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Property Refurbishment Loans

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 4, 2023

Fact Checked By:
David Nicholson - Finance Editor

Property refurbishment Loans for light, mid and heavy refurbishment works

It is common to use a bridging loan for property refurbishments and development finance requirements in the UK for both light and heavy refurbishments.

If you are looking for property refurbishment or development loans, we can help you.

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When generating income from properties, it is imperative to ensure high quality and habitable conditions to up their value and purchase price. Kitchen and bathroom renovations and extensions are typical projects that refurbishment loans and financing could fund.

Developers usually buy investment properties and eventually repair or convert them for other purposes. Improving the property increases the value and in turn, increases the sales or gains.

To look for a lender that fits your needs for refurbishment loans, you can rely on bridging loan specialists such as Loan Corp to help you make a decision and go through the application procedures.

What is property refurbishment financing?

Property refurbishment financing is a short-term solution to restore and upgrade a residential or commercial property.

Most bridging loan products designed for refurbishment projects are directed to property investors, landlords, and property developers.

As house flipping continues to be popular, especially with the expansion of the lodging industry through Airbnb, other private individuals are also looking into their eligibility for refurbishment finance.

Loan terms vary depending on the amount of work required for the refurbishment project. The interest rate is usually paid at the end of the term.

If the borrower fails to repay the loan within the agreed term, ownership of the property or other assets used for security will be transferred from the borrower to the lender.

Purpose Of Refurbishment Loans

Details of properties subjected to refurbishment are essential for bridging loan providers and mortgage lenders.

It is best to consider refurbishment finance for the following condition:

  • Conversion of house to flats
  • Extension of loft and other rooms
  • Conversion of residential properties to HMO
  • Conversion of commercial property to a buy-to-let building
  • Renovation of kitchen, bathrooms, and basements
  • Upgrading offices and other work areas
  • Minor repairs in wiring, plumbing, fitting, fixtures, etc.

Difference Between Heavy And Light Refurbishment Loan

Property refurbishment loans can be categorized as light or heavy. Based on the property’s complexity and refurbishment cost, bridging finance products can be taken out.

Both types of property refurbishment loans have a maximum loan value of 75%, with exit fees that range from 0% to 2%.

While these types of bridging property finance may have the same application process, it is still crucial for you to understand the differences between the two before applying for a bridging loan.

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Light Refurbishment Loan

A project qualifies for a light refurbishment loan if no structural works are involved. Lenders often cover refurbishment costs that are below 15% of the total property value.

Since the refurbishment works are relatively lighter, the terms lenders set are often shorter, about 6 months.

Property developers use a light refurbishment loan when renovating an investment property for rental income generation. A bridging loan commonly does not require you to have prior experience in completing any light refurbishment from the past, unlike development loans for large-scale projects.

Letting standards require the optimum condition of the commercial or residential property. Thereby, even minor damage or dysfunctions can affect its market value. Investors or landlords must secure repairs, small upgrades, and low-cost renovations if they purchase properties requiring refurbishment.

Here are some examples of works that fall under light refurbishment loans or mortgages:

  • Redecoration (plastering, flooring, painting)
  • Electrical rewiring and plumbing
  • Installation of new windows and doors
  • Replacement of the kitchen and bathroom
  • Outside rendering of the property
  • Changes to fixtures, fittings, and interior

Heavy Refurbishment Loan

You should apply for a heavy refurbishment loan if a project involves wide-ranging and complex works. This level of work requires planning permission, building regulations approval, architect’s drawing, permitted development rights, etc.

The loan amount is at least 15% of the property value. Unlike a light refurbishment loan, this bridging loan has a longer-term, about 12 to 24 months.

Heavy refurbishment is often applied to an existing property if the investor or landlord plans to convert it for different use. This is often carried out if a property requires heavy work to transform into an HMO (house in multiple occupation).

Due to the weight of the project works, lenders often consider a bridging loan for those who have previous experience in finishing either light or heavy property refurbishment.

After the project is completed, the lender sends a surveyor to revalue the property. Refurb loans are usually closed bridging loans as they have a set completion date and tend not to be overly complex.

Here are some examples of works that fall under heavy refurbishment loans or mortgages:

  • Extensions or addition of rooms
  • Commercial to residential conversion of property
  • Residential to rental conversion of property
  • Any work that involves planning permission and structural changes

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Criteria For Property Refurbishment Loans

Refurbishment loans are available for private individuals like property investors and landlords and companies (Partnerships, Limited, and Offshore) in the UK.

