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Why STLs are ideal for refurbishment
 
The surge in investment in the UK’s commercial property market last year was partly thanks to an explosion in the short-term loan (STL) sector. Although this rate of growth has started to slow, the market continues to expand, and with reports forecasting double-digit returns for investors in 2015, the STL remains a popular choice.
 
Short-term loans are designed to raise finance over a short period and can be processed within a matter of days. Often referred to as ‘bridging loans’ for their use in bridging the gap between transactions, in the commercial property sector STLs are most frequently used to finance refurbishment projects. Property investors have an eye for potential, and part of their skill lies in identifying properties where investing in building improvements can lead to an increase in capital or letting potential. The works required for buildings vary significantly from property to property. Lenders have therefore diversified their STL offerings, with a variety of products to assist their clients, ranging from light to heavy refurbishment of residential, commercial and mixed-use property. 
 
For more extensive projects the rewards can be greater, but so too can the risks. In such cases lenders will look for client expertise above and beyond that held by the average investor, and a track record of similar renovation projects that have been successfully completed.
 
 
How does it work in practice?
 
A required refurbishment spend of up to 25 percent of the property’s value can be undertaken with Shawbrook on a term product of either 3 or 5 years. This is most suitable when the client is looking to retain the improved property within their portfolio. We will lend 75 percent of the current value then, once the works are completed, will inspect the property before releasing additional funds so the client receives 75 percent of the property’s after-works value. This means the client will be sure of swiftly releasing any increased value, allowing them to move funds on to their next project.
 
Let’s look at an example of a lender and investor client working together on a refurbishment project. The Good Property Company is a perfect fit for us as they have built a sustainable business model and an impressive track record in renovation and refurbishment projects. Based in Bristol, the company uses local expertise to find properties that are in need of refurbishment or renovation. An example of a light refurbishment project we worked on together (pictured above) was funded in part using our STL4 product at 0.73% per month.
 
If the refurbishment cost exceeds 25 percent of the property’s value, or involves structural alterations, then a Heavy Refurbishment STL would be required. In these cases properties can undergo significant transformations, such as the example below from The Good Property Company, which stands as a testament to the viability of such projects.   
 
 
As the demand for STL products continues to rise, many lenders have improved their offerings and increased their expertise in niche areas such as refurbishment. With great availability from both high street and specialist lenders, investors and property professionals now have a range of finance options which will allow them to turn a variation of refurbishment projects around quickly. 
 
*Ian Hoggart is a Business Development Manager at Shawbrook Bank

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