Both residential and commercial properties are eligible for refurbishment finance. Conversions from commercial to residential properties (ie offices into apartments) are funded as are title splits and residential or commercial into HMO conversions. In other words, there are very few restrictions on the type of refurbishment that this form of property finance covers.

A refurbishment loan can be accessed by an individual, company, limited company, partnership, Limited Liability Partnership (LLP) and a Special Purpose Vehicle (SPV). 

The more experienced a developer, the more likely the project is to succeed with minimum interruption. As a result this type of applicant is usually looked on more favourably and can negotiate a more favourable rate of interest. 

Before applying for property refurbishment finance developers usually ensure that the project is at an advanced stage in terms of planning permission and other approvals needed (such as third party consent, if necessary) have already been provided.

You will usually receive your short-term bridging loan in two parts. Initially this involves the money needed to buy the property in the first place. The second instalment is to pay for the refurbishment itself. It’s not uncommon for this to be broken down further into tranches.

You might, for instance, get an initial advance worth 70% of the cost of the property. It’s that property is worth £400,000 then that’s £280,000. You would need to put down £120,000 and the lender would provide £280,000.

Once the project gets underway and you’ve spent around £30,000, the lender will send an asset manager to check everything is in order ie that the project is going as planned. Only at this point will they forward the second instalment of £30,000 and so it goes on until the project is finished.

Refurbishment loans are typically for 75% of the Loan to Value to buy the property. You’ll then receive 100% of the costs in arrears, subject to approximately 70% of the value of the finished property.

Most lenders accept run-down properties in the proposal – usually provided the applicant has a background in refurbishment or building.

In some cases there can be no early repayment charges for the loan if a project has gone quicker, or sold better, than expected.

Depending on the terms of the loan there may be exit fees to pay.

Loan terms are typically from one month to two years. The interest payments can be either rolled up (most common), retained or deducted during the project.

Rolled up interest charges

Instead of paying interest monthly, with rolled up interest, it is paid as a lump sum at he end of the loan period (ie it is rolled up until them). The ‘plus’ side of this type of interest charge is that it makes the loan more affordable for those who don’t have a regular cashflow but will have the cash to pay off the loan at the end when they sell the property. The ‘down’ side is that the interest tends to be more expensive than if it was paid off throughout the loan.

Retained interest charges

Retained interest is when the lender allows a certain amount of the loan to be retained (the amount you would pay in monthly interest charges). It can mean there is more cash to work with, but interest will still be charged on this.

Deducted interest charges

As its name suggests this is when interest is deducted at the end of every month. This suits landlords and developers who have a regular cash flow. They can then pay off the full loan at the end of the term.

When applying for a refurbishment loan it is necessary to provide the name and address of the property in question, as well as its current condition. A professional survey is usually helpful at this point.

The borrower and/or company name must also be identified, along with details of any relevant refurbishment or property development experience he or she can demonstrate. This can be outlined in a CV or a developer biographer/website. There must also be a list of the applicant’s assets and liabilities. This data is required regardless of whether the property requires heavy refurbishment or simply light development work.

Details of the complete property finance project itself should be provided, especially the schedule of works. The builder/developer’s details and experience should also be listed as part of the application, along with a copy of planning consent from the local authority. Finally, there should be an estimate of the property’s value on completion, together with details of a planned exit strategy.

There are two typical exit strategies for landlords and property developers using refurbishment finance. The first is to complete the refurbishment and sell the property – at which point it’s often possible to pay off the remainder of the loan. The second is to refinance at the end of the loan period so that the interest you will be paying is smaller. This usually involves taking out a buy to let mortgage on the property.

The time taken to secure property finance varies from as little as five days to two weeks. This can depend on the size of the project and whether or not all the necessary permissions for work to start is in order.

Even stretching to the maximum two weeks is far quicker than a typical High Street loan which can take up to a couple of months to secure in many cases.

After making an appointment you will meet with one of the team to discuss the refurbishment project the loan is for. He or she will go through your application with you and offer you a loan subject to certain terms ie your providing the necessary personal data and other information.

Once your loan application is underwritten a survey can be commissioned to provide a valuation on the property. You will then be issued with a formal loan offer for your solicitor to look over. Once the legal work is in place, the loan will complete.

If you plan on renting out the property after you have completed work on the property then it may be more prudent to take out a refurbishment buy to let mortgage than go ahead with a refurbishment loan. This will be explained to you when we go through your application.

By taking out a refurbishment buy to loan mortgage (also referred to as refurbishment mortgages) you can get a funding on a run-down property and have the money to refurbish it. This means you can bring the property up to a habitable standard before advertising for a tenant. If, after completing your refurbishment the property has gained impressively in value then you may be able to take out what you spent on the refurbishment.

Another benefit of this type of hybrid loan and mortgage finance is that the interest rate tends to be less than that of a standard bridging loan.

We are an experienced team of lenders who are familiar with the property development sector, having worked in it for a number of decades now. We understand that every refurbishment project is unique. Because of this, bespoke solutions are best for individual applicants.

We also know that in terms of buying your property and the time taken to refurbish it, speed is absolutely of the essence. You may need auction finance to secure that property in the first place and, at the same time, the longer you take to complete the refurbishment the longer you wait for rental income from it.

Financial flexibility when it comes to property refurbishment loans is important. It allows you to reap the profits you need to gradually build up your property portfolio over time, ensuring you are guaranteed financial freedom in the long run.