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Clearing Up Refurbishment Finance Misconceptions

Posted on | by Damien pepper

By Matthew Dilks, Bridging and Commercial Specialist, Clever Lending.

For property investors looking to secure financing for development projects, it’s crucial to understand the distinctions between light, medium, and heavy refurbishment loans. However, there still seems to be quite a bit of confusion surrounding what qualifies as light or heavy refurbishment and what information is necessary to obtain funding.

The Significance of a Detailed Schedule of Works

Mistakes in applications for refurbishment finance are quite common, often leading to revaluation and resubmission, which can be time-consuming and add extra work for brokers and lenders. Dispelling this confusion is essential as it can help both brokers and investors gain a better grasp of lenders’ requirements, streamlining the application process.

In most cases, light refurbishment typically involves cosmetic updates to a property, such as plastering, painting, new flooring, or the replacement of fixtures and fittings like a new kitchen or bathroom.

This means that most lenders won’t approve structural work or projects requiring planning permission, permitted development, or building regulation approval for light refurbishment bridging loan applications. Such developments would be considered heavy refurbishment.

Challenges and Client Expectations

In many cases of light refurbishment, there’s a common misconception that if the client doesn’t need the lender to finance building costs, proof of funds for refurbishment expenses won’t be required. However, this isn’t the case. A comprehensive schedule of works is one of the most critical aspects for investors, whether it’s for light or heavy refurbishment financing.

Similarly, in many heavy refurbishment cases, clients often anticipate receiving a building quote based on rough, approximate figures for the works. However, once again, a detailed schedule of works is imperative.

This schedule should outline the work to be carried out, the cost of each element, the expected duration, and the inclusion of any contingency fund that can be utilised in case of delays or overspending during the project.

In heavy refurbishment scenarios, clients must ascertain the current site value, understand the refurbishment costs, and have realistic expectations regarding timelines, especially as lenders won’t finalise the loan until planning permission is granted.

One factor that isn’t always considered by applicants is that if building costs are high, the project involves extensive work compared to the original property, or if most of the property is being rebuilt, it will be classified as a full development. This results in higher rates, in line with the level of information required by the lender.

Another crucial aspect in all refurbishment finance cases is Gross Development Value (GDV). This aspect is often misunderstood, with clients if lenders will base the maximum day one loan on GDV rather than the current value at day one.

Understanding Gross Development Value (GDV)

It’s essential to grasp this distinction. GDV is calculated based on the prevailing market conditions at the valuation date, and it may also consider recent property transactions for similar properties around the development.

This calculation can include asking prices, sale prices, data provided by letting or estate agents, or assessments from development surveyors. It may also be part of an initial development appraisal and continuously assessed to determine the project’s profitability.

As with all bridging loans, having a solid exit strategy for refurbishment finance is critical, particularly in these economically challenging times. In some cases, having two exit strategies may be preferable to account for any unexpected changes.

Exit Fees, Valuations, and Inspection Fees

Lastly, keep in mind that most lenders typically charge an exit fee. In “full” development finance cases, costs such as rates, valuations, and quantity surveyor re-inspection fees will increase as the project progresses.

Therefore, it’s advisable for investors to aim for projects falling within the light to heavy refurbishment categories. This approach can result in reduced funding costs, shorter underwriting times, and a wider selection of lenders.

Clever Lending Completes £1.9m MUFB Refinancing With HTB

Posted on | by Damien pepper

Clever Lending, the specialist finance packager and master broker, has announced that it has recently helped a customer who needed to refinance a Multi Unit Freehold Block (MUFB).

The introducer had a long-established relationship with Clever Lending and their client, a construction company, required the refinancing in order to consolidate its existing portfolio lending and intercompany loans. It also wanted to capital raise for onward investments to buy and renovate other properties.

With MUFBs, a single freehold property is usually split into individual flats or a row of houses under one title. In this case, there were 21 properties under a single title.

Steve Sanderson, commercial and bridging specialist at Clever Lending, discussed the case with Wes Baker and then placed the case with Hampshire Trust Bank, he knew from experience that the lender could deal with complex buy-to-let cases, including those involving MUFBs.

The refinancing was at 63% loan to value (LTV), with the £1.9 million loan provided against a £3 million valuation.

