It is common to use a bridging loan for property refurbishments in the UK for both light and heavy refurbishment requirements.
Bridging lenders provide refurbishment financing to those who own or buy properties intended for sale or rent.
When it comes to generating income from properties, it is imperative to ensure high quality and habitable condition to up its value and purchase price. Kitchen and bathroom renovations, as well as extensions, are typical projects that could be funded by refurbishment financing.
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 The Bridging Loan Company to help you in making a decision and going through the application procedures.
What is Property Refurbishment Financing?
A property refurbishment financing is a short term finance solution intended for the restoration and upgrade of 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 during 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 for refurbishment are essential for bridging loans 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. Bridging finance products can be availed of based on the complexity and the refurbishment cost of the property.
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 specific differences between the two before applying for a bridging loan.
You can refer to this guide to learn more:
Light Refurbishment Loan
A project qualifies for a light refurbishment loan if there are no structural works 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 go for light refurbishment loan when renovating an investment property intended 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. If an investor or landlord purchase properties that require refurbishment, they have to secure repairs, small upgrades, and low-cost renovations.
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
If a project involves wide-ranging and more complex works, you should apply for a heavy refurbishment loan. 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 type of bridging loan has 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 will require heavy works to transform it to an HMO (house in multiple occupations).
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 out a surveyor to revalue the property. Refurb loans are usually closed bridging loans as they have a set completion date as they 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 the residential conversion of property
- Residential to the rental conversion of property
- Any work that involves planning permission and structural changes
Criteria for Property Refurbishment Loans
Refurbishment loans are available for private individuals like property investors and landlords as well as companies (Partnerships, Limited, and Offshore) in the UK.
The following are criteria 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
- 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 bargained 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, then 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.
Compared to other bridging loans, property refurbishment finance requires detailed information not just about the borrower but more importantly on the actual property.
To begin the application for a refurbishment loan, here are 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. Diligently answer the questions and required details. Include information about the site, type of works involved, and use of the building or facility.
An estimate of the post-work property value
Lenders will be interested in the increase in the market value of the property after the refurbishment project. Allow a surveyor or specialist to calculate the estimated upsize 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 as proof of your ability and commitment to the works 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 the refurbishment costs and the timetable of the project is essential to speed up your application approval. Set 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 which were not identified during the initial inspection of the property.
Availability of contingency funding
If the loan will come short, it is also imperative to declare the presence or absence of a contingency fund. Lenders are not just concerned about getting their loan interests. They also aim to assure 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 will have the option of paying the interest rates as a roll-up after clearing the loan.
Make an Enquiry with a Broker
Applying for refurbishment loans can be a convenient experience if you allow a broker to lead the way.
If you look for a fast and reliable bridging loan process, we at The Bridging Loan Company will help you with your financing needs. We also provide information to guide you on rates, loan criteria, and more. Use our bridging loan calculator to get rates online that you can expect to pay.
Our bridging loan specialists have access to 200 UK bridging loan providers that have their own property refurbishment finance products. We will assist you in finding affordable rates and the most competitive refurbishment loan for your investment property.