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Residential Lending Reading time: 3 mins

Octopus Real Estate’s refurbishment loan proves popular with landlords; first redemption announced

21 Nov 2023 By Octopus Real Estate

Octopus Real Estate, part of Octopus Investments and a leading specialist real estate lender and investor, has today announced the first redemption of its new refurbishment loan product.

Earlier this year, Octopus launched a competitive refurbishment loan product – available via brokers – to improve the quality of the UK’s housing stock, with a focus on energy efficiency. Octopus offers an interest rate discount to incentivise borrowers to make such improvements; schemes that achieve an EPC of C or higher and improve the Energy Performance Certificate (EPC) score by a minimum of 20 EPC points receive a discount on the interest rate on redemption of the loan.

The loan – on a property in popular holiday spot Cromer, Norfolk – was redeemed earlier this month, and the borrower benefited from an interest rate discount of 1.8% on a pro-rata basis.

The mid-terrace Victorian property near the coast had an EPC rating of D (58 points). The Octopus refurbishment loan enabled the borrower to convert the property into four flats, three with EPC ratings of B (81 points each), and one with a high C rating (78 points).

The energy efficiency was improved via thermal insulation, new boilers, upgrading single glazed windows to high-performance glazing, and the addition of energy efficient lighting. The flats were all completed to a very high standard throughout, with the energy improvement upgrades costing c.£18,000.

As the borrower was an experienced developer, the scheme was completed in only five months. Not only did the borrower meet the required EPC improvements – therefore qualifying for the discount, which resulted in a saving of £3,300 – the first flat sold to a cash buyer significantly over the GDV.

The broker who handled the case was David Hue from Embassy Finance.

Suparn Sapatnekar, Head of Residential Bridging Credit, Octopus Real Estate, commented:

“Our refurbishment loan product is proving popular with borrowers keen to retrofit older homes with newer, greener technologies. Recent research revealed that 19% of landlords use credit cards or other short-term financing options to pay for renovations, and a further 60% are using their personal funds or investments. Both options have their benefits, but can also limit a borrower’s ability to scale by draining cash reserves, or can leave a borrower constrained by credit limits. A short-term refurbishment loan offers them the freedom and ability to not only improve their properties, but to enhance the value. Our interest rate discount is of course also a huge draw in the current climate.”

Steve Matthews, Head of Residential Lending, Octopus Real Estate, concluded:

“There is increasing evidence of a green premium in both the sales and rental markets. More people are becoming concerned about climate change and how it’s affecting the planet. It’s now becoming a reality that we all need to play our part in keeping our planet green, clean, and healthy if we want to have a positive future. Home occupants across the UK are now willing to pay more for energy-efficient, smart buildings that take advantage of technology such as smart meters that help to reduce their carbon footprint and impact.

“A refurbishment loan can help landlords carry out energy-enhancing improvements, and attract more potential buyers and tenants. After all, wouldn’t you rather rent a warm, energy-efficient property with low energy bills over the house next door that hasn’t been refurbished in decades?”

This product is available through brokers for borrowers who are experienced in refurbishment projects (for example, they have completed at least one in the past year). In addition to landlords, the product is also available to property investors who plan to sell their investment once refurbishments have been completed.

The discount is 0.15% pm. A typical loan term is 12 months, so the average interest rate discount is 1.8%.



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