Steve Sanderson, commercial and bridging specialist at Clever Lending, commented:

“Many buy-to-let lenders only deal with vanilla cases, this is where the specialist lenders kick in, as this was a far from straightforward proposition. However, we have worked with HTB on many occasions and know they specialise in providing solutions for property investors with complex requirements.

“We worked closely with the lender and client to ensure a positive outcome, once again showcasing Clever Lending’s ability to get results for our broker partners.”

Wes Baker, property specialist for the North and Midlands at Hampshire Trust Bank, added:

“I’m thrilled to have collaborated with Steve at Clever Lending again, in what is another fantastic example of how HTB can work with highly experienced broker partners to support their clients with complex requirements.

“Our expertise in handling intricate buy-to-let cases, such as this Multi-Unit Freehold Block, allowed us to provide a tailored solution to allow the client to refinance not only their existing portfolio, but to raise capital for future investments.”

Social Housing – An investment opportunity

Posted on | by Damien pepper

As a GOLD partner, Clever Lending are working with Together to bring you areas of property investment opportunities where there continues to be growth and demand.

Your property investment customers might be interested in Social Housing.

Lets talk about Social Housing

With only 6,500 social rental homes built of the 90,000 needed each year, there is an opportunity in this market for landlords looking to support this underserved area.

Landlords may be struggling with rental yields on ASTs as a result of increased interest rates and could be looking to diversify their portfolios.

High street lenders appetite becomes more restrictive during challenging market times, and this is where specialist lenders can step in and support.

Why work with Clever Lending for your Social Housing enquiries?

With Together, Clever Lending can offer your customers:

  • Lease income rather than market rent can be considered for our affordability assessment
  • Hometrack and internal funding criteria available*
  • We can provide funding to purchase or refinance care homes – both children and adult care homes
  • Properties let directly to a local housing association are acceptable, including long leases
  • We can also lend against properties let to vulnerable tenants subject to a review of the lease agreement
  • No criteria limiting the maximum number of bedrooms in a HMO or maximum number of units in a MUFB
  • BTL, Commercial term and bridging funding solutions available based on the property type and customers borrowing needs
  • Industry leading professional Alex Bodie heading up Togethers dedicated Social Housing channel

*Please speak to Clever Lending for full criteria

We are here to help customers realise their property ambitions, and we do so by providing exceptional customer service and funding solutions at speed.

To discuss your social housing enquiries, please do not hesitate to get in touch with the Clever Lending team on 0800 316 2224.

Homeowner business loans

Posted on | by Damien pepper

Nicola Ferguson, Bridging and Commercial Specialist, Clever Lending

One of the main challenges of setting up or running a new business is the costs associated with getting it off the ground. It can often be difficult for new business owners to secure funding, particularly if they have little or limited accounts history and this can often stop any plans to grow a business in its tracks.

The Growing Need for Financing New Businesses

Despite this, one in three UK adults planned to start a new business by 2024, according to the 2021 Global Entrepreneurship Monitor (GEM) UK report, seemingly undeterred by the effects of the 2020 global pandemic and ongoing uncertainty and volatility in the economy. 

Supporting the growth of small business is essential for economic stability as it helps to foster innovation and encourage future entrepreneurship and continued business growth. However, with access to funding sometimes challenging and the needs of every business vastly different, brokers need to ensure they are aware of all the financing solutions available to those clients looking to capital raise, particularly those just starting out. 

Exploring Homeowner Business Loans

For example, a homeowner business loan can prove to be an excellent borrowing tool for those clients at the start of their new business journey or even existing business owners in need of a cash injection. Yet despite being an extremely useful way of capital raising, homeowner business loans remain a relatively unfamiliar and niche area of the specialist lending market.

Lenders in the Market Offering Homeowner Business Loans

There are not many lenders in the market offering a homeowner business loan, but Mercantile Trust and Together are two lenders that do. With few lenders offering this, it could mean brokers may not be aware of what they offer.

Maeve Ward, Director of Commercial Operations at Mercantile Trust said:

“Our relationship with Clever Lending has been built up over many years, and we have had the pleasure in working with the team more closely since the launch of the product.

