Shawbrook Bank launch HMO Refurb product

Shawbrook Bank have launched an HMO refurb product geared specifically to investors that are looking to convert a single dwelling into an HMO and take advantage of the higher yeilds available on these type of properties.

This is a growing niche area that Shawbrook Bank have identified as “good business” and are looking to support with funds available for new lending.

The maximum Loan to Value for this product is a very attractive 75% with 65-70% being the norm for other commercial lenders offering refurb finance depending on circumstances.

Shawbrook will allow customers to purchase or refinance a property to complete the development and then release the equity based on the new improved value without any further arrangement fees. This is by lending up to 75% of the finished Gross Development Value with a retention to 75% of the current value. The retention is released once the property ids finished and a new valuation is provided with confirmation that the property
is tenanted.

Options include a 3 or 5 year term based on interest only or part repayment if required to deleverage. The advantages are that there is no 6 month wait to release the extra value and the security of knowing the funds are available longer term and at cheaper rates than on Bridging finance.

Product Summary for HMO refurb at 75% LTV:

• 5.2% above 3month Libor (currently 0.6%) 3 or 5 year variable
• Early repayment charge 3% and 1% in the last year of a 3 or 5 year term
• Stress testing at 125% interest cover on margin plus 2.75%
• Arrangement fee 2.5% (2.25% added to the loan and 0.25% payable on acceptance of the loan offer)
• Loan sizes min £75k maximum £2.5million
• Discount on rate paid of 0.25% available to existing Shawbrook borrowers

Criteria Summary:

• Clients must have converted a similar property in the last 2 years and be experienced in managing HMOs eg at least 2 in a portfolio
• Evidence required of cash held to complete the project above the loan required
• Evidence required of independent material income to cover commitmmets
• Works must be completed and a signed AST in place within 6 month
• Property must be in habitable condition

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