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Understanding property refurbishment finance is very important for potential applicants. Read this section if you’re looking to understand what property refurbishment finance is.
Development finance primarily centers on new constructions, excluding refurbishments, extensions, and conversions. However, there is some convergence with development exit finance, which aims to repay property development loans upon project completion.
Refurbishment finance covers a wider range within the market, addressing various projects ranging from minor redecoration to significant extensions where only a part of the original structure is retained.
Development finance primarily focuses on supporting ground-up developments rather than refurbishments, extensions, or conversions. There is some overlap with development exit finance, which serves the purpose of repaying property development finance upon project completion.
Refurbishment finance, on the other hand, encompasses a broader spectrum within the market. It caters to a diverse range of projects, ranging from minor cosmetic upgrades like light redecoration to extensive renovations, including large extensions where only a portion of the original building is retained. This financing option provides funding for a wide array of property improvements, making it a versatile solution for various redevelopment endeavors.
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.
Light refurbishment projects typically begin with rates as low as 0.39%, and it’s common to find rates ranging from 0.48% to 0.65%. On the other hand, heavy refurbishment finance generally comes with slightly higher rates, often falling within the range of 0.65% to 0.85%. The relationship between Loan-to-Value (LTV) and rates is significant, and a larger deposit or providing additional security can result in substantial interest savings. The most favorable rates are typically 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.
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.
We facilitate property refurbishment loans catering to a diverse clientele, including individuals, partnerships, LLPs, Ltd companies, offshore companies, and pensions. Our services are available to UK residents, expatriates, and foreign nationals alike.
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.
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.
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.
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.
Find out how the maximum loan size is calculated when taking out property refurbishment finance in this section.
The minimum loan is £25,000 and we don’t have any defined maximum, meaning we can fund applications in the millions without issue.
The maximum loan to value is 85% for residential property and 75% for commercial.
These loans can be categorized based on whether they fall under the classification of light refurbishment or heavy refurbishment.
Light refurbishment loans encompass any renovations to the property that do not involve structural changes. This can range from simple tasks like redecoration, installing a new kitchen or bathroom, to a comprehensive refurbishment that involves stripping the property back to its bare structure.
On the other hand, heavy refurbishment loans are designed to finance projects that include structural modifications. If your undertaking involves adding an extension, demolishing retaining walls, installing a new roof, or any other structural alterations, a heavy refurbishment loan would be necessary.
Acceptable works under a light refurbishment loan encompass:
General redecoration and renovation tasks, comprising flooring, painting, electrical upgrades, and plastering.
Installation of new windows and doors.
Upgrades to boilers, heating systems, and radiators.
Replacement or enhancement of kitchens and bathrooms.
External renovations, including rendering, and gardening work.
When obtaining a substantial refurbishment loan, the approved scope of work encompasses:
All tasks permissible under a light refurbishment loan.
Extensions and conversions.
Structural alterations to the property, including the removal of walls and internal layout changes.
Any work necessitating planning permission or falling under permitted development.
Loft and basement conversions.
Projects leading to a change of use for the property.
Commercial property refurbishment finance is used to fund the renovation or conversion of commercial, semi-commercial and mixed-use property.
Certainly! We offer financing options for property refurbishment, allowing you to cover up to 100% of your renovation expenses. There are two approaches to fund your project:
Set Percentage of Current Loan-to-Value (LTV): Under this option, you can borrow up to the maximum LTV, and you will be responsible for covering the refurbishment costs. This straightforward approach grants you autonomy in completing the project, without ongoing monitoring by the lender.
Set Percentage of Current LTV PLUS Refurbishment Costs: Alternatively, the lender disburses funds for both property acquisition and refurbishment costs in stages. In this scenario, the lender closely oversees the progress of your project. Further funds are released only if the work is progressing as planned and meets high-quality standards. This method ensures a systematic disbursement of funds in alignment with the project’s advancement.
Refurbishment buy-to-let mortgages present an alternative to short-term loans, offering a hybrid approach between these loans and traditional buy-to-let mortgages.
This financing option allows you to purchase a property in need of renovation, enabling you to complete the necessary improvements before putting the property on the rental market. In certain cases, if the property’s value has increased significantly, you may also have the opportunity to recoup the funds invested in the refurbishment.
While the interest rates for refurbishment buy-to-let mortgages are typically slightly higher than those for traditional buy-to-let mortgages, they are generally lower than rates associated with bridging loans. We assess these mortgages in conjunction with conventional property refurbishment loans to determine the most suitable funding route for your specific circumstances.
Deciding whether to engage a broker or directly approach a lender holds significant importance, particularly in the realm of bridging finance.
Opting for a broker in this specialized area offers several advantages. The intricacies of the application process can become overwhelming without expert guidance, and a seasoned broker can navigate these complexities, saving you considerable hassle.
Moreover, the cost disparities among lenders are substantial, and given that property refurbishment finance lenders may not be widely recognized, there’s a risk of overlooking potential savings. A knowledgeable broker stays abreast of market dynamics, ensuring that you secure the most favorable bridging loan deal available.
However, it’s worth noting that certain brokers impose high fees for their services (we, on the other hand, do not charge fees), and this choice could significantly inflate your overall costs.
After submitting your application to a lender, they typically evaluate it and furnish written terms within a timeframe ranging from 4 to 24 hours. Subsequently, you are generally required to furnish the information outlined below.
The application undergoes a comprehensive underwriting process, during which a surveyor is assigned to generate a valuation report for the property. If all progresses smoothly at this stage, a formal offer is extended, and the loan can proceed, contingent upon the completion of legal procedures.
To apply for a bridging loan aimed at refurbishing a property, prospective borrowers typically need to provide the following information:
A comprehensive application form outlining current financial circumstances.
A detailed breakdown of assets and liabilities.
Information about the property intended for purchase/refinancing.
A comprehensive plan for the property renovations, including cost breakdowns and anticipated completion timelines.
An estimate of the property’s value post-renovation.
Information about the applicant’s experience, particularly any past projects.
A clear explanation of the planned exit strategy.
We can offer loans to cover a range of situations including the following:
Any residential property
Semi-commercial
Commercial
We can consider any property for property refurbishment as long as it is located in the UK
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.
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
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.
The most frequently utilized exit strategies involve either selling the property upon completion of the project or refinancing through a mortgage.
It is crucial to establish a robust and dependable exit plan.
We prioritize evaluating the exit strategy before initiating a new bridging loan on your behalf. It is imperative to adopt this approach, regardless of whether you decide to engage our services for financing arrangements.
Certain bridge loan providers may permit you to secure additional funds after the completion of construction or renovations. In such instances, the surveyor typically verifies that the work is finished and meets the necessary standards.
If the intended exit strategy is through refinancing, it might be more cost-effective to await the completion of the refinancing process to access your funds from the property.
The majority of buy-to-let mortgage lenders are open to allowing you to extract some or all of your profits during the refinancing phase.
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