“What’s great is that the product allows the client to access funds much more quickly than a second charge mortgage would allow, an advantage when the borrower’s portfolio might not have the required equity or they are faced with the challenge of the first mortgagee not consenting.”

Joanna Elton, Intermediary Relationship Manager – Midlands at Together said:

“For customers who are in need of funds to contribute towards their business, homeowner business loans can be an excellent option. Considering their value to both new and existing businesses, they should be on the radar of all brokers so they can best advise and educate their customers.

“There are currently few lenders in the specialist lending sector who actually provide these loans – and we have built up long-standing working relationship with Clever Lending. Together, we have been able to provide a number of these loans to our customers to help them achieve their property ambitions.”

Considerations for Using Homeowner Business Loans

As highlighted by both Joanna and Maeve, this product can be an important one for brokers to have access to as they provide small business owners, start-ups and entrepreneurs a way of accessing finance by allowing them to release equity from their main residence for business purposes. This can prove particularly useful in the early days if a business has no bricks and mortar to borrow against and needs a cash injection to buy equipment, purchase stock or even secure new premises. In some cases, a homeowner business loan can also be used to pay off outstanding business debt such as a tax bill. 

Provided the client is a homeowner with a first charge mortgage, they can take out a homeowner business loan on their residential property up to 75% loan to value, and use the money to set up or help develop their business further. The loan will run alongside, but separate to, the first charge mortgage and will have its own rate, terms and repayment agreement.

A homeowner business loan can also prove to be particularly useful in cases where a property investor may not have enough equity in their property portfolio, as it enables them to use the equity within their own home for business reasons while also keeping their portfolio untouched and protecting the preferential rate on their first charge mortgage.

As the name suggests, a homeowner business loan can only be used for business purposes, so it important the client is made aware of the fact that they are releasing equity from their main home to fund a business transaction and that the money cannot be used for any other reason. They will also need a clear and achievable exit strategy explaining how the loan will be repaid.

Obviously, a homeowner business loan will not be a suitable option for every client, and it is up to brokers to determine whether this type of financing solution suits the individual needs of their business customers. However, as with all aspects of the specialist financing market, understanding this niche product area and being aware of all the options available in the market, will ensure they are fully equipped to serve the individual needs of each of their clients.  

Dispelling refurbishment finance myths

Posted on | by Damien pepper

By Matthew Dilks, bridging and commercial specialist, Clever Lending

For property investors seeking finance to fund development projects, understanding the differences between light, medium and heavy refurbishment loans is imperative, yet there remains a significant amount of confusion around what constitutes light and heavy refurbishment and the information required by lenders in order to secure funding.

The Importance of a Detailed Schedule of Works

Incorrect applications for refurbishment finance lending are common and cases are frequently reassessed and resubmitted accordingly, which is time-consuming and creates more work for brokers and lenders. Dispelling this confusion is important as it can help brokers and investors gain a better understanding of the requirements of lenders and create a more efficient and streamlined application process.

In the majority of cases, light refurbishment typically refers to cosmetic updates to a property such as plastering, painting or new flooring or the replacement of fixtures and fittings such as a new kitchen or bathroom.

This means the majority of lenders will not accept any structural work or work that requires planning permission, permitted development or building regulation approval for light refurbishment bridging loan applications, as developments of this kind would be classified as heavy refurbishment.

In many light refurbishment cases, there is often a wrongly-held belief that because a client may not require the lender to fund any building costs, the lender will not ask for proof of funds for the refurbishment costs.

However, this is not actually the case and the reality is that a full schedule of works is one of the most important factors for investors to consider when applying for all types of refurbishment finance, including both light and heavy.

Similarly, in many heavy refurbishment cases, it is often the expectation of clients that they will receive a quote for a build on the back of cursory and approximate figures for the works, but again, a full schedule of works is imperative.

This should contain details such as the work to be undertaken, how much each element will cost, how long it will take and the inclusion of any contingency fund that can be used in the event of any delay or overspending that may occur during the development.

In heavy refurbishment cases in particular, clients always need to establish the current value of the site, demonstrate a good understanding of the cost of the refurbishment works and have realistic expectations about timings, especially as lenders will not complete until planning permission has been granted.

One important consideration that applicants don’t always take into account is that if the build costs are high, the building works are large compared to the original property, or if the majority or all of the property is being knocked down, then this will then be classed as a full development. This means rates will increase in line with the level of information required by the lender.

