Refurbishment Loans

Property refurbishment loans can be a vital financial lifeline for owners and investors looking to transform outdated properties into attractive assets. However, not all refurbishment projects are created equal and the lending criteria varies considerably depending on the type of project undertaken and the lenders involved.

A refurbishment loan is a short-term secured borrowing solution that can help you carry out light or heavy refurbishments to prepare a residential or commercial property for sale. It can be used for either ground-up refurbishment or to finance renovation work on existing buildings and is available as a first or second charge loan.

Unlike development finance which is a more long-term product, refurbishment finance tends to be short-term and the lender will require a robust ‘exit strategy’ to demonstrate how they will repay their debt at the end of the term. This is because property refurbishment loans are secured against the property (or land) itself, meaning that in the event of non-payment, a lender can reclaim the asset through repossession.

The type of property work that a refurbishment loan will be able to cover varies from lender to lender, but typically the lender will consider ‘light’ refurbishment or permitted development works that don’t need formal planning permission – for example, switching a 3-bed domestic house into a HMO. They may also offer a more limited amount of funding for more significant works that would need to have planning permission – such as adding an extension, changing the use of the property from commercial to residential or major structural changes.

There is also specialist refurbishment finance that is designed for commercial property renovation projects, such as office conversions and shop refurbs. This type of property development financing is not commonly available on the high street and can be hard to find without the assistance of a whole-of-market specialist broker.

When considering a refurbishment finance application, it’s important to take into account the type of works being undertaken and the likely impact on the property’s future value. For example, the installation of new kitchens and bathrooms can add thousands to the overall value of a building but may be costly to undertake in terms of labour and materials. In addition, a lender will want to see that the property is going to achieve a good return on investment after the works are completed.

For some projects, this will be easy to prove but for others it may be more difficult to demonstrate. This is why it’s often best to talk to a lender directly and to have all the necessary information ready before you apply.

As with all secured borrowing, there are a number of fees associated with a refurbishment loan. These can include set-up costs, loan administration fees and surveyor’s fees. However, it’s worth remembering that the lender will only be recouping their risk from the borrower through the security they provide in the form of a charge against the property so they have every incentive to ensure that the loan is paid back in full and on time.