With the renovation market booming, it is no surprise that investors are looking for financing for homes and other properties they wish to refurbish and subsequently sell.
In order for a property to qualify for a traditional mortgage, it must be deemed habitable. This means the building must be wind—and water-tight and have a fully functioning bathroom and kitchen.
Since investors generally look for good deals on a property through a short sale or auction, chances are the property that is purchased would in no way be considered habitable without some serious renovations, which may also need to be financed.
Since a conventional mortgage is not an option for these types of renovation properties, investors will need to seek out financing for their project using other methods.
When essential items such as modern plumbing and wiring, modern u-PVC double-glazing, and updated gas central heating are not present at a property or home, lenders will withhold funds either in their entirety or in part until these essential items have been remedied.
Unless the investor has his or her own cash flow to work from, chances are he or she will need to secure additional financing in order to make the needed refurbishments to the property. When this situation arises, specialist lenders are available to help fund these projects.
These types of lenders will arrange finance in the form of bridging or other short term loans and have no concern about the property’s state when they extend the financing options. Because of this, bridging finance has become a popular option for those investors looking to refurbish a property.
But, before going out and securing financing, it is important to know a little more about the refurbishment type – there are two types of refurbishment that can be done to a property: light refurb and heavy refurb.
Information on Light Refurbishment
Light refurbishments to a property generally involve internal work. Internal work can include updating fittings in bathrooms and kitchens, re-plastering walls, updating electrical or plumbing work, and even simple redecorating. As a general rule of thumb, a light refurb can include any work that does not require planning or construction consent or a change of use.
Loan for light refurb projects is available with standard bridging loan rates which usually begin at about 0.85 per cent per month and up to 50 per cent the property’s Loan to Value or LTV. In some cases, these loans can reach 0.95 per cent per month with an LTV of up to 60 per cent or even 1.15 per cent per month and up to 70 per cent LTV on the property. It is important to note that the percentages and LTV rates listed here are based on maximum gross loan to include retained interest.
Information on Heavy Refurbishment
Contrasting the parameters that outline light refurb, heavy refurbishments include any work that involves planning permissions from the local authorities or change of use for the property. For example, heavy refurb would include conversion of an office building into flats or a public house into an HMO property.
The terms of heavy refurb loans also vary from those available for light refurbs. Heavy refurb loans have a maximum of 65 per cent LTV, although a higher percentage may be available if additional security is available. Rates for heavy refurbs are also slightly higher than their counterparts, usually landing up to 1.45 per cent per month on average.
Since more work is being done to the property, lenders will see this as a higher risk which means the loans will be more expensive to help cover potential losses. When it comes to heavy refurbishments, lenders will often want additional information about the property and project to make sure they are financing a good investment.
Lenders often ask for a detailed schedule of the construction process for the property and a detailed breakdown of costs for the project. They will also consider the surveyor’s comments, especially when it comes to whether or not the scale of money being spent is equal to the work that needs to be done.
Surveyors often note the property’s day-one value and estimate the value after the work has been completed. Experience in the refurbishment field is vital to securing a bridging loan with great rates—lenders will look at an investor’s track record when making a final decision.
Exit Routes Options
Lenders will also take a close look at the borrower’s exit route or exit strategy when it comes to repaying a light or heavy refurb loan and will often require a written exit route as part of the loan’s terms. Generally, when it comes to renovation properties, the exit route will take form as the subsequent sale of the property when the refurbishments are complete.
If this is the chosen route, lenders will further consider the end value of the property when making a decision. Another option for an exit route is refinancing the property in which case the borrower’s ability to obtain a mortgage for the property will be brought into question.
Transitioning the property into an HMO or buy to let property is an additional option, in which case the borrower will need to provide rental coverage calculations to the lender. Bridging loans generally carry the stigma of being the most expensive form of financing.
Although higher interest rates are present with bridging loans, the ability to use them for refurbishment projects before securing a traditional mortgage is a powerful tool for property investors. Since the state of the property is not brought into question with this type of financing, it is usually the only option an investor has when crucial upgrades need to be made to a property in order to secure or mortgage or sell the property outright.
A loan broker can often provide a potential borrower with all the information he or she will need on light and heavy refurbishment finance in order to make the best possible decision for his or her particular situation. Contact Jubilee today and one of our helpful and friendly advisors will gladly help discuss your financing requirements.
Equity Release Schemes: Accessing Home Value for Financial Stability at Any Age
Equity release schemes allow homeowners to access the value tied up in their property, providing a lump sum or regular income while still living in their home. This option is detailed extensively on the Equity Release Schemes page.
Retirement Mortgages: Tailored Solutions for Financial Security in Later Years
Retirement mortgages help older homeowners leverage their home’s equity to ensure financial stability during retirement. These tailored solutions are thoroughly explained on the Retirement Mortgages page.
Dealing with £10,000 in Debt: Strategies and Solutions for Homeowners
Homeowners facing £10,000 in debt can find various strategies and solutions to manage and overcome their financial challenges. Detailed advice is provided on the £10,000 in Debt page.
Understanding Secured Loans: Using Home Equity to Consolidate Debt
Secured loans allow homeowners to use their property as collateral to obtain larger loan amounts with lower interest rates. This financial tool is explained in detail on the Secured Loans page.
RIO Mortgages: Flexible Equity Release for Retirees
Retirement Interest Only (RIO) mortgages enable retirees to release equity while only paying the interest on the loan. This product provides financial flexibility and control, as detailed on the Best RIO Mortgage Rates page.
Remortgaging for Debt Consolidation: Simplifying Your Financial Obligations
Remortgaging can help homeowners consolidate existing debts into a single, more manageable monthly payment. This strategy is thoroughly covered on the Remortgages for Debt Consolidation page.
Bridging Loans: Quick Financial Solutions for Property Transactions
Bridging loans provide short-term funding for homeowners needing to cover gaps between property transactions. Insights into this financial product are available on the Bridging Loan Nationwide, HSBC Bridging Loans, and Santander Bridging Loans pages.
Using Equity Release Schemes Despite Bad Credit: Financial Relief Options
Even homeowners with bad credit can benefit from equity release schemes, which provide a way to access funds by leveraging the value of their homes. This is detailed on the Equity Release Schemes for Bad Credit page.
Lifetime Mortgages: Unlocking Home Equity for Financial Flexibility
Lifetime mortgages allow older homeowners to borrow against their home’s value while continuing to live in it. This option is explored on the Lifetime Mortgages page.
Secured Loans for Bad Credit: Overcoming Financial Challenges
Homeowners with poor credit can still access secured loans, using their property as collateral to improve their financial situation. This topic is covered on the Secured Loans for Bad Credit page.
Debt Solutions for Homeowners with £25,000 in Debt
Managing a debt of £25,000 can be challenging, but various financial products and strategies can help. Detailed advice is available on the £25,000 in Debt page.
Exploring Drawdown Lifetime Mortgages for Flexible Home Equity Access
Drawdown lifetime mortgages allow homeowners to access funds as needed, providing flexibility and control over their finances. This option is detailed on the Drawdown Lifetime Mortgages page.
Paying Off Credit Card Debt Using Home Equity
Homeowners can use the equity in their homes to pay off high-interest credit card debt, consolidating their debts into a lower-interest mortgage or secured loan. More advice is available on the Paying Off Credit Card Debt page.
Evaluating the Safety of Equity Release Schemes
It’s important to understand the potential risks and benefits of equity release schemes before opting for one. This evaluation is provided on the Are They Safe? page.
Debt Solutions for Homeowners with £50,000 in Debt
Managing a debt of £50,000 requires strategic financial planning and the use of appropriate financial products. Detailed guidance is provided on the £50,000 in Debt page.
Finding the Right Cosigner for Your Debt Consolidation Loan
Having a cosigner with good credit can improve your chances of securing a debt consolidation loan with favourable terms. This strategy is explained on the Finding the Right Cosigner page.
Understanding Halifax Equity Release Options
Halifax offers various equity release options to help homeowners unlock the value in their homes to meet financial needs. Detailed information is provided on the Halifax Equity Release page.
Benefits of Debt Consolidation Loans for Simplifying Finances
Debt consolidation loans can simplify your finances by combining multiple debts into a single loan with a lower interest rate. For more insights, visit the Benefits of Debt Consolidation page.
Understanding Equity Release Schemes for One Family
Equity release schemes can benefit a single family, providing the means to access home equity for financial needs. This option is explored on the One Family page.
Exploring Interest-Only Lifetime Mortgages
Interest-only lifetime mortgages allow homeowners to pay only the interest on their loan, maintaining control over their finances while living in their home. More information is available on the Interest-Only Lifetime Mortgages page.
Debt Solutions for Homeowners with Bad Credit
Even homeowners with bad credit have options to manage and reduce their debt through various financial products. Detailed advice is available on the For Bad Credit page.
Examples of Equity Release Schemes in Action
Real-life examples show how equity release schemes can be tailored to meet homeowners’ specific needs, providing financial relief and stability. Case studies are available on the Equity Release Schemes Examples page.
Accelerating Debt Repayment with Debt Consolidation Loans
Debt consolidation loans can help you get out of debt quicker by combining multiple debts into a single loan with better terms. Detailed information is provided on the Debt Consolidation Loan page.