The versatile short-term loan
Pete Turner (pictured), senior development manager, Shawbrook Commercial Mortgages
We continue to see the many and varied ways that short-term loans can be used by property professionals and property developers, and how brokers and lenders should be increasingly focused on developing relationships that help the customer on the short-term journey. Despite historic general impressions of the market being “quick and dirty”, this can often be a complex space requiring a deep level of expertise that must be deployed to fill a set of specific needs in support of investors operating in this area.
The bread and butter business of buying a property to carry out a light refurbishment, continues apace with many opportunities still out there for investors to add value to properties. The value of advice can really shine here as brokers must stay ahead of the product innovation that tends to accompany this space, one such example being the Shawbrook “Lending for Costs” product add-on. Knowledge of these developments is key to allow professional investors to work the cash within each deal efficiently, allowing them to build and grow their portfolio and take advantage of the time efficiencies available for things like auction purchases.
Essentially, this product add-on provides the customer with access to a bigger net loan, by allowing 100% of the cost of the works up to 85% LTV of the purchase price, and no more than 70% of the GDV. This allows the customer the ability to fund all or part of the works – a big selling point for savvy investors looking to retain their cash.
Short-term loans are used by many property developers and always have been, with a standard requirement being the ability to purchase a property or properties where there is no intention of letting them out, but where the investor looks to obtain planning permission. In this circumstance we are able to assist with an LTV of up to 75% on residential property and 70% on commercial property at a rate of 0.7% for residential and 0.83% for commercial. With no minimum term or exit fees it is an efficient way of purchasing non income-generating properties.
Over the past few years and much more so over the last 12 months, we have seen the property developer complete or nearly complete a development and require a refinance away from their development funder – the so-called ‘development exit’. This could be for several reasons; delays in the initial planning, issues with the actual build, the client looking to release cash for their next development, the development lender wanting their debt repaid before they advance monies for another project, or just a slowing market.
While the more common phrase is a developer exit loan, we tend to go with the label of a ‘marketing loan’ given that it allows the client the necessary time to market the property at full market value rather than having to drop their prices to repay the loan quickly. Working with Shawbrook the investor also can switch the properties onto a portfolio buy-to-let loan with minimal fuss and the bonus of no new lender arrangement fees and lower, or sometimes no, legal fees. This could apply to the full development or just part of the development.
In the circumstance where investors look to retain some of the units within a given project, it allows them to put tenants into the property and show market rent, which helps a valuer with the re-inspection and the ultimate maximum term loan available.
As mentioned, the extremely competitive short-term market caters for innumerable investor requirements with a clever range of products available across a diverse lender spectrum. We are delighted to be able to support this space and have a strong appetite for this type of lending as we move further into 2019. To reiterate my earliest point, supporting investors along their property journey is fundamental to long-term success, and we look forward to working with the broker community to build this approach across all our specialist markets.