Refurbishment finance

What is refurbishment finance?

A form of short-term loan, refurbishment finance is a versatile property finance solution for anyone looking to improve a property. This can include full redecoration, new kitchen or bathrooms, converting a single unit into an HMO or multi-unit and more.

What’s the difference between refurbishment finance and development finance?

Refurbishment finance is typically used for smaller development projects, whereas development finance is used for large-scale projects such as converting a large commercial unit into a block of flats or building a new property from scratch (ground-up development).

We recommend that projects costing up to £250,000 be covered by refurbishment finance. If your projected costs exceed this, you may need to consider development finance deals to fund your project.

Refurbishment finance can cover many plans. If you’re unsure, one of our experts can help you determine which property finance solution best suits your plans.

How much does refurbishment finance cost?

Interest rates for light refurbishment typically range from 0.40% to 0.70%, whereas heavy refurbishment rates are slightly higher, usually 0.65% to 0.90%. 

Loan to value (LTV)

Your loan to value (LTV) will significantly affect the rates you can access. The larger the deposit or additional security you can offer, the lower the interest rate. Typically, you can borrow up to 75% of the property value. Contact our team of experts to get a clear idea of how much your refurbishment project will cost.

What fees are charged with refurbishment finance?

It’s likely your refurbishment deal will come with a few additional fees, including:

• Arrangement fees – these vary depending on the lender and the product, but you can expect to pay between 1-2% of the loan amount. You can generally add this to the loan if needed.
• Valuation fees – the cost of these will depend on the size of the project. You will also find that the lender instructs two valuations, one pre- and one post-refurbishment. Whether they charge for both varies by lender.
• Legal fees – as well as paying your legal costs to arrange the loan, you may need to pay the lender’s legal fees, too.

How does refurbishment finance work?

There are two ways of funding property refurbishment work.

1. You use a refurbishment loan to purchase a property needing work. Your lender agrees to a set loan to value (LTV) of the property's current value, e.g. 75%, and you pay for the renovation work yourself. In this situation, the lender won’t supervise your improvements. 

2. You borrow enough to purchase the property (at a set loan to value) and complete the planned refurbishment work. Your lender will first release the funds you need to buy the property (e.g., 75% of the property’s current value), and then the funds needed to complete renovation works in stages. In this situation, the lender will inspect the progress of the work to ensure you’re on track and using the money for the purposes agreed.

Who can get property refurbishment finance?

Individuals, Limited Companies, partnerships, Limited Liability Partnerships (LLPs) and offshore companies can all apply for refurbishment finance. While previous refurbishment experience is not always necessary, it may help you access better interest rates.

How long does it take to get refurbishment finance?

As lenders need to understand the extent of your refurbishment project, it can typically take 10-14 days to process your application. The complexity of your application and the service levels of the lender may mean this varies, but our team will be able to give you an idea of how long to expect.

How much can I borrow?

Most lenders have a minimum loan limit of £25,000. Technically, there isn’t an upper limit, but if your refurbishment project costs run into the millions, you may want to consider development finance.

What’s permitted under light refurbishment?

As a rule, light refurbishment is for any work that doesn’t involve structural changes. This can include:

• Fitting new bathrooms or a kitchen
• Redecorating, including ‘back to brick’ renovation, re-wiring and replacing flooring
• Improving or changing boilers, radiators or the heating system
• Fitting new windows or doors
• Rendering external walls
• Garden renovation

For more information read our Guide to Financing Your Home Renovations.

What’s permitted under heavy refurbishment?

Heavy refurbishment typically involves anything structural, such as:

• Adding an extension
• Internal structural changes, including altering the layout, knocking down walls, etc.
• Loft and basement conversions
• A new roof
• Anything that requires planning permission.
• Anything that changes the use of the property (for example, converting an old office into flats) 

Refurbishment finance exit options

As with all short-term property finance, your lender will need to know your exit strategy for the loan. Standard options include:

• Sell the property for a profit
• Refinance the property onto a homeowner's mortgage
• Refinance the property onto a buy to let mortgage and let it out