Landlords turn to bridging finance to fund refurbishments

A recent report from Paragon found that the 3% Stamp Duty increase on buy-to-let properties prompted a focus on renovations over purchasing new property among landlords.

Ying Tan, managing director of The Buy to Let Business, said that regardless of this, landlords are “always interested in adding value to a property”, which refurbishments will do.

“With the recent tax changes landlords are continuing to be innovative to see how they can get the best return for their money,” said Tan.

“Landlords will often finance these projects with bridging funds or cash, then, once the works are done, remortgage the property onto longer term buy-to-let mortgages.”

David Whittaker, managing director of Mortgages for Business, agreed that this is a popular method of financing refurbishments, although he said that landlords often carry out the renovations prior to letting in the first instance.

“How a landlord finances renovations will depend on individual circumstances and there are an increasing number of options available,” said Whittaker.

“The majority of enquiries come from landlords looking to purchase property which requires renovating prior to letting.

“Bridging rates for these purposes are now below 1% per month. The landlord then recovers costs either by refinancing onto a buy-to-let mortgage against the higher, improved value of the property, or by selling.”

Whittaker said that landlords don’t often apply for finance in between tenants as necessary works are usually minor.

“Where finance is required, a further advance on either the property itself or another asset within the portfolio, is a popular option because it can be quicker and cheaper than a second charge or remortgaging with another lender,” he added.