Another fundamental factor to consider in all aspects of refurbishment finance is Gross Development Value (GDV). This is a significantly misunderstood aspect of the refurbishment finance sector and many clients often wrongly assume that lenders will lend off the GDV for the day one maximum loan rather than the current value for the day one lend.

Understanding Gross Development Value (GDV)

Understanding this difference is critical. GDV is calculated based on the market conditions prevailing at the date of the valuation, and may also be based on an analysis of recent property transactions for similar properties in the area of the development.

This can include asking prices, sale prices, information provided by letting agents or estate agents, or assessments provided by development surveyors. It may also be calculated as part of an initial development appraisal and may then be continually assessed to help determine whether the project is likely to be, or has been profitable.

As with all bridging loans, the exit strategy of any refurbishment finance loan is critical, especially in these more economically challenging times and should hopefully demonstrate that the investor has a realistic understanding of the market. In some cases, two exit strategies will be preferable to account for any change in circumstances.

One final aspect to also keep in mind is that most lenders will typically charge an exit fee and that in ‘full’ development finance cases, costs such as rates, valuations and quantity surveyor re-inspection fees will increase as the project unfolds.

It is therefore advisable for investors to try and keep their project within the light to heavy refurbishment categories as this will mean reduced funding costs, less underwriting time and a wider choice of lenders.

Clever Lending completes second charge bridging loan for business capital raising in 3 days

Posted on | by Damien pepper

Clever Lending, the specialist finance packager and master broker, has announced that it has recently completed a £24,000 second charge bridging facility which completed within three days of the initial enquiry.

The customer approached Clever Lending directly in the afternoon of 15th August. He was raising funds for business purposes on an investment property with a second charge lender. However, he was struggling to overcome various issues with the lender and assorted legal matters, all the while needing to have the funds by 18th August.

Clever Lending discussed the case with bridging lender, Holme Finance Bridging Solutions, which agreed to provide a second charge loan without needing consent from the first charge lender.

The property valuation that had been carried out by the second charge lender who the client had previously been dealing with was accepted and Clever Lending packaged the case the same day.

The lender approved the offer on 16th August and met the client on the following day to finalise the application, with the case completing on 18th August to meet the customer’s tight deadline.

The net bridging loan was for £24,000 against the property valuation of £220,000. The total loan to value (LTV) with the first charge included was 60%.

Steve Sanderson, commercial and bridging specialist at Clever Lending, commented:

“This case came with an extremely tight deadline but it did not put us off. We knew that Holme Finance Bridging Solutions would consider a second charge application without the first charge lender’s consent and so worked closely with them to ensure we could package the case as soon as possible.

“The case completed on schedule because the parties involved were committed to making it happen, including the customer, who was very responsive.”

Dan Yendall-Collings, Senior Underwriter, Holme Finance Bridging Solutions, added:

“We have had a close working relationship with Steve Sanderson at Clever Lending for many years. Steve has a great deal of experience and expertise in identifying where our lending offering is a good match for his client’s individual set of circumstances. The quality of his packaging means that we have a very strong completion ratio with his cases’ successfully paying out within a matter of days.”

Clever Lending completes second charge bridging loan for business capital raising in 3 days

Posted on | by Damien pepper

Clever Lending, the specialist finance packager and master broker, has announced that it has recently completed a £24,000 second charge bridging facility which completed within three days of the initial enquiry.

The customer approached Clever Lending directly in the afternoon of 15th August. He was raising funds for business purposes on an investment property with a second charge lender. However, he was struggling to overcome various issues with the lender and assorted legal matters, all the while needing to have the funds by 18th August.

Clever Lending discussed the case with a bridging lender, which agreed to provide a second charge loan without needing consent from the first charge lender.

The property valuation that had been carried out by the second charge lender who the client had previously been dealing with was accepted and Clever Lending packaged the case the same day.

The lender approved the offer on 16th August and met the client on the following day to finalise the application, with the case completing on 18th August to meet the customer’s tight deadline.

The net bridging loan was for £24,000 against the property valuation of £220,000. The total loan to value (LTV) with the first charge included was 60%.

