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. 

The complex bridge was against a five-storey office building in central Belfast, the former headquarters of tax firm KPMG. 

The borrower had refurbished the property at the end of last year, but works were impacted by the pandemic. The marketability of the property was also affected as people worked from home. 

Fiduciam provided the borrower with a loan on a 12-month term, to allow time to find a tenant. 

Since then, there have been a number of viewings with most interested companies looking to rent the whole building, which is the preferred option for the borrower. 

The case was made complex because one of the borrower’s guarantors was based in Northern Ireland, while the other was based in the Isle of Man. This meant Fiduciam had to deal with three different law firms. 

Wilson Nesbitt in Northern Ireland, Keystone Law in the Isle of Man and McGahon & Associates Solicitors in the Republic of Ireland were involved with the transaction. 

The deal comes ahead of the lender’s plans to expand into Northern Ireland by opening an office in Belfast later this year. It plans to extend business in the region following demand for its loans in the area. 

Ken Duffy, Fiduciam country manager for Ireland, said: “This transaction demonstrates how Fiduciam puts the client at the heart of any transaction. The fact that we could provide the client with an attractive loan and do so in just six weeks meant that the borrower saved a huge amount of money; and a key building in central Belfast could be refurbished and turned back into valuable office space.  

“We would like to thank Neil Logan and Rowan Gibney from Wilson Nesbitt, Max McGahon from McGahon & Associates Solicitors and Geoff Kermeen from Keystone Law for assisting us in this difficult transaction.”   

He added: “This is a clear example of how we work efficiently to find solutions to challenging deals in an environment where other lenders may struggle. 

“Our pipeline of business is building and we are growing at a rapid pace so we are now dedicated to opening an office in Belfast. This is paramount to helping more businesses and developers both in Northern Ireland and also in the Republic of Ireland.” 

Interest rates for the Lions fast track bridge product start from 0.54 per cent and it is available up to 65 per cent loan to value (LTV). Properties in England and Wales worth up to £500,000 will be eligible. 

The maximum loan period is 12 months. 

Solicitor’s fees will not need to paid upfront and Hope Capital will lend based on an automated valuation model (AVM) to make borrowing faster. 

It will also consider borrowers who do not have personal guarantees, including for borrowers securing loans on mixed use or commercial properties.  

Borrowers can also take a payment holiday during the loan term and it offers flexible arrangement fee options to ensure maximum funds are received early. 

Roz Cawood (pictured), director of sales at Hope Capital, said: “The Lions Fast Track Bridge will further expand our offering and has been created to provide a unique opportunity, where borrowers can access funds extremely quickly. 

“At Hope Capital, we are dedicated to creating solutions which meet the diverse needs of borrowers, their affordability and aspirations. We also understand speed is of the essence, especially for those looking to beat the September stamp duty deadline, which is why we expect the Lions Fast Track Bridge to be a highly desirable option for brokers and their clients.” 

The deals ranged from larger cases, such as a £4.5m development exit loan secured against a detached property in Kent,to the smaller such as a £215,000 light development deal on a detached Norfolk property.

Some 30 per cent of loans completed were sized at or above the £1m mark. The terms ranged from 10 to 18 months, with loan to values up to 75 per cent.

Completions were submitted by 30 broking firms on properties in 21 counties in England and Wales.

The products included the lender’s Rapid Desktop, Light Development, Medium Refurbishment, Residential Investment and Commercial offerings.

The property types covered terraced, semi-detached and detached houses, flats, semi-commercial premises, retail outlets, office buildings and warehouses.

Jack Coombs, director at Aspen (pictured), said: “2021 has been an exceptional year so far, with this quarter easily surpassing our previous three-month record set in Q3 2020. 

“The range of cases shows we have become a trusted lender across a variety of requirements, with development exit, foreign purchase and light development very much a focus.”

 “This was achieved by our great team working hand-in-hand with our introducers and our partners at Fieldfisher LLP, VAS Group and CVS,” Coombs said.

The product allows for 100 per cent of the cost of works and can offer further advances for additional renovations if planning permission is secured during construction. 

The extend or convert refurb is available up to a maximum term of 18 months and can be secured against most types of properties in England, including residential, semi-residential and commercial to residential conversions.  

Loans can be used for heavy refurbishments, conversions, permitted development right (PDR) schemes and finish and exits. 

It is available up to 70 per cent loan to value for loan sizes from £100,000 to £3m. The arrangement fee is two per cent and there is no application or exit fee.  

Marios Theophanous (pictured), credit manager at London Credit, said: “There are many refurb products available in the bridging market, but most only allow for cosmetic changes and modernisation. The real opportunity for investors, however, lies in being able to extend or convert a property to deliver a significant uplift in value.  

“With this in mind, at London Credit we have launched our extend or convert refurb product which allows changes that require planning permission, buildings regulations or both.” 

The broker sourced an unregulated bridging loan at 0.75 per cent for 12 months for the couple, with Together overseeing the legal work with in-house solicitors Priority Law.

The couple wanted to borrow £145,000 to buy a £275,000 property with a loan to value of 40 per cent.

They had a buy to let property for sale and planned to use the funds to buy a house but were afraid that they could lose the house if they waited for a sale.

Enterprise Finance’s managing director Harry Landy (pictured) said: “With the 20 years of experience that Enterprise has, when we receive a case like this our wealth of expertise coupled with our connections in the market means we can secure a deal at great speed.

