Property refurbishment finance explained
Understanding property refurbishment finance is very important for potential applicants. Read this section if you’re looking to understand what property refurbishment finance is.
What is property refurbishment finance?
Property refurbishment loans are a form of short-term finance secured finance. It is designed for property investors, landlords and property developers who are looking to refurbish, or convert a property before letting or selling it.
If you purchase a property, extend it and refurbish the interior or exterior, the value could increase significantly. We can fund all sorts of works, including title splits, conversions and multiple properties on one title.
Do I need refurbishment finance or property development finance?
Development finance is usually reserved for ground-up developments as opposed to refurbishments, extensions and conversions. There is some crossover with development exit finance, which is used to repay property development finance at the end of a project.
Refurbishment finance spans a wider area of the market, covering almost all works from light redecoration through to large extensions where only part of the original building is retained.
Property refurbishment loan rates & costs
The costs of taking out finance for property refurbishment and renovation are made up of interest and fees. Find out how they work and what costs you can expect below.
What are typical property refurbishment finance rates?
Rates start at 0.39% for light refurbishments, with rates of 0.48-0.65% being common.
Heavy refurbishment finance tends to come with a slightly higher rate, with 0.65-0.85% is realistic.
LTV and rate are heavily linked, so a larger deposit or offering additional security can mean big savings on interest. The lowest rates are usually offered at 50% LTV and below.
What fees are charged when taking out finance for property refurbishment?
On top of the interest due, you’ll also be charged a number of fees, including:
Lender arrangement fee – This fee is charged by the lender for setting up the loan and is usually between 1-2% of the loan amount. Lower fees are usually reserved for larger loans. This fee can usually be added to the loan.
Broker fees – Most brokers charge fees for arranging property refurbishment loans, often 1-1.5% of the loan amount. We don’t charge a fee for our service.
Valuation fee – These fees are charged early in the process and can’t be added to the loan. As both the current and end value are important, and there is a requirement for comments on the work that will be done, this fee will be slightly higher than it would be for an equivalent residential or buy to let mortgage.
Legal fees – These fees are charged for the legal work involved in arranging the loan and you will be responsible for paying both your own and the lenders legal costs.
Key product features
|Max LTV||Up to 80%|
|Interest rate||From 0.39% per month|
|Charge types||1st, 2nd & 3rd considered|
|Term||1-36 months (maximum 12 months for regulated loans)|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||5 days – 3 weeks|
- Residential, commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Loans from £25,000 with no maximum loan size
Who can get property refurbishment finance?
In this section, we explain the key factors that impact who is eligible for a property refurbishment loan.
Who can apply for property refurbishment finance?
We can arrange property refurbishment loans for individuals, partnerships, LLPs, Ltd companies, offshore companies and pensions.
UK residents, expats and foreign nationals are all acceptable.
Will my credit history impact my property refurbishment finance application?
Yes, credit history does impact property refurbishment finance applications. While a clear credit history is likely to open you up to the lowest rates, we can consider applicants who have previous credit problems. Acceptable issues include missed payments, defaults, CCJs, mortgage arrears, repossession or bankruptcy.
Is previous experience important for getting a property refurbishment loan?
No, previous experience isn’t important when applying for a property refurbishment loan, although experienced applicants may get a better deal. Many lenders don’t insist on experience as a condition of lending, we can also offer finance to those who are new to the refurbishing property.
How long does property refurbishment finance take to complete?
We can complete property refurbishment loans in 10 days – 3 weeks. As there is extra work involved in understanding the planned refurbishment works, it is more common for property refurbishment applications to take 10 – 14 days.
Which lenders offer property refurbishment finance?
The leading property refurbishment lenders are made up of bridging loan and property development finance lenders. Some of the leading lenders currently include United Trust Bank, Aspen Bridging, Precise Mortgages and MT Finance. They are one of the main types of bridging loan for property developers.
How much can you borrow?
Find out how the maximum loan size is calculated when taking out property refurbishment finance in this section.
What are the minimum and maximum loan sizes for property refurbishment loans?
The minimum loan is £25,000 and we don’t have any defined maximum, meaning we can fund applications in the millions without issue.
What is the maximum loan to value (LTV) for property refurbishment finance?
The maximum loan to value is 85% for residential property and 75% for commercial.
Types of property refurbishment finance
Light or heavy refurbishment finance
These loans can be broken down by whether they are considered light refurbishment or heavy refurbishment.
Light refurbishment loans cover any works to the property that aren’t structural. Anything from redecoration and a new kitchen and bathroom, right up to a ‘back to brick’ total refurbishment would be considered light.
Heavy refurbishment is there to cover any works that are structural. If your project involves adding an extension, removal of retaining walls, a new roof or any other structural works, you will need a heavy refurbishment loan.
What work is permitted under a light refurbishment loan?
When taking out a light refurbishment loan, the following works are acceptable:
- General redecoration and renovation work including flooring, painting, electrics and plastering
- New windows and doors
- Boiler, heating system and radiator upgrades
- Replacement or improvement of kitchens and bathrooms
- External renovation such as rendering and gardening work
What work is permitted under a heavy refurbishment loan?
