Pre-credit crunch it was very easy to get finance from a bank for the refurbishment of a property that was not mortgageable. They would give you a percentage of the purchase price and also the refurbishment costs.
Post crunch this finance disappeared and the void was taken over by bridging finance for light and heavy refurbishment. There was one refurbishment scheme from a buy to let (BTL) lender but this also went last year.
I regularly get phone calls from investors and landlords looking to refurbish property requesting bridging finance. It is available but there are alternatives for light refurbishment which very few seem to know about.
As usual with lending the devil is in the detail and these won’t be suitable for everyone. Most aren’t available direct and your broker may have to go through a third party broker to obtain them.
Light refurbishment
A property that needs a new kitchen, bathroom, flooring and decoration etc. If there is anything structural or needs planning then it is classed as heavy refurbishment.
Recent enquiry
I was approached by a first time landlord who was looking for bridging. He had been quoted a 2% lender fee and interest of 1.2% per month by another broker who had not delivered on this. He wanted me to get the same product for him.
After the refurbishment had been done he was going to remortgage but wanted to wait until after six months as more BTL products would be available to him. It would have cost him 11.6% (ignoring valuation & legals) over eight months and then further fees for the new BTL.
The property wasn’t habitable due to vandalism so he thought he just had one option? Well he didn’t and this is what he ended up with
A 35 year BTL mortgage at variable rate of 5.39% with a lender fee of 2.5% and no early repayment costs. There are currently six lenders in this market with another two to start accepting business soon.
How does it work?
The valuer will be instructed by the lender to value the property in its current condition and after the schedule of works has been completed along with a rental valuation
The lender will then advance 75% of the Day 1 value. Work is carried out within a 3-4 month period and valuer goes out to reinspect. If values confirmed then lender will advance up to 75% of the end value subject to it fitting their rental calculations and money being left in. The amount does vary from lender to lender.
Example of a light refurbishment
- Purchase price: £120,000
- Day 1-Maximum 75% advance: £90,000
- Refurbishment Costs: £20,000
- After Works Valuation: £160,000
- Maximum advance subject to rent cover: £110,000
The product above has no early repayment costs so there is nothing to stop you remortgaging to release further equity.
Who is eligible?
- First time landlords as long as you are a homeowner on non property income of £25,000
- Existing landlords with three years experience who are full time in property
- Minimum Value £75,000-£100,000
Heavy refurbishment
The definition varies from lender to lender. It can be a percentage cost such as works being completed costing no more than 15% of the property value. Or where planning or structural work is required such as extensions, loft conversions, internal reconfigurations and change of use e.g. single dwellings to flats or HMOs.
Lenders:
If you are new to heavy refurbishment but have the skills to do it then you are looking at indicative rates of 1.1%-1.2% up to 60% LTV and 1.45% for 65%-70% with a 2% lender fee.
A term up of up to 12 months and most lenders won’t have an exit fee. There must be a realistic repayment route either through a sale or a remortgage.
If the latter make sure you fit their criteria and if you only have one option then you need to consider that you may have to sell if that lender withdraws from the market.
As I just do property finance I have direct access to all the key players and I’ve never had a favourite lender as each tends to have the same products although criteria is very different.
For refurbishment finance no lender has the same number of products as Shawbrook Bank. Now I may be bias as I am one of their founding broker partners but they really understand property investors and landlords.
Not a lender for you unless you have experience and strong income but when you do they are second to none.
They have a number of products for light refurbishment but their heavy refurbishment is a market leader.
0.89% per month up to 70% LTV. A 1.95% lender fee applies but what I like is its flexibility.
- Set interest rates
- No minimum interest period
- Daily interest calculation
- No exit fee
- Ability to include interest within the loan
- 100% funding with additional residential security
What can it be used for?
- Conversion of single let to HMO
- Title Splitting
- Converting commercial with full planning to residential although reduced 65% LTV
How do you get access to the product?
They operate through a small network of brokers and if your broker isn’t one of them they have to go through a third party. You will get the same products but it may cost you more in broker fees and your broker won’t be able to
- Instruct the valuation
- Speak with their solicitor
- Speak with the underwriter
All this speeds the process up and a small number can actually credit search you on their behalf.
So dig out your riggers and hard hat and rather than paying cash which ties up your capital or expensive bridging rates there maybe better alternatives in the market.
If you have any bridging or mortgage requirements, Simon is always here to help. Below you will find a number of ways to contact him.
| Simon Allen Director Total Business Finance (UK) Ltd | |
| T: 01565 759810 | M: 07919 060063 F: 01565 337506 Email: [email protected] | Web: www.tbfinance.co.ukAddress: Booths Hall Chelford Road Knutsford Cheshire WA16 8GS |
