The property investors guide to refurb finance

Brightstar Financial
8th July 2019

Are you one of the growing number of property investors looking to generate better returns on your investment?

Property refurbishment, or buying a run-down property and renovating it to achieve a higher re-sale price or rental income, is becoming an increasingly popular strategy. So, what are the options?

Property refurbishment falls into two main categories – light refurbishment and heavy refurbishment.

Light refurbishment

Light refurbishment is where no planning permission or building regulations are required and there is no change of use to the property. Since the introduction of new minimum EPC requirements on rental property it has become popular for light refurbishment to be used by investors to buy a property that doesn’t make the grade and make the required changes that would enable the property to be let out.

However, it is often the case that a property considered to be uninhabitable and therefore unmortgageable could be made habitable with relatively straight forward light refurbishment, as long as there is no structural work or planning required. Common reasons for a property not being habitable that could potentially be rectified with a light refurbishment include no kitchen or bathroom, multiple kitchens in a single property or a surveyor having inspected the property and deemed it not fit for letting.

Heavy refurbishment

Heavy refurbishments are more complex, involving structural changes to the property that require planning permission or building regulations. The returns on a successful heavy refurbishment project, however, can justify the effort. Typical types of heavy refurbishment include converting a property to residential use, including things like commercial to residential and barn conversions, creating multiple units from a single building or converting multiple units to a single building.

New options

Increasingly, lenders are also providing options for development finance that tread a middle ground between heavy refurbishment and light refurbishment. These loans can be used to fund work that does not require planning permission but does require building regulations and are often more accessible than heavy refurbishment loans. The government has recently extended permitted development rights into permanent legislation, which means that some extensions and conversions can now be built without the need for planning permission and so the scope of work that can be carried out without the requirement for heavy refurbishment funding has been increased.

Refurbishment finance 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 work to increase its value before deciding whether to retain and refinance onto a longer-term buy-to-let solution or sell the property.

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