Refurbishment loans are useful for property owners who are considering renovations or upgrades for their properties. Refurbishment bridging loans are a popular option among investors who don’t have extra funds needed to cover the upgrades. These loans can be used only to fund improvements and renovations projects, or to cover the cost of a property.
Refurbishment Bridging Loan
A Refurbishment loan is also known as refurbishment finance. These loans are specialist loans that are issued to cover the cost of property renovations. There are two types of refurbishment loans, called ‘light’ and ‘heavy’ refurbishment. However, the nature and scale of borrower’s requirements will decide which of these two types is suitable.
Sometimes these loans can be paid out in two phases, though that might not be the case always. The first payment is based on the purchase cost of the property, and the second payment is calculated upon the completion of the renovation. The value of a property with a refurbishment loan relates to the projected value when the repairs are completed.
The example below demonstrates how the refurbishment fast bridging loan works:
● Purchase price of the property: £100,000
● Cost of the renovation: £20,000
● Projected value of the property: £150,000
● Refurbishment loan: £105,000 (70% LTV)
The eligibility criteria and loan terms differs from lender to lender. Just like other loan application, there is detailed credit checks involved as part of the process.
How Much Refurbishment Loans Cost?
The overall borrowing cost depends on the type of loan you apply for. For instance, some refurbishment loans are issued as short-term loans, which are designed to be repaid in a few months. In that case, you will have to repay at a monthly interest rate of 0.5% or less.
Long-term bridge loans overall borrowing cost in high. The deposit size that you provide will impact the affordability of your investment. Big deposits usually decrease the borrowing cost on all loan types. Your financial status and credit history at the time you apply will play a role as well.
The lender you choose can make a significant difference on how much you have to pay for the refurbishment loan. If you work with an independent specialist with a good record, you can get a competitive deal to suit your needs.
Types of Refurbishment Bridging Loans
Heavy Refurbishment Loan
Heavy refurbishment loans are right for a more advanced and challenging project, usually where significant structural changes are involved. If you need to get planning permission, then it’s considered a heavy renovation. ‘Heavy’ is defined differently by each lender, but it generally applies to following types of improvements:
● External and Internal structural works
● Building regulations
● Any project that needs planning permission
● Property conversion and extensions projects
Applying for this type of loan depends on the nature and size of the project. For instance, if you want to convert a building into apartments, then this kind of finance is more suitable.
Light Refurbishment Loans
Light refurbishment is appropriate when a property needs some minor upgrades. The ‘light’ loan is defined differently by each lender. Typically, this type of loan is applied when no planning permission is required to complete the renovation project.
Examples of Light refurbishment include:
● Everyday decorating and cosmetic improvements
● Kitchen remodelling projects
● Most non-structural improvements
● Central heating system installation
● Installation of a new bathroom
● Rewiring the property’s electrics
● Installation of new windows and doors
● Repurposing one or more rooms
For a loan, the project can be a combination of these and other property upgrades that are moderate. Since no major changes are made to the property’s structure or its surroundings, the project can be considered a ‘light’ renovation.
How much can you Borrow?
The amount you can borrow depends on your eligibility. Majority of lenders who provide loans can provide loans of up to 75% of the post-renovation value of the property. Sometimes, it is possible to qualify for a high loan term, even though a sizeable deposit might be required with a credit history and a strong financial record. Your loan provider will base their decision on the projected value of your property. Also, you will have to provide verification for your financial position, your earnings and capability to repay the loan as agreed. If you meet the loan criteria, technically there won’t be a limitation on the amount you can borrow. Many peer to peer lending platforms also offer refurbishment and bridging loans among other financial services.