Short-term finance for inexperienced developer to purchase and refurb 3-bed house

The client, is an engineer who was looking for short term finance to purchase a 3-bed house in a popular seaside town on the south coast. The property was in need of a complete overhaul before it could be let, so would not qualify for a buy to let mortgage from the outset.

The client already owns two other buy to let properties but this was his first foray into refurbishment so we needed to use a lender that didn’t require this sort of experience.

Following advice from his tax adviser, the client had set up a Special Purpose Vehicle limited company through which to make the acquisition.

We took the deal to Keystone because it has a range of short term products we felt might suit the client. Its lending policy does not necessarily require borrowers to have refurbishment experience and because the client’s income from salary and rent would more than support the works being carried out by contractors, it was happy to offer terms.

The client provided Keystone with a detailed schedule of works which showed a total spend of £40,000 to bring the property up to scratch. He also made a director’s loan to the SPV which was to be used as the deposit.
Once the works have been completed and the property is let, we hope to help the client remortgage the property onto a buy to let mortgage.

Here are the details of the deal:

Purchase price: £190,000

Loan amount: £135,000

Post-works value: £275,000 (estimated)

LTV: 71%

Rate: 9% (0.75% per month)

Term: Maximum 18 months, interest only

Product: Short Term Finance Range

Borrower: SPV Ltd Company

Loan payment: £1,049 pcm

Lender arrangement fee: £2,700 (2% of the loan amount)

Rental income: Est. £1,300 pcm once works have been completed.

Gross yield: 8.2% pa

Consultant: Paul Martins, 01732 471616