"This was by no means a straightforward transaction but we demonstrated commitment to finding a solution for the client, who collaborated with us to reach a successful outcome"
- Tom Savill - Arc & Co.
A £4.5m residential investment loan has been secured by Tom Savill, asset finance advisor at Arc & Co., to refinance two large HMO properties in Croydon.
The borrower, a portfolio investor using a buy-refurb-lease-refinance strategy, had initially acquired the properties for refurbishment. The refinancing replaces a bridging loan that had been arranged across both assets, with income secured via 25-year full repairing and insuring (FRI) leases.
One of the key complexities in the deal was identifying a lender comfortable with housing association (HA) tenancies and the scale of the properties. While many lenders remain cautious around HA arrangements due to concerns over tenant vulnerability, others limit HMO lending to properties with between six and eight bedrooms. The two Croydon assets collectively comprise 37 units.
“By restructuring from commercial to residential investment terms, we achieved significantly better pricing for the client while establishing a framework for future acquisitions,” said Tom Savill (pictured), asset finance advisor at Arc & Co. “This was by no means a straightforward transaction but we demonstrated commitment to finding a solution for the client, who collaborated with us to reach a successful outcome.”
Savill reformulated the proposal to align with residential investment criteria, which opened access to more favourable terms. The lender's flexibility in handling larger HMO portfolios and its acceptance of HA tenancies were essential, particularly as the client plans to continue expanding their portfolio.
The loan was finalised at 73% loan-to-value (LTV), with a five-year fixed interest rate of 7.1%. To accommodate both assets effectively, the structure involved two special purpose vehicles (SPVs). The combined value of the properties is £6.3m.
“A key challenge for this deal was in finding a lender comfortable with both the HMO structure and Housing Association tenancies, requiring careful market positioning,” said Savill. “But the 25-year income guarantee ultimately provided the security needed.”
