Bridging Lender Takeout: Refinancing a Development Exit Loan in Default

Your development exit loan has gone past term. Default interest is running, the incumbent will not extend, and someone has mentioned an LPA receiver (a receiver appointed under the Law of Property Act 1925).

Another bridging lender can still take out that facility if the asset and the exit still work. The job is mechanical: redeem the existing charge, pay the inflated figure, and put a new first charge on the title.

This is not a bank refinance of a performing loan. It is a short-term, asset-backed takeout sized to what you actually owe and how you will repay it.

What the takeout actually involves

The incumbent produces a redemption statement. Ask for a split of:

• principal still outstanding
• contractual interest and default interest
• exit fees, costs and the daily rate after the quoted date

Your solicitor then gives undertakings to use the new funds to discharge the existing charge on completion. Until the incumbent provides a deed of release for registration at HM Land Registry, the new lender cannot take a clean first charge.

Funds, discharge and the replacement charge have to land on the same day. If the incumbent's solicitors are slow, that is the delay, not the credit decision.

How default interest collides with a 75% LTV ceiling

If the original facility was already close to value, months of default interest can push the redemption above what a new loan can support. A developer exit bridging loan is still capped at an indicative 75% LTV. We will not stretch past that ceiling to make the numbers work.

You inject equity, you accept a lower sale price that still clears, or the takeout does not proceed. Sizing the loan against unsold stock is the same discipline here: the exit has to cover the figure on the statement, not the figure you hoped to owe.

Why another bridging lender will still fund

The incumbent is protecting a book that has already gone past term. A new bridging lender is underwriting a fresh first charge against today's value and a dated repayment route: a sales campaign, a refinance onto term debt, or completed-unit take-up.

That is why refinancing bridging loans exist as a product, including where the outgoing facility is in default. We are not a bank. We lend mainly to property investors, developers and corporates, against the asset and the exit.

Related: an £18.8 million facility secured against a landmark West London hotel. For the sequence before you instruct, the lending process sets out term sheet, valuation, KYC and drawdown.

When a takeout is the wrong tool

If there is no credible exit inside 3–24 months, this is the wrong instrument. The tenor is short and it costs more than a term loan. The main risk is paying a second round of fees, then defaulting again when the sale or refinance still does not land.

It is also the wrong tool if the redemption already exceeds 75% of a defensible valuation, or if title, planning or EPC issues make a sale implausible. An LPA receiver may then be the cleaner path. Compare the full UK bridging loan range only if the security and the exit still stack.

The bottom line

A defaulted development exit is a title and numbers problem first. If those two still work, a takeout is a practical tool. If they do not, more short-term debt will not save the scheme.