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Refurbishment mortgage

Last updated on 26th February 2024 by Martin Alexander

A refurbishment mortgage can be an excellent tool for property investors aiming to buy and upgrade a property.

Before the credit crunch, getting a loan 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, and bridging loans 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 every financial query varies, it’s only possible to say whether or not a refurbishment mortgage would be suitable by understanding your circumstances.

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 depends on the property’s projected value after renovations. 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. You can use the advance to purchase and refurbish the property.

When your refurbishment is complete, a lender will send a surveyor to inspect the works. Once the lender is satisfied, they’ll release the remaining balance of £35,000.

Light refurbishment finance

Light refurbishment finance is for properties requiring a ‘light’ upgrade. For instance, if a 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
  • Redecoration
  • Installing new windows
  • Electrical rewiring
  • Installing a central heating system
  • Non-structural improvements
  • A combination of the above

Heavy refurbishment finance

Heavy refurbishment finance is required when your refurbishment involves structural changes, such as an extension. It is also necessary if you need planning permission and building regulations.

Examples of heavy refurbishment include:

  • Projects involving planning permission
  • Building regulations
  • Structural works (internal and external)
  • Property extensions
  • Conversions
  • A combination of the above

Development finance will be better suited for larger projects, such as developing a block of apartments or building a property from the ground up.

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 typically start from around 5% but are higher for heavy refurbishments.

If you’re looking to ‘flip’ a property, there are products with rates starting from around 0.6% a month. They’re usually short-term loans and similar to bridging finance.

Finance comes in many shapes and sizes to accommodate the vast options that property investment offers. For instance, you can use finance to refurbish an HMO, commercial property or a block of apartments. In addition to this, applications can either be made by individuals or by limited companies.

Learn more about limited company mortgages here.

The rates and fees depend on the scale of the project. The amount you’re investing in the refurbishment will also impact the rates you’re offered. You can contact a specialist for a more tailored answer.

Refurbishment finance specialists

Refurbishments vary considerably. An advisor can save you time and money whether you want to carry out light or heavy refurbishment. In addition, our advisors have access to exclusive products that may not be available on the open market.

Using the correct type of finance for your project can be confusing. You may think you need a refurbishment mortgage, but a bridging loan could better suit your project. If you need capital and own property, you could remortgage to release equity, which is a cheaper way to borrow.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.