February 2019
By D’Mitri Zaprzala, Head of Sales, Octopus Property
At a recent event, we welcomed a significant number of brokers who were keen to learn more about the refurbishment market, as investors continue to see the benefits of this as an opportunity to increase their yields in property and rental markets.
Recent changes in taxation, stamp duty and Brexit uncertainty are all factors that are creating a malaise in the market, even deterring buyers from making that next move. In response to these increasing pressures, property investors are frequently looking at refurbishment loans, typically to fund 6 to 12 month projects as a way of adding value and also increasing their rental yields. This brings great opportunities for investors, and it is also worth considering the wider market dynamics.
One example of this is that we are seeing an increase in properties being converted for short-term lets. According to the Residential Landlords Association, Airbnb listings grew by 60% in 12 months to August 2017, and there was a 75% growth in multi-listings on Airbnb.
We’ve also witnessed more borrowers seeking planning permission to enhance properties, conversions from commercial property to residential, as well as conversions to HMO properties or holiday lets.
With various research reports such as the Knight Frank’s Residential Market Forecast1 projecting property prices to rise, we saw the opportunity to revamp our residential refurbishment loan product to switch its focus to provide a great combination of both gearing and price.
This was the backdrop for our refurbishment event in London earlier this month. Key topics under discussion included the changing refurbishment market as well as the opportunities arising for brokers to maximise the opportunities that this type of product is creating.
To help borrowers increase their leverage and reduce the need for 3rd party investment or high interest debt, we now lend up to 90% LTC at 0.8% per month, with build costs up to £1 million on our refurbishment loans. We have also updated our pricing, loan size and works limit and support underserved areas of the market, such as foreign nationals, complex company structures and expats. Our ethical approach means that we only charge interest on money drawn at any given point and we also don’t charge any non-utilisation fees, as it’s only fair that you pay for what is used.
One of our recent deal highlights was a £1.36 million refurbishment loan at 88% LTC. Here, a borrower was looking to extend and refurbish a four-bedroom mid-terrace house in Putney, South-West London. The biggest challenge facing the borrower was that there was no planning permission in place when the finance was required as his applications were pending decision. Fortunately for the borrower, he had engaged a very experienced broker to work on his behalf who then contacted us directly, communicating all the information we required to conclude that the project would be completed both on time and on budget.
It is this type of satisfactory outcome that sees us being very keen for more and more brokers to consider our refurbishment finance, where they are able to take advantage of our level of gearing, price, flexibility and simplicity.
1 Knight Frank, May 2018