Specialist lending can be an intimidating and sometimes misunderstood area of the mortgage market for many brokers for many differing reasons. It’s also an area which has long held a certain mystique, not to mention a lingering negative perception and hangover from the dark days of the credit crunch. A perception I might add which is largely unjust as, generally speaking, professional standards have risen greatly across all areas of the specialist lending marketplace in recent times.
Focusing on complexity, a good proportion of specialist transactions involve property professionals which can create their own set of challenges. These also involve elements which require extra time, energy and expertise during the advice process. In addition, it can be tricky for advisers to source exact lending requirements from some providers and some only accept business through certain packagers or distributors.
Now this is not me casting aspirations. All lenders have certain quirks in terms of the way we do business. And that’s not to say such lenders do not provide a good, responsible lending proposition. However, I do think greater transparency would help attract more advisers to better engage and understand certain areas of this marketplace. So, maybe it’s time for lenders to be a little clearer and more proactive around the specific requirements of the products they offer, the qualification needs of the client, an exit plan – if possible and appropriate – and in supporting advisers to better identify the borrowing scenarios to match certain product types.
Let’s start as we mean to go on by outlining a product type which continues to fly a little under the radar but is one which can prove to be a valuable addition to any advisers toolbox – Refurb IN Term.
What is Refurb IN Term?
Refurb IN Term is a special type of buy-to-let or semi-commercial mortgage; one that bypasses bridging and simply allows the landlord to purchase and quickly renovate a tired property using a long-term product.
The benefits
Refurb IN Term can be a great option for smaller projects where the anticipated uplift does not warrant the cost of bridging finance. For example, upgrading the kitchen and bathroom in a standard buy-to-let to increase the rental income potential, or making small but specific changes to a licensed HMO to attract a different type of tenant. It could even be a helpful solution for landlords who have longer term plans to extend a property but in the short-term, are happy to give it a quick refresh so that it can be let out for a couple of years whilst the relevant planning permissions are being obtained.
How can borrowers qualify?
I can’t speak for other lenders on such a product type but from a HTB perspective, first and foremost, the property must be habitable on purchase and any proposed refurbishments should be light.
Lenders will tend to conduct a valuation on such a property which is based on the value and condition of the property at the point of sale. This will give no indication of future value, although the borrowers will need to provide a schedule of works and any projected uplift in rent so that the valuer can take an informed view.
This schedule of works will serve to help lenders ascertain what future rental figure might be achievable and could support its borrowing potential. It’s also worth noting that some lenders will only lend to experienced landlords, although there are others out there, such as HTB, who will lend to first-time landlords.
Like bridging finance, this is a product type which isn’t applicable for all borrowing scenarios but the more accessible we can make various areas of the specialist lending market, the better.
Marcus Dussard is sales director, specialist mortgages at Hampshire Trust Bank