Refurbishment Finance

Refurbishment Finance As and When You Need It

There’s no denying that the property development market in the UK has withstood the harshest of times quite steadfastly. Perhaps that’s the reason why many investors still prefer to turn reasonably quick profits backed by real properties. While a large share of this complicated market is supported by straightforward Development Finance products , refurbishment finance should receive its due credit for adding the ‘finishing touches’ to such project.

If you are a property developer, investor or landlord, you may well be familiar with the importance of refurbishments. Your property development project, in all likelihood, will end up needing external funding to finance refurbishment. And to help you with that, we offer highly customisable refurbishment finance services.

What is Refurbishment Finance?

Refurbishment finance is best looked at as a specialty arm of Development Finance. The purpose of refurbishment finance is to seamlessly induct the development project into a finished product that’s ready to generate profits.

Depending upon the extent of refurbishments expected, refurbishment loans can be divided into two broad categories – minor refurbishment finance and major refurbishment finance. It’s worth noting here that refurbishment finance can be clubbed together with Development Finance as well as Buy to Let Finance. The LTC ratio for refurbishment finance varies wildly from one project to another. Many lenders offer refurbishment finance as a flexible line of credit as an extension of the base Development Finance package. In other cases, developers may choose to engage a third-party lender to finance the refurbishment.

Why Refurbishment Finance?

The reasons that compel developers and homeowners to turn to refurbishment finance are much obvious. In many cases, developers are forced to undertake refurbishment to bring the property up to the code. In other, developers choose to refurbish the property in order to bring about the ‘change of use’ to maximise the rental income. Refurbishment is also important in terms of the exit value of the property, in that it can significantly improve the habitability. An example, perhaps, can better explain this point.

Example

A developer has bought a rather dilapidated residential property. The purchase is financed by a private lender as a fixed rate, no-equity development loan. This loan amounts to £120,000. The developer expects to exit the project at an eventual sale price of £200,000.

As the property development nears its conclusion, the developer has already run out of primary financing. A few last-minute planning manoeuvres make sure that the exit price can be upped to £240,000. This, however, will require some minor refurbishments. These refurbishments, the developer estimates, will cost around £10,000. To cover these expenses, the developer takes a short-term refurbishment loan from a third-party lender.

As things fall in place, the developer manages to book sizeable profits, after all the loans are repaid in full. Thus, a small but timely contribution in the form of refurbishment finance helps all the involved parties.

Types of Refurbishment Finance

As mentioned earlier, refurbishment finance divides itself into two broad types.

Minor Refurbishment Finance (Light Refurbishment Loans)

Minor refurbishment finance covers routine refurbishment works. These typically include electrical overhaul, paint, plumbing repair and so forth. These refurbishments, in essence, do not require planning consent , nor do they challenge the planned development scope of the project.

• Loans starting from £10,000
• Flexible repayment schedule (typically termed over 1 to 6 months)
• Used equally widely in residential and commercial use properties
• No change of use

Major Refurbishment Finance (Heavy Refurbishment Loans)

This type of refurbishment finance works contrary to minor refurbishment finance. Heavy refurbishment finance best suits projects that require significant and continual injections of refurbishment funds.

Projects that involve structural alterations that require planning permission usually need major refurbishment financing. Typical examples of these involve overhauling the entire utilities network, change of use, converting a residential property into a semi-commercial property and so forth. Many developers also employ heavy refurbishment loans to finance the demolition of unwanted structures.

• Loans starting from £50,000
• Long term loans available (6 months to 5 years)
• Typically used in residential properties as a part of investment
• Covers change of use