Refurbishment finance and realising value in Scotland: the opportunities for investors

Written by Luke Stevenson

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By Tatyana Stefanova

When looking at property investment opportunities, a lot of attention is focussed around major cities.

We see it across England in Manchester, Birmingham and of course London. While this has, for years, led to reliable returns for investors operating in busy markets, it can mean other areas that have high housing needs and plenty of opportunity get overlooked.

I’ve seen this across Scotland, where the opportunity is less pursued, even in some of our larger cities.

This is where flexible bridging finance used for refurbishment can become so useful to investors exploring the area. Take Aberdeen for example, recently we have completed deals to:

Purchase to refurb into a holiday let
Refurbishment to increase property value
Purchases at auction before increasing value
Raising capital post refurb completion, displaying equity and growth gain

Not only is the opportunity there, but the need is there as well for new homeowners, renters and landlords needing to update their properties. Here’s how bridging and refurbishment finance can play its role in meeting the need for people in Scotland.

Meeting energy efficiency needs

So far it has been a busy year across the country for the remortgage market, and those landlords know they need to make their home more energy efficient ahead of the planned upcoming regulation changes.

A recent report found almost 1 in 5 landlords were expecting to pay £10,000 to get their homes up to the required rating, while 45% would need between £5,000 and £10,000.

Bridging finance can serve a valuable function here to fund works across portfolios with capital raises, and for landlords who are expanding portfolios it’s important this topic is at the front of your and their mind.

Investing in this now is important as we see energy bills continue to increase as a more efficient home can pass on savings to renters and landlords who’ve included utilities in their rent.

Improving housing stock

There is always demand for houses across the UK, whether it be for renters or homeowners.

Refurbishment finance also has a role to play at the acquisition stage for investors looking to remodel rundown buildings or change their use to make way for rental properties.

In some cases, heavier refurbishment finance is a good middle ground for clients, as generally more expensive and more complex development finance may not be right for the client.

Aberdeen is a prime example.

With the oil crash back in 2014, we saw the property values in the area drop more than 20% and that market has been trying to recover ever since. A lot of lenders tightened their criteria – or stopped lending altogether – and excluded the area from their policy. While that market is still recovering, there are savvy investors who are making the most of the opportunities in the city.

There is a strong demand for Student Lets in the area which offers a significant return for those who target that market. We recently expanded our criteria and added student lets in Scotland to our proposition and it is only a matter of time before we start seeing more properties being purchased to convert into HMOs.

Scotland has also been a prime location for people who are looking for an active staycation with the many munros in the region as well as Scotch fans exploring the different whisky areas. That has opened a lot of opportunities to those investing in Holiday Lets and AirBNBs.

As it stands there are just under 300k empty houses in the UK with 16% of those being in Scotland and interestingly enough it is Scotland’s major cities that have the most empty dwellings that are just waiting for the right person to invest it.

Adding value in Scotland

As I mentioned at the start, I’ve been working closely with brokers on realising the opportunity across Scotland. These have taken on different forms but have provided reliable returns for investors.

For example, a client with a couple of Buy-to-Lets looked to expand with a purchase in Turriff at auction at £115k, they wanted a 75% LTV loan while they completed £14k on works before refinancing. By the refinance stage the property would be worth £160k, which shows the value targeted refurbishments can add in the region.

Finally, an investor wanted to flip a property in Aberdeen. They purchased it £20k under market value and wanted to spend around £35k on refurbishments before refinancing it at £170k, ready to rent. We supported them with a 75% LTV loan towards the purchase of the property.

Now there are lenders to fund those projects, clients are no longer limited to buying mortgageable properties and can expand their horizon and look for deals that will offer good returns and equity gain.

Holiday lets, student lets and the bridging products we offer in the region can support them through every stage of this journey.

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