Glossary

Residual stock

What residual stock finance is, and why a developer uses it instead of discounting unsold units to meet a construction facility's maturity.

Residual stock refers to completed but unsold units remaining once a construction facility reaches maturity, and residual stock finance is structured specifically to refinance that stock and buy the developer time to sell at full market value. Without it, a developer facing an approaching construction loan maturity with unsold stock can be forced into a rapid, discounted bulk sale simply to repay the construction lender on schedule, which typically erodes far more margin than the cost of a residual stock facility itself. Lenders assess residual stock finance against individual unit values, the sales strategy and pace being proposed, and the borrower's holding costs over the extended period. It is generally treated as a distinct product from the original construction facility, with its own security, term and pricing, even where the same lender provides both.

Related

Construction finance · Pre-sales · Exit strategy

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