When taking out a heavy refurbishment loan, the following works are acceptable:
- All work that is allowed under a light refurbishment loan
- Extensions and conversions
- Structural changes to the property (knocking down walls and changing the layout internally
- Any work that requires planning permission or permitted development
- Loft and basement conversions
- Any work that results in change of use for the property
Commercial refurbishment loans
Commercial property refurbishment finance is used to fund the renovation or conversion of commercial, semi-commercial and mixed-use property.
Can I borrow the refurbishment costs?
Yes, we can lend up to 100% of your refurbishment costs. We can fund property refurbishment in two ways:
1. As a set percentage of the current LTV: This route allows you to borrow up to the maximum LTV, with the refurbishment costs paid by you. This route is simpler as the lender will leave you to complete the project without monitoring your work.
2. As a set percentage of the current LTV PLUS the refurbishment costs: This route sees the lender release the funds to purchase the property, and then further funds to complete the work, in stages. Where this approach is taken, the lender will monitor your work and will only release further funds if the project is on track and is being completed to a high standard.
What is refurbishment buy to let?
Refurbishment buy to let mortgages are an alternative to short-term loans, which act as a hybrid between these loans and buy to let mortgages.
They allow you to buy a ‘fixer upper’ and complete the works before letting the property out.
In some cases, you may also be able to take out the funds spent on the refurbishment, if the property value has increased sufficiently.
The rates charged tend to be a little higher than traditional buy to let mortgages, but lower than bridging loans.
We consider these loans alongside traditional property refurbishment loans to calculate the best route of funding for your circumstances.
Where to get a bridging loan for property refurbishment
Should I use a property refurbishment finance broker or work with a broker directly?
The choice of whether to use a broker or approach a lender directly can be an important one.
There are a number of advantages of using a broker for this type of bridging finance, as it is such a specialist area. The application process can become complex if not handled well from the start, so help from an experienced broker can save a lot of hassle.
There is also a lot of difference in cost between lenders, and as property refurbishment finance lenders don’t tend to be household names, you could easily miss a big saving. A broker will be aware of exactly what’s happening in the market and should make sure you get the best bridging loan deal.
That said, some brokers charge expensive fees for their service (we don’t charge fees), so choosing to pay them will significantly add to your costs.
How does the property refurbishment finance application process work?
Once your application is submitted to a lender, they will usually assess your application and provide written terms within anything from 4-24 hours.
Once these have been issued, you will usually have to provide the information mentioned below.
The application can then be fully underwritten, and a surveyor appointed to produce a valuation report on the property.
Assuming everything goes well here, a formal offer is issued, and the loan can complete subject to completion of the legal work.
What information will I need to provide when applying for a property refurbishment loan?
When looking to take out a bridging loan to refurbish a property, the lender will usually require the following info:
- An application form giving details of your current circumstances.
- A breakdown of your assets & liabilities.
- Details of the property that you wish to purchase/refinance.
- Details of the works planned on the property, including the costs and timescales for completion.
- An estimate of the value of the property once works are complete.
- Details of your experience/any previous projects that you’ve undertaken.
- Details of your planned exit strategy.
What type of properties can be refurbished?
We can offer loans to cover a range of situations including the following:
- Any residential property
We can consider any property for property refurbishment as long as it is located in the UK.
How do lenders monitor refurbishment projects?
For each project that requires monitoring, the lender will appoint an independent monitoring surveyor (IMS). The monitoring surveyor will be a chartered surveyor who is there to check the quality and progress of the work undertaken and usually visits each time further funds are needed.
What types of works are acceptable when using a property refurbishment loan?
Each lender will have different rules around what works are acceptable, from light refurbishment through to heavier projects with structural works required.
We work with lenders across the market, so whatever works you’re planning to undertake; we will usually have a solution for you.
In addition to funding the property and cost of works, we can also look to cover professional fees and project management costs.
Does the amount of work I plan on doing matter?
Yes, the planned works will influence the lender chosen and potentially the rate charged. We will take this into account when looking for the most suitable product for you.
The key issue is whether your loan falls under light or heavy refurbishment. This will result in different criteria and products.
What exit strategies are acceptable to the lender?
The most common exit routes are sale of the property once works are complete, or refinance to a mortgage.
It’s important to ensure that your exit route is solid and reliable.
We always consider the exit route before looking to set up a new bridging loan for you. It’s important that you take this approach, whether or not you choose to work with us to arrange your finance.
Can I draw my money back out after I have added value to the property?
Some bridging lenders will allow you to take out additional borrowing once works are complete.
Where this is the case, the surveyor will generally need to confirm that the works are complete and are to the required standards.
Where the planned exit is refinance, it may work out cheaper to wait for the refinance to complete in order to take your funds out of the property.
Most buy to let mortgage lenders will allow you to take out some, or all of your profit when refinancing.