The refurbishment lending market has seen a recent boost with property investors and homeowners looking to capitalise on current properties with home improvements and renovation work rather than buying new.
Looking at the bigger picture, the growing popularity of refurbishment loans has resulted from a number of changes in the housing and lending markets, particularly as the impact of MMR on the residential housing market begins to impact. Growing property demand across the country has pushed up prices, particularly in London, where overseas investors have further compounded the house price bubble. One consequence of this is that many of those with properties are looking to improve, not move. At Shawbrook we have seen an increase in the purchase of properties with renovation potential – experienced property investors are looking to refit and sell on homes for an immediate return, or rent out for a longer term investment.
A contributing factor to the interest in refurbishment lending is the shift in borrowers’ behaviour and attitudes. Refurbishment loans include short term loans (STLs) and the growing interest in this type of product is supporting the market. Along with increased availability of STLs, and the cheaper rates that we are seeing, the increase in awareness and transparency around this product is building client confidence and increasing demand.
Further developments contributing to a growing number of applications for these products include the temporary relaxation of permitted development rules that allow more commercial properties to be converted to residential dwellings. In this instance, refurbishment loans are supporting the creation of vital new housing stock.
Shawbrook continues to work with brokers to secure refurbishment loans for their clients. We offer a range of refurbishment options for investors looking to improve a property with our STL range and longer term residential refurbishment loans. Situations where a refurbishment loan might be appropriate include renovation as a key part of expanding a portfolio through to refurbishing a house for let after inheritance. For experienced investors, who own at least two current investment properties and who are looking to buy quickly, products STL4, STL5 and STL6 can provide the required finance at short notice. For clients with a more generous timeframe, products RR1 and RR2 could be the most suitable option for a residential refurbishment.
The RR1 and RR2 products enable clients to refurbish a property, in a similar way to a refurbishment STL, but enable them to subsequently retain and rent it out, acting like a standard buy-to-let loan. This hybrid product is a one-stop-shop for investors looking to buy, refurbish and let out. The value of the loan is on the afterworks value, enabling the investor to realise the full potential of a property.
The refurbishment market has the potential to grow further as such projects do not demand the same expertise and specialism as new builds, and I believe the high level of refurbishment lending activity will continue. It will be interesting to see if the seemingly unstoppable rise in London property prices will impact the refurbishment market in the coming months – we think there is a strong likelihood that investors will start to focus more attention on other areas across the UK and expand their property base, which would lead to further growth in the market as whole.
Karen Bennett is sales and marketing director at Shawbrook Bank