What is refurb-to-let, and how can you use it for your refurbishment project? Below, we look at the top FAQs for landlords considering this property investment opportunity.
With shows like Homes Under the Hammer highlighting the potentially lucrative opportunities that come with ‘flipping properties’, it’s essential landlords and property investors understand the funding options available for these types of projects.
Bridging finance is the most obvious choice; the short-term loan covers the purchase costs and potentially even some of the refurbishment works. With standard bridging finance, your lender will focus on your exit strategy, which can sometimes complicate your project if the end value doesn’t meet your buy to let loan needs.
Below, we examine an alternative offered by several lenders that removes this risk, helping you to focus on your property investment project.
What is Refurb-to-let?
Like straightforward bridging finance, refurb-to-let allows you to purchase or remortgage an unlettable property, renovate it and increase its value, then refinance onto a standard buy to let mortgage.
What makes this offering different from bridging is that your lender will issue you two mortgage offers at the start of the project. First, bridging finance gives you the short-term loan you need to purchase/remortgage the property. The second provides you with the exit of a standard buy to let mortgage before you’ve begun your refurbishment works. This buy to let loan can be based on the projected uplifted end-value of the property, allowing you to access a larger loan.
For example:
If a client was looking to fit a new kitchen or resolve damp issues in a property, they may be able to access the following two offers with the refurb-to-let product:
Initial bridging loan
Purchase price: £220,000
Gross loan: £164,975
Net loan: £147,000
Rate*: 0.79%
Arrangement Fee: 2%
Term: Six months
The gross loan represents the full loan from your lender, including any additional costs such as arrangement fees and interest. The net loan is the actual amount you will receive.
Buy to let mortgage exit
Projected end value: £315,000
Loan: £236,000
LTV: 75%
Rate*: 5.44% 5-year fixed
Arrangement fee: 2%
Term: 25 years
Your lender will want to reinspect the property to ensure the work has been completed as stated on the initial application. As long as these align with your original plans, your lender will sign these off, and you can complete onto your buy to let mortgage.
*All rates used are for illustrative purposes. To see what rates you could access, get in touch with our team of experts.
What are the benefits of using Refurb-to-Let for your property flipping project?
This type of finance is perfect for landlords and property investors looking for added security in their refurbishment projects. You can also save money with refurb-to-let, as you don’t need to stay on a more expensive bridging rate longer than necessary whilst you arrange a buy to let mortgage to exit onto. The quicker the works are carried out, the faster you can refinance onto the buy to let mortgage you have already secured.
Are there any restrictions when it comes to Refurb-to-Let?
It’s worth noting that refurb-to-let has some limitations. This product is only suitable for light refurbishment projects, such as fitting a new kitchen or redecorating a property. If your project requires structural changes or a change of use, you will need to explore other bridging finance options.
Some lenders may still have minimum bridging loan terms, such as one month. Even if you can finish the refurbishment works quickly, you will still have to pay the bridging finance rate.
Getting started
The best way to see whether refurb-to-let could work for you is to speak to our experts. Give us a call today or send us your enquiry, and we can discuss the best rate options to suit your needs.
