Fund property refurbishment

Property refurbishment finance is often necessary when a house, apartment or commercial property requires any form of major upgrading or even simply modernising.

SINCE 2004




Property refurbishment finance is often necessary when a house, apartment or commercial property requires any form of major upgrading or even simply modernising.


It is a form of property finance that is usually taken out by property developers, investors or landlords to improve a property which they then go on to rent out or sell. In terms of selling, the refurbishment should increase the value of the property so that the investor not only recoups the cost of refurbishment but also profits substantially from the work.



What property finance loans cover

The type of property finance this form of bridging loan is used for is typically bought at auction. It can be a disused and dilapidated house, office or shop requiring major works. Or, it can be a repossession property which just needs some modernisation, such as a new kitchen or bathroom and minor decoration. Then again, property refurbishment loans can also be used to fund a home extension where an addition bedroom or home office is needed. It can also cover the costs of a loft conversion.

Another type of scenario could be that a developer has already embarked on a refurbishment project but has mis-calculated or misspent during the build. He or she may then have run out of money and need more funding to complete the project. In all of these cases refurbishment finance is the type of short-term loan that’s required.


What is a refurbishment loan?

Property refurbishment finance is really a short-term bridging loan, providing property investors and landlords with the financial means to refurbish a potential buy to let or property to sell. This is often necessary because a high street lender will refuse to provide a mortgage for a property that is so run-down and in need of work that it is uninhabitable in its present condition.

Refurbishment finance is, in short, a loan that allows you spend money and time making the property – whether residential or commercial – habitable again. One the property gets to this stage it is often then possible to refinance and access standard buy to let residential or commercial mortgage finance. This has a lower interest rate than short-term bridging loans.

The type of bridging finance you will receive depends on how extensive the necessary refurbishment is. There are two types of refurbishment – heavy and light.

As their names would suggest ‘heavy’ refurbishment finance is used for buildings which are very badly damaged and require a lot of refurbishment work or it could be that you plan on changing the appearance or use of the building. ‘Light’ refurbishment finance, on the other hand, could be merely fitting a new kitchen ie with no alteration to the exterior of the building.

Different categories of refurbishment


When it comes to being classed as a heavy refurbishment project often the work is so extensive that in many cases planning permission has to be sought and the plans, together with the ongoing work, approved by the council’s Building Control department. This is what is often termed as structural work.

It could be adding an extension to an existing building and which will involve removing internal walls. Then again, a large loft conversion could also be placed in the ‘heavy’ refurbishment category – especially if it’s a large mansard extension over two levels or two sides of a house. To be classed as ‘heavy refurbishment’ the value of the works should be at least 15 per cent of the overall cost of the value of the property.



A light refurbishment loan doesn’t even have to be as extensive as fitting a new bathroom or kitchen to be considered in the ‘light’ category. A light refurbishment could simply mean re-plastering walls, damp-proofing, rewiring, replacing the flooring or even decorating and refurnishing.

In fact, light refurbishment work usually isn’t visible from outside the property. This is what we’d class a ‘cosmetic’ alteration and will typically be valued at less that 15 per cent of what the property is worth.

What type of properties are funded?

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.

Who can get a refurbishment loan?

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.

How do you finance a renovation project?

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.

How does a home renovation loan work?

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.



How long is a refurbishment loan for?

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.

What information must applicants for refurbishment loans provide?

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.

What type of exit strategy is acceptable?

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.

How long does it take to get a loan?

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.

What does the application process involve?

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.

What is a refurbishment buy to let loan mortgage?

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.

Why choose LoanX for your refurbishment funding?

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.