He said: “Our client was extremely happy they got the deal they needed with a phenomenal speed of completion.”

Together’s regional account manager Marylen Edwards said: “We pride ourselves on the speed at which we can transact – and the great service we provide – when arranging bridging finance.

He added: “Enterprise were fantastic in providing all the documentation we needed to make a lending decision so quickly. It goes to show how working closely with our key partners can help achieve the best possible outcome for their client.”

The deal gave the developer the extra time it needed to complete works that had been delayed by the Covid-19 crisis.

Passivhaus is an eco-friendly system of design and build, which requires specialist knowledge of the ways that building certification can impact on valuation and the legal process.

The bridge was secured on a fixed rate at 66 per cent loan to value (LTV), over a term of 12 years.

The project comprises eight detached, and six semi-detached homes of three, four and five bedrooms, at a site in Faversham, Kent. It won the What House? 2020 Award Gold Winner in the Best Sustainable Housing Development category.

In February, the same developer had secured a separate £1.16 million development exit facility from Aspen, on three new build detached homes in Kent.

Both cases were handled from start to finish by Prabhat Talwar, senior underwriter at Aspen. Talwar’s work with the client in February ensured he understood the requirements of the latest deal from the outset, ensuring a seamless transaction.

The lender’s rate care offers a stepped rate of 0.44 per cent and a flat rate of 0.74 per cent. They are available across all products, up to a maximum loan size of £5 million net, and 75 per cent LTV, from six to 18 months.

Rates for its core bridging product previously started at 0.48 per cent, and the reduction makes it one of the most affordable in the market according to the lender.

The lender has also introduced re-bridging on this core bridging product and changed its lending criteria to give borrowers more flexibility.

The lender updated its Mini Bridge range, which offers loans between £200,000 and £300,000, to allow multiple properties.

Masthaven’s bridging director Alan Margolis said: “With the introduction of our lowest ever bridging rate and the changes to our lending criteria, we’re making Masthaven’s offering even more competitive and ensuring that we can provide more people with the finance that’s right for them.”

He said that bridging finance was now a “mainstream product,” as demand had grown over the past year, with borrowers and brokers looking for flexible short-term finance solutions — as lockdowns, stamp duty deadlines and pandemic chain-breaks disrupted the home buying process.

In February, the lender launched a refurbishment range, which includes a heavy refurbishment option, and mini bridge products, to meet the growing demand for bridging finance.

The product will cater for light, medium and heavy refurbishment, capital raising, development exit and all borrower credit tiers.

Monthly rates for the product are between 0.65 per cent or 75 per cent open market value (OMV) or 0.69 per cent to 75 per cent OMV.

Procuration fees for the product are set at two per cent alongside a two per cent facility fee. There is also no exit fee or early repayment charges.

Catalyst Property Finance’s marketing director, Anna Bennett (pictured) said: “We’re excited to launch such a competitive product at a time when the property market is so active. Demand for short-term finance is high and this bridging product fills the gap for clients with larger property projects who are in need of a higher leverage loan.”

The product follows news in April that the lender was launching credit repair and automated valuation model residential bridging products and overhauling its rates and criteria.

The lender also brought back two other products for land with planning and its 100 per cent commercial bridging deal.

According to Bridging Trends Q1 survey, 20 per cent of all bridging loans taken out in the three months to March were to allow buyers to break a property chain, down from 23 per cent in Q4 2020.

Purchasing an investment property was the second most popular use for bridging finance in Q1, falling to 19 per cent of all lending, from 21 per cent in the previous quarter.

Meanwhile, demand for bridging loans for business purposes increased from 10 to 14 per cent in the first quarter of the year, as businesses prepared for lockdown restrictions easing.

Total advances from lenders contributing to the survey increased to £144.5m, a five per cent rise on the previous quarter when lending levels reached £137.2m. This was largely attributed to more lenders contributing to the Bridging Trends data.

Regulated bridging loans transacted by contributors remained unchanged from the previous quarter, at 48 per cent of total lending. Meanwhile, second charge transactions remained at 22 per cent of market share in Q1 2021.

The average weighted monthly interest rate in Q1 was 0.74 per cent. This was marginally higher (0.02 per cent) than in Q4 2020, but still cheaper than rates of 0.80 per cent offered before the Covid-19 outbreak.

The average loan-to-value rose to 55.2 per cent from 51.3 per cent in the previous quarter. The average term of a bridging loan climbed by one month to 12 months, falling in line with the same quarter in 2020.

Completion times increased to 53 days on average in the first quarter of the year, up from 50 days in Q4 2020. This is the highest figure recorded since Bridging Trends launched in 2015.

The top criteria search made by bridging finance brokers during Q1 was maximum LTV, according to data supplied by Knowledge Bank. This was followed by searches for regulated bridging and minimum loan amount.

Dale Jannels, managing director of Impact Specialist Finance, said: “I’m not surprised that chain break finance is top of the reasons to use bridging loans.

“Property transactions are booming and we’re seeing a large number of solicitors trying to exchange and complete on the same day.

“This inevitably will result in people pulling out of purchases late on and therefore clients need a short-term loan to fill the gap their buyer left behind. This brings a great opportunity to the sector, especially with the addition of the next stamp duty deadline looming on the horizon.”