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Securing the right refurb finance for your client in a changing market

by: Stephen Watts, bridging and development finance specialist at Brightstar Financial
  • 27/07/2021
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Securing the right refurb finance for your client in a changing market
Renovating a property has long been a popular way for investors to improve their returns by increasing capital and rental value following a successful project.


Property refurbishment covers a whole range of scenarios – from simple internal decoration, fitting a new bathroom or kitchen right through to large extensions or turning a residential home into a home in multiple occupancy (HMO) and in some cases, converting commercial property to residential use. 

We’ve seen growing demand from investors who want to take on a refurbishment project and it’s clear that some people who have managed to save a pot of money over the last 18 months, see property as a good place to make that cash work harder for them. 

Property refurbishments are commonly financed with short-term bridging loans that can be used to buy, alter and refurb property providing a ‘bridge’ to when it can be sold or refinanced at a higher value in the future.   

This type of funding can be arranged on a flexible basis up to terms of 24 months, during which time an investor can purchase a property in need of renovation and carry out the works required. In some cases, lenders will release funds in stages as the works progress. 


Choosing what is best 

When it comes to the most appropriate loan to finance a refurbishment project, there are two main categories for consideration – light refurbishment and heavy refurbishment. 

Light refurbishment is typically where no planning permission or building regulations sign off is required for the works to be completed and there is no change of use to the property.  

It is often the case that a property that is considered uninhabitable and therefore unmortgageable by conventional mortgage methods could be made habitable with relatively straight forward light refurbishment. 

Since the introduction of new minimum EPC requirements on rental property it has become popular for light refurbishment bridging to be used by investors to buy a property that doesn’t make the grade and make the required changes that then enable the property to be refinanced or sold and suitable to be let out.   

Heavy refurbishments are more involved, generally including structural changes to the property that require planning permission and building regulations sign off.   

The returns on a successful heavy refurbishment project can justify the effort but they also tend to carry more risk because of the level of work that is required.   

Typical types of heavy refurbishment include large side and rear extensions to a residential property, converting a commercial property to residential use or barn conversions. Sometimes a large single residential property can be turned into an HMO with just the addition of some simple stud walls.  

However, despite there being little in the way of heavy structural works, this can still be considered a heavy refurbishment due to the change of use permissions required. 


Changing appetite 

The lending landscape for refurbishment finance is becoming more competitive once again.  

Last year we saw many lenders reduce their appetite for heavy refurbishments in particular, as Covid-19 created a number of potential pitfalls for completing a successful refurbishment project.  

In recent months however, the lending options have returned and at Brightstar, we know that there are many new and exciting products coming into this area of the market in the coming weeks. Increased competition provides extra choice for investors and puts an even greater onus on you selecting the right option for your client. 

If you work with clients who want to invest in refurbishment projects but you don’t have daily dealings with the frequently changing refurbishment finance market, there’s a danger that you could make an inappropriate recommendation when there are other more suitable options available.  

Working with a specialist distributor in these circumstances can help you to access the expertise and products you need to secure the best loan to finance your client’s project. 

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