Sometimes a property needs to maximise its value in a series of minor tweaks. Elsewhere, major structural alterations and improvements may be necessary to simply bring it up to a liveable standard.
This is where light refurbishment finance and heavy refurbishment finance come in handy. But what are the main differences between the two, and who are they available for?
Light refurbishment finance is issued to cover the costs of minor renovations and improvements. The vast majority of which are likely to be cosmetic in nature, but can also hold practical value - such as refitting the kitchen or bathroom.
A light refurbishment loan will usually be issued in the form of a short-term bridging loan. This means that the loan is designed to be repaid as promptly as possible, and can be arranged in a relatively short space of time.
Heavy refurbishments are