUFB finance once the units are let, or the documentation is available. A mixed-use conversion may need short-term bridging while the commercial lease is completed, then transition to a commercial investment mortgage.
We look at the intended exit before approaching lenders, and this means reviewing the current development facility including the remaining term, outstanding balance, unit release provisions, expected sales proceeds, stock to be retained, valuation assumptions, rental assumptions and evidence, title structure, and the borrower.
Although developers and builders often focus most of their attention on construction costs and sales values, the refinancing strategy can be one of the most important areas influencing overall profitability of a project. Selling every unit, retaining part of the development, and refinancing the whole project will all create different funding requirements and require different approaches.
If you’re in the middle of a scheme and considering your exit strategy, speak to Adler Green to discuss the most appropriate financing route for your development.
Useful tools when planning for retained unit finance
Our Development Finance Appraisal Calculator is used by developers to look at total costs, GDV, finance costs, and profit metrics on their development schemes. It’s a useful tool for sensitivity testing and to compare a full sale exit against a retained unit strategy because the retained stock affects how quickly debt reduces and how much capital remains tied up.
Our Buy to Let Stress Test Calculator is useful when the retained units are expected to move onto a buy to let mortgage or portfolio landlord finance. Rental coverage can be a limiting factor at higher LTVs, even where the aggregate unit valuation looks strong.
For long-term debt planning, our mortgage payments calculator can help model monthly costs at different loan sizes, rates and terms.
FAQs about retaining completed development units
Can I keep some units and sell others?
Yes. Many developers use a hybrid exit, where some units are sold to reduce the development debt and the remaining units are refinanced. The facility needs to allow for partial redemptions, unit releases, and a clear treatment of the retained security.
When should I arrange exit finance?
The best time to start is several months before the development loan expires. If practical completion is approaching and the exit plan has changed from full sale to partial retention, the refinance should be reviewed immediately.
Can I refinance before practical completion?
Some lenders will consider an exit refinance before full practical completion if the remaining works are limited, the monitoring surveyor position is clear, and there’s a credible timetable to completion. The case will be stronger if warranties, building control, EPCs, and lease documents are already in progress.
Can I refinance unsold units?
Yes, subject to valuation, title, rental assumptions, and lender appetite. Unsold completed units are commonly refinanced through development exit finance, bridging finance, buy to let finance, MUFB finance, or portfolio lending depending on the structure.
Will lenders use individual unit values?
Not always. A lender may use individual unit values where the units have separate titles and are being funded individually. A whole-block refinance may be valued on an investment or aggregate basis, which can produce a lower figure than the total of the individual ‘retail’ sale prices.
Can I retain completed units in an SPV?
Yes, but the SPV’s ownership, borrowing history, existing debt, and future strategy will matter. Lenders will also review director guarantees, intercompany positions, rental income, and any wider portfolio exposure.
Can I refinance into buy to let after development?
Yes, where the units meet buy to let lending requirements and the rental income is sufficient to meet the lender’s ICR requirements. Newly completed units can be acceptable, but not every lender has the same appetite for developer-retained stock.
Can I refinance a commercial to residential conversion?
Yes, but the planning history, building regulations position, warranties, title structure, EPCs, and lease setup need to be clean. If there’s a retained commercial element, the lender may assess that part separately from the residential units.
Can bridging finance help after completion?
Yes. Bridging loans can help where the development loan needs repaying before the long-term refinance or sales have completed. It works best when there’s a defined event during the bridge term, such as title registration, tenancy completion, or a refinance already underway.
What happens if my development loan expires before refinancing?
The existing lender may agree an extension, but that can involve fees, revised terms, or closer monitoring. If the loan has already expired, the refinance becomes more time-sensitive and the borrower’s negotiating position is weaker. Early planning usually gives more control over lender choice, valuation timing, and legal work.