The following are criteria that should be met to secure a bridging loan for property refurbishment:

The borrower must:

  • Be employed, self-employed, or a sole trader
  • Provide a clear exit strategy and cost plans
  • Have security for the bridging loan
  • Show current and updated mortgage repayments
  • Not have an adverse credit score as long as security is available

The property must:

  • Be located in England, Scotland, Wales, and Northern Ireland
  • Undergo valuation
  • It may require minor and major repairs

How To Know If A Refurbishment Loan Is For You?

Having an existing property or planning to purchase a one is not enough reason to pursue a refurbishment loan. Lenders prefer those who are confident in paying the loan and other fees within the given term.

If you have other properties for security aside from the one you will refurbish, you can easily warrant refurbishment finance.

However, if you are also using the same property as security for the lender, you should have a surefire selling plan before the given term. Likewise, the loan amount may also depend on the LTV of the property’s purchase price.

Read more: Bridging loan pros and cons

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Refurbishment Loan Application Process

Unlike other bridging loans, property refurbishment finance requires detailed information on the borrower and, more importantly, on the actual property. They are a little harder to get when you require bad credit bridging finance, so you must ensure you have enough assets to get the loan over the line.

Compare bridging loans with the right lender so you can have a higher chance of passing from the start.

To begin the application for an unregulated bridge or regulated refurbishment loan, here is the information and documents you need to prepare:

Application Form With Details Of Your Property And Financial Condition

Provide as much information about your financial situation as possible. Diligently answer the questions and required details. Include information about the site, type of work involved, and use of the building or facility.

Here at Loan Corp, we mainly deal with UK bridging, but we can offer a range of overseas bridging finance from banks and investors.

An Estimate Of The Post-Work Property Value

Lenders will be interested in the increase in the property’s market value after the refurbishment project. Allow a surveyor or specialist to calculate the estimated increase to present it to your targeted lender. Loan size is often calculated based on the property value.

Information About Your Previous Light And Heavy Refurbishments

Some refurbishment loan providers require details of your previous completed projects to prove your ability and commitment to the work involved. If you are applying for heavy refurbishment loans, it is imperative to have this information.

Work Plan Covering The Costs And Timeline Of The Project

A detailed work plan that elaborates on the refurbishment costs and the project timetable is essential to speed up your application approval. Set up a meeting with your contractor and other specialists to produce this document.

Details Of Your Exit Route

All bridging loan products require a strong exit route. This could range from property sales, shares, inheritance, refinancing, etc. Specify your exit strategy to establish trust with your targeted lender.

Details Of Your Income And Expenditures

Some refurbishment finance providers require a list of all your income and expenditures to evaluate your eligibility for the loan. Provide an updated version of this document to guarantee your approval for the finance.

Projected Issues That Might Arise

Lenders will also be interested in the possible issues that could arise during the completion of the project. This may include additional funding, unprecedented accidents, or other structural problems not identified during the initial inspection of the property.

Availability Of Contingency Funding

If the loan comes short, it is also imperative to declare the presence or absence of a contingency fund. Lenders are not just concerned about getting their loan interest. They also aim to ensure the achievement of your refurb goals.

Upon submission of the application form and other requirements, you can expect a response from the lender within 24 hours. Once your loan is approved, it could be made available within a week or two.

Terms of the loan will be agreed upon with the lender. Moreover, you can pay the interest rates as a roll-up after clearing the loan.

Make An Enquiry With Loan Corp

Applying for refurbishment loans can be a convenient experience if you allow a broker to lead the way. You can get the best bridging finance advice for your requirements and also access the best bridging loan rates, as we will scour the market for you.

If you are looking for a fast and reliable bridging loan process, we at Loan Corp will help you with your financing needs. We also provide information on rates, bridging loan criteria, and more.

Use our bridging loan calculator to get rates you can expect to pay online.

Our bridging loan specialists can access 200 UK bridging loan providers with their own property refurbishment finance products. We will assist you in finding affordable rates and the most competitive refurbishment loan for your investment property.

Our services also cover other loans such as auction finance, open bridging, commercial bridge loan, and other bridging loan types.

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