Is There A Difference Between Property Refurbishment Finance And Property Development Finance?
Yes, property development finance and property refurbishment loans are for distinctly different situations, although they are closely linked. Property refurbishment is usually judged on a sliding scale from light refurbishment through to heavy refurbishment.
Light refurbishment will cover standard internal redecoration with no structural works required. Usually, light refurbishment applications will not require planning permission or building regulations. Generally, a light refurbishment product will involve only minor work such as general redecoration, new kitchens and bathrooms and new windows. Any work beyond this sort of level is likely to fall move toward heavy refurbishment, which allows for more complex work to be undertaken but also tends to cost more.
Heavy refurbishment will allow for structural changes to be made to an existing property and may require planning permission/building regulations. The more complex the works become, the higher the interest rate becomes. You may also find the loan to value reduces as you move toward more complex work.
Like property development loans, refurbishment products tend to provide funds in 2 tranches. The first is the initial advance, based upon the purchase price (for a purchase) or valuation (for a refinance) of the property. Light refurbishment products tend to be available up to 75% of the property value.
Heavier refurbishment loans tend to increase in costs and reduce in loan to value as the works increase. Generally, a loan to value of 70% can be expected, although particularly complex works may be restricted to 65%.
The second tranche is released to you for completion of the works. This tends to be based on the end value of the project. It is possible to borrow up to 100% of the cost of works, assuming a reasonable uplift in value is achieved.
Rates on short-term property refurbishment finance tend to start at around 0.6% and will increase as the amount of work involved increases. Rates tend to be lower at lower loan to values as with traditional mortgages, as you move toward 75% on a light refurbishment, rates will start from 0.75%.
Scroll Up To Index