Property refurbishment finance, sometimes referred to as refurbishment bridge finance, is a type of finance used to fund changes to a property. Whether you are a business owner, property investor, property developer or looking to expand a buy to let portfolio, there are numerous reasons why you might require property refurbishment finance. This is an extremely competitive end of the property finance market and one in which we have great experience. We have shaped numerous refurbishment finance products since the crash of 2008 and our reputation now precedes us.
Uses of property refurbishment loans
There are many reasons why you might require property refurbishment loans all of which will revolve around improving the value of the underlying property. This may vary from:-
- Redecorating a buy to let property
- General cosmetic updates
- Installing a new bathroom or kitchen
- Extending the property
- Redeveloping commercial premises for business use
This list is just a selection of the typical uses for refurbishment finance which can relate to either personal assets or business assets. As refurbishment loans tend to be of a relatively short term nature you will require an exit route which is traditionally a sale of the property or refinancing at the enhanced value.
Three different structures for property refurbishment finance
While there are many ways in which we can mix and match elements of debt structuring and short, medium and long-term cash flow, there are three specific structures for property refurbishment finance:-
Lending as a percentage of the refurbishment costs
Traditionally a property refurbishment loan would cover in the region of 75% of the refurbishment costs although in some cases this can be increased to 100% if additional collateral is made available. The lender will require a detailed business plan with an exit route so that the short term refurbishment loan can be refinanced or repaid in the event of a sale.
Lending as a percentage of the gross development value (after refurbishment)
Lending as a percentage of the gross development value, post refurbishment, is a very useful tool for property developers. As a means of mitigating any short to medium term risk with this strategy, lenders prefer to release capital stage by stage once various conditions have been met. As the refurbishment programme nears the end the risk, in theory, reduces because the perceived increase in value should be far greater than the total cost of refurbishment finance.
Lending as a percentage of a property’s value while setting aside a sum to finish development works
There will be occasions where property developers already have their next deal in the bag and are looking for additional finance. As a consequence, it may be possible to negotiate a refurbishment finance package which would release additional capital for the next project while leaving enough aside to complete refurbishment/development works. Structuring such a deal would depend upon the level of equity in the property and any assets which can be lodged as collateral.
In simple terms, the idea of using refurbishment finance is to ensure that the uplift in value to the property is far greater than the cost of the refurbishment finance (capital repayments and interest). If for example, a refurbishment costing £50,000 would increase the value of your property by £100,000 then this is a no-brainer. This kind of cost/value uplift ratio also gives sufficient headroom in the event of unforeseen delays or cost increases.
Utilising your assets
Whether you are looking at refurbishment finance, buy to let finance or any other type of loan, the greater the level of collateral you can put towards the loan, the less risk involved for the lender and traditionally the lower the interest rate. As we touched on above, since the 2008 crash we have been involved in a number of new property refurbishment products, specifically introducing the first rolling property refurbishment product in recent years.
We know that many of our property investment clients have numerous active refurbishment projects and are often forced to go through the rigmarole of refinancing time and time again. The ability to sign up to a rolling property refurbishment product maintains one channel of finance which can be utilised in various areas, within set criteria. There is also the ability to introduce various assets into the mix as collateral which can reduce short, medium and long-term finance costs. Obviously, this has to be considered with a long-term view in mind and protection of assets going forward.
Call us today for a chat
We lead where many of our competitors follow and our independent status means we can discuss opportunities and future products with any property refurbishment lenders. Our transactions tend to revolve around an individual clients financial status and asset backing as opposed to an off-the-shelf product. We know the markets, we know the best lenders and we are confident we can negotiate the best rates for your project. Savings on charges, shaving interest rates and considering refinancing at the earliest opportunity will help to minimise your liabilities and maximise cash flow.
Call us today for a no obligation chat and we can discuss your situation in more detail and the potential options available to you.