In the world of boxing, you’ve got lightweight and heavyweight. In the world of commercial mortgages, you’ve got two other hard hitters – light and heavy refurbishment. They each have their benefits in the investment market. So what are the differences between the two?
In the blue corner, light refurbishment products for property professionals have punched above their weight in the sector, helping developers get off the ropes when it comes to challenging renovation work without any structural changes or requirement for planning. Heavy refurbishment sits at the opposite end of the ring, always requiring either structural work or planning permission, helping clients undertake significant modernisation work.
Defining the products
There are no easy answers to define the two finance options and what kind of refurbishment work they cover. Each lender will have its own individual stance on light and heavy refurbishment and it’s fair to say that both funding solutions are up for interpretation. At Shawbrook, we currently only cater for those looking to secure light refurbishment.
For us, this means that the client will not be completing any major structural work which would require planning permission, nor would they change the usage of the property to commercial usage. This is an approach echoed by most other specialist buy-to-let lenders in the market.
Heavy refurbishment has similar principles when it comes to the weigh-in. A property will need to be in place which must remain during and after work is undertaken. This means that the products cannot be used for buildings which are to be demolished and built again from their foundations, although extensions and conversions are very likely to be acceptable on these products.
Experienced investors
Lenders will always require one key thing when looking to lend for both opportunities: experience. Every lender will want to know what similar schemes the client has worked on previously. Brokers should know the type of projects investors have worked on before and in what capacity. Was it under their own name, as a partnership or as an employee? Being prepared and knowing all the information when approaching a lender can stop potential cases being knocked out in the early rounds.
Understanding the client
At Shawbrook, we know that property professionals will each have their own individual business model. It may be that they only buy and renovate in certain areas, are experienced in HMO conversions, or they may look to focus on a particular property type.
The more research brokers can do the better. On our larger transactions, a member of the Commercial Mortgages team will look to meet the client. Our broker partners, who are at the heart of our business, will also be asked to provide a detailed summary in the form of AIP sheets on all their new applications.
The market offering
So what lending options are available for investors? There are two types of finance available for light refurbishment: short term finance or specific refurbishment products. There are only a handful of lenders, like Shawbrook, offering refurbishment products where clients can release equity generated following uplift in valuation, up to a maximum of 75% LTV. We offer against the after works value, holding a retention against 70% of the purchase price or current value. Purchases and refinances are acceptable and brokers will receive commission on both parts of the loan.
Rates
We want our brokers to grow with us and are fully transparent with our fees and commissions to every client. We understand the need to ensure that the client is aware of all costs and that the broker is protected with their earnings being disclosed to the client. Nobody wants a bolt out of the blue knocking them to the canvas.
Both funding types play an active role in the property investor market with each providing much needed liquidity. Brokers who understand the differences between the two and what they can offer for investors will be the real victor.