Steve Sanderson, commercial and bridging specialist at Clever Lending, commented:

“This case came with an extremely tight deadline but it did not put us off. We knew a lender that would consider a second charge application without the first charge lender’s consent and so worked closely with them to ensure we could package the case as soon as possible.

“The case completed on schedule because the parties involved were committed to making it happen, including the customer, who was very responsive.”

The Senior Underwriter at the lender, added:

“We have had a close working relationship with Steve Sanderson at Clever Lending for many years. Steve has a great deal of experience and expertise in identifying where our lending offering is a good match for his client’s individual set of circumstances. The quality of his packaging means that we have a very strong completion ratio with his cases’ successfully paying out within a matter of days.”

In the Spotlight – Nicola Ferguson, commercial and bridging specialist, Clever Lending

Posted on | by Damien pepper

Tell us a little bit about yourself and your role at Clever Lending? 

I first joined Clever Lending as a case manager in 2019 and worked my way up to paraplanner before starting my current role as a commercial and bridging broker in January this year.

I have worked in financial services for most of my life and joined the industry after a wonderful year as an au pair in New York where I looked after two children. All my knowledge of the specialist lending market has been acquired while on the job.

Before joining Clever Lending, I worked for a small pension transfer company. I am also a fully trained holistic therapist, specialising in reflexology, massage and reiki and an Avon rep.

I have a 17-year-old son called Jack and I enjoy reading, traveling and meals out with friends and my lovely work family.

What misconceptions do you think brokers and their customers have about specialist finance and what pleasantly surprises them the most? 

One major misconception is that we can get a bridging loan completed within 24 hours and that they don’t need to provide that much information to the lender.

It would be great if that were the case, but sadly it takes a little longer than a day to get a bridging case through. That said, once we outline the process and explain how we will take the stress out of the application for them, it seems to make it more manageable.

What seems to surprise brokers the most, particularly those who are not familiar with the specialist finance market, is that we are prepared to guide them through the entire process.

This helps them to get more of an understanding of the sector, which in turn, can enhance their earning potential in the long term.

How does a business such as Clever Lending help brokers with specialist cases and what do you feel is the most important factor for brokers to consider when working in this sector? 

We help brokers by either packaging a case for them or dealing with the client directly while also keeping them in the loop. We are a small team, so clients and brokers are guaranteed to get a one-to-one service when working with us.

I think the most important thing for brokers to do is to always ask questions when they are unsure about anything and not to second guess the information requested as it is usually required because it is always needed.

What minimum amount of information do you need from a broker when helping them with a bridging finance case and, in your experience, what should brokers also ask their customers before they call Clever Lending? 

It is really important to supply us with a detailed synopsis of the case, such as whether it is a purchase, chain break or even a divorce settlement.

We also need to know the value of property, whether there is a mortgage on it, the loan size, in which country the property is being purchased and whether any works need to be done. If work does need to be done, then we will need a breakdown of how much will it cost, how long it will take and whether or not planning permission is needed.

Other factors to consider are the gross development value (GDV) of the property, whether it is an auction purchase, whether the client has any adverse credit and how they are expected to exit the bridging loan – is it through a sale or re-mortgage?

If a broker can get this information before calling us, it will enable me to get a quote for them much more quickly.

When brokers refer their customers to you for advice, how do you keep the broker informed and what does the process look like? 

If we are dealing with the client directly and advising them on a purchase, then we will always keep the introducing broker updated. Generally, this will be by email but they are always welcome to call us for an update.

At key stages of the application process, I would copy the broker into emails to the client such as when the heads of terms are sent out, when the application pack is sent out, when the offer letter is received and once completion takes place.

Lastly, when fees are received, I would then email them to say their commission is on route and to thank them for placing the case with me.

Clever Lending packages regulated bridge for complex holiday let development

Posted on | by Damien pepper

Clever Lending, the specialist finance packager and master broker, has announced that it has recently packaged a £180,000 regulated bridging facility for a broker’s clients who wanted to develop residential outbuildings they owned into holiday lets.

The residential property was unencumbered and valued at £2 million; however, the clients were looking to split the title after the development was completed, separate out the three-bed detached bungalow also on the land and remortgage it as the exit strategy.  

