Last reviewed on 21st March 2022
A refurbishment mortgage can be a great tool for property investors aiming to upgrade a property. If you’ve seen a great deal, but don’t quite have the capital to carry out the renovation, a refurbishment loan could be ideal. Mortgages for refurbishment can also be used to finance your property purchase in addition to the refurbishment itself.
Prior to the credit crunch, getting finance from banks to refurbish a property was pretty straightforward. High street lenders would typically approve finance on properties that were deemed non-mortgageable. During the credit crunch, banks closed their doors on such financial products. Bridging loans then became the next best thing for property investors looking to upgrade their properties.
Although a bridging loan can be used to refurbish a home, a refurbishment mortgage may be a better alternative. As each and every financial query varies, it’s impossible to say whether or not a refurbishment mortgage would be suitable for you, without understanding your circumstances.
Our advisors specialise in refurbishment finance and have access to the entire market, ensuring you great deals if you’re eligible. You can make an enquiry at any time or continue reading this article for further information.
What is a refurbishment mortgage?
A refurbishment mortgage, more commonly known as refurbishment finance, is a loan solely used to refurbish a property. Depending on the scale of the refurbishment, finance can either be in the form of a ‘light’ refurbishment mortgage or a ‘heavy’ refurbishment mortgage.
Refurbishment finance is typically released in two stages. The initial advance is based on a percentage of the purchase price and the remainder of the loan is released once the refurbishment is complete.
How much can I borrow?
The loan amount is based on the projected value of the property, once renovations have been carried out. Refurbishment lenders will also consider the potential rental income that the home could achieve. See the example below:
Property purchase price: £100,000
Refurbishment cost: £20,000
Projected property value: £150,000
Refurbishment mortgage: £105,000 (70% of projected property value)
Using the above example, the lender may release £70,000 as an initial advance. This can be used to purchase and refurbish the property.
Once your refurbishment is complete, a lender will send a surveyor out to inspect the works. Once the lender is satisfied, they’ll release the remaining balance of £35,000.
Light refurbishment finance
Light refurbishment finance can be used for properties that only require a ‘light’ upgrade. For instance, if the refurbishment doesn’t require planning permission or building regulations, then a light refurbishment loan would be suitable.
Examples of light refurbishment include:
- Fitting a new bathroom or kitchen
- Installing new windows
- Electrical rewiring
- Installing a central heating system
- Non-structural improvements
- A combination of the above
Heavy refurbishment finance
Heavy refurbishment finance can be used where your refurbishment involves structural changes, such as an extension. If a refurbishment involves having to obtain planning permission and building regulations, then heavy refurbishment finance would be needed.
Examples of heavy refurbishment include:
- Projects involving planning permission
- Building regulations
- Structural works (internal and external)
- Property extensions
- A combination of the above
For larger projects, such as developing a block of apartments or building a property from the ground up, development finance will be better suited.
Read more: Development finance explained.
Refurbishment mortgage rates
Refurbishment finance usually starts at 75% of the property value post-refurbishment. Getting finance for anything higher than 75% can be difficult. Rates will usually start from around 5% but are higher for heavy refurbishments.
If you’re looking to ‘flip’ a property, then there are products that have rates starting from around 0.6% a month. They’re usually short-term loans and similar to bridging finance.
Finance comes in many different shapes and sizes. This is to simply accommodate the vast options that property investment has to offer. For instance, finance can also be used to refurbish an HMO, commercial property or a block of apartments. In addition to this, applications can either be made by individuals or as limited companies.
The rates and fees all depend on the scale of the project. The amount you’re investing in the refurbishment will also have an impact on the rates you’re offered. For a more tailored answer, you can make an enquiry with a specialist.
Refurbishment finance specialists
Refurbishments vary quite considerably. Whether you’re looking to carry out light or heavy refurbishment, having an advisor by your side can save you time and money. In addition, our advisors have access to exclusive products that may not be available on the open market.
Using the right type of finance for your project can be confusing. You may think a refurbishment mortgage is what you need, but your project may be better suited for a bridging loan. If you need access to funds and already own property, a remortgage to release equity could be another viable option.
The options really are endless and having the expertise of an experienced broker can be vital. You can make an enquiry and an advisor will call you back.