Property refurbishment finance explained
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.
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.
Key product features
|Max LTV||Up to 80%|
|Interest rate||From 0.45% 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?
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.
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.
Previous experience of property refurbishment
Lenders will ask about your previous experience of property refurbishment. That said, 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.
How much can you borrow?
Our minimum loan is £25,000 and we don’t have any defined maximum, meaning we can fund applications in the millions without issue.
Loan to value
The maximum loan to value is 85% for residential property and 75% for commercial.
Property refurbishment loan rates & costs
Rates start at 0.43% 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.
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.
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.
Borrowing the 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
Using a broker or going direct to lender
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 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 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 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 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.