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How to get refurbishment finance for a buy to let property
Using refurbishment finance could help you get higher rental income as a landlord.
If you're looking for a buy to let property to generate an income, finding one that needs significant renovation could help you grab a bargain.
But if you don't have the cash on hand to pay for renovations, you could end up missing out on your buy to let's full potential.
This is where refurbishment finance comes in.
What is refurbishment finance for a buy to let?
Refurbishment finance is a type of short term bridging loan that can fund up to 70% of your property refurbishment costs.
Once your development work is complete, you can refinance with a standard buy to let mortgage, or repay your refurbishment loan through the sale of other assets or via other cash windfalls.
Skip to:
What type of rental property makes the most money?
What's the difference between renovations and refurbishment?
What's the difference between "light" and "heavy" refurbishment?
Can I use a mortgage to refurbish a buy-to-let property?
How does bridging finance work for refurbishments?
Will I qualify for refurbishment finance for my buy-to-let?
What type of rental property makes the most money?
When done well, the rental properties with some of the biggest potential for ROI are refurbished properties and buildings. If you're already a landlord, renovating your rental property could boost your value and make you more money.
But a challenge for landlords is finding finance at the right price that makes renovations cost-effective. In this blog post, we'll explain your options and offer examples of how the right kind of funding could work for you.
What's the difference between renovations and refurbishment?
In terms of property finance, the main distinction between renovation and refurbishment is the difference between works classed as "light refurbishments" and those classed as "heavy refurbishments".
But these two terms are largely interchangeable and can cover anything from decorating and recarpeting to replacing entire kitchens and bathrooms, knocking rooms through, or adding an extension.
What's the difference between "light" and "heavy" refurbishment?
- A light redevelopment/refurbishment involves non-structural, largely decorative work to a property. It usually doesn’t require planning permission or have to comply with building regulations. A commonly used example would be upgrading bathrooms and kitchens and replacing floor coverings.
If you can keep to a tight timescale for the renovations, bridging finance can work well for your light refurbishment work.
- A heavy refurbishment is any project where the total cost will be more than 15% of the property value, and it involves major structural changes - including altering internal supporting walls or building an extension.
To cover this more extensive type of work and allow time for the necessary planning approvals, you will need bridging finance running for longer than the standard maximum of 12 months. Most lenders can offer up to 18 months, and some will lend for up to 36 months.
- If you own a rental property with a buy-to-let mortgage and want to improve or extend the property, you could consider remortgaging (extending your mortgage) to fund the work. But it is important to note that if your mortgage hasn't come to the end of its agreed term, there will be costs to change your mortgage deal early.
- Extending your mortgage to fund your renovation may only be possible if you have a small mortgage on the property. But the amount you can borrow will be based on the house’s current value and monthly rental income, so you may struggle to borrow enough for the work you want to carry out.
- If you're planning on buying a property that needs renovating before it can be used as a rental, it's unlikely you'll be able to get a buy-to-let mortgage until the refurbishment work is complete. Instead, you'll need to find specialist funding - often known as a refurb-to-let loan.
While you're here, check out our property insurance services to make sure you're getting the right cover for your buy-to-let property.
How does bridging finance work for refurbishments?
Most refurbishment finance, including refurb-to-let finance, is offered in the form of a bridging loan. This is type of finance is short-term. It can allow you to borrow significant amounts of capital secured against a property for various purposes, including home improvements.
Bridging loans can be secured as a first or second charge on a property or even more than one property. This can be the property you're buying or one you already own. And in some cases, you can use both.
With a refurbishment bridging loan, you can normally borrow up to 70% of the project's Gross Development Value (GDV). The GDV is how much it will be worth once all work is completed. Loan terms are normally within 1-18 months, and interest is commonly "rolled up" to be paid at the end of the loan term when the capital is repaid.
Bridging loans can usually be arranged quickly, often in as little as 5-7 working days, making them ideal when you want to move fast with a project. Securing bridge finance against more than one property can allow you to borrow more or get a more attractive interest rate.
Refurbishment finance rates
Flipping Property?
Buying, Renovating & Selling (or Letting)
Finance Rates from
0.55% pm
1 - 18 months
Rates up to 80% LTV net
As at 20th June 2023
Ground Up Development
New Builds
Finance Rates from
0.83% pm
Up to 24 months
Rates up to 70% of GDV
As at 20th June 2023
Existing Development?
Refinance & Exit Finance
Finance Rates from
0.55% pm
1 to 18 months
Rates up to 80% LTV net
As at 20th June 2023
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Use our bridging loan calculator
Our bridging calculator can get an approximate idea of what a bridging loan might cost you. But keep in mind that a mortgage broker will be able to fine-tune your expected charges to your circumstances:
Will I qualify for refurbishment finance for my buy-to-let?
- It depends on whether you own the property already, if you're looking for finance to purchase and renovate, and how extensive the necessary works are.
- This is a fairly complex set of variables, so you will find it extremely helpful to work with a specialist finance broker who can help you get the best terms for your circumstances.
- Our experienced team of brokers have contacts with a range of private lenders, which means we can help get you deals that you wouldn't have access to on your own.
- We can also arrange buy-to-let mortgages and other refinancing options for when your refurbishment work is complete.
Click here to learn more about renovation finance, or give us a call on 0203 900 4322 for a no-obligation discussion with one of our team.
0203 900 4322