Matthew Dilks, commercial and bridging specialist at Clever Lending, placed the case with West One Loans as he recognised it was the only regulated lender that would consider the commercial and residential mixed-use security. 

Clever Lending worked quickly and closely with West One as the clients needed a quick completion on the bridging loan. Various obstacles had to be tackled in order to meet the tight deadline.

There were some delays with the valuation report as the surveyor discovered that there was an equestrian facility on site. In addition, the fact that strawberries were growing on the site meant that the valuation needed to be based on a specific type of land. However, as a gesture of goodwill the lender kept the valuation fee the same to prevent the clients from incurring any extra costs.

In addition, during the client application process the Bank of England increased the base rate which in turn saw the lender’s rate rise from 0.95% to 1%. As a consequence, West One increased the gross loan amount to ensure that the clients would receive the initial net loan amount they required.  

Having overcome all the issues, the case was completed within two months of submission on 21st June. The regulated bridging loan was for 12 months at a loan to value (LTV) of 15%.

Matthew Dilks, commercial and bridging specialist at Clever Lending, commented:

“This case highlights the many benefits of dealing with a master broker. Following the clients’ specific requirements, we used our considerable market expertise to place the case with the only lender willing to accept mixed-use security with a regulated bridging loan.

“We were also able to work closely with the lender and other third parties to deal with the particular issues that arose during the application process.

“Clever Lending is known as a firm that gets difficult cases successfully completed and this was no exception.”

Jez Quinn, Head of Sales (North) at West One Loans, added:

“It’s always a pleasure to work with the team at Clever Lending and I’m delighted we could support their client with this transaction.

“I look forward to working with the team on their next deal.”

Maximising returns in a challenging market

Posted on | by Damien pepper

Q: What’s the current situation in the UK buy-to-let (BTL) sector?

A: The UK BTL sector has been experiencing uncertainty lately. Many older landlords are selling their properties and retiring from the BTL market. According to estate agency Hamptons, approximately 140,000 landlords left the sector last year, making up nearly three-quarters of all property sales by BTL investors. This trend is largely attributed to aging landlords, particularly those who were early adopters of BTL mortgages dating back to 1996. In fact, around 96,000 landlords are expected to turn 65 years old this year, suggesting more may follow suit.

Q: Why are older landlords leaving the BTL market?

A: Many of these landlords are exiting the market for the same reason they initially entered – to fund their retirement. So, while the mass exodus of BTL landlords may sound concerning, it actually presents an opportunity for those remaining in the sector.

Q: How can those still in the BTL market capitalise on this opportunity?

A: The key to capitalising on this opportunity is by using a financial tool called a bridging loan. Bridging loans offer a way for landlords and investors to expand their portfolios quickly and seize opportunities as they arise. This is especially useful when there’s a tight completion deadline or when purchasing properties below market value or at auctions.

Q: What are the advantages of using a bridging loan?

A: Bridging loans are incredibly flexible and can be used for various purposes. They are ideal for purchasing properties with short completion deadlines, tenanted properties, or even properties in disrepair. Investors can use these loans to refurbish and upgrade properties before selling or renting them out. Additionally, bridging loans can help investors raise capital for improvements to existing properties, ensuring they remain profitable and appealing to tenants.

Q: How can bridging loans help improve a property’s value?

A: Bridging loans can be used to enhance a property’s value and overall appeal. Whether it’s simple changes or extensive renovations, using a bridging loan to update a property can increase its appeal, raise its value, and subsequently improve yields for landlords.

Q: What about the challenges in the mortgage market? How do they affect investors?

A: It’s true that the current mortgage market is volatile, impacting landlords and investors alike. Affordability pressures and reduced disposable income levels are affecting the entire market. However, with older landlords choosing to retire from the BTL sector, there is still an opportunity for brokers to help clients looking to expand their portfolio or enter the sector. Bridging loans offer a solution by providing swift access to cash, allowing investors to act quickly in a rapidly changing market.

Q: In summary, what’s the main takeaway for landlords and investors?

A: The evolving landscape of the BTL sector presents a unique chance for those still interested in property investment. Leveraging bridging loans can give investors the agility they need to navigate this changing market effectively. Whether you’re looking to purchase, renovate, or improve existing properties, these loans offer a valuable financial tool to help you maximise returns in today’s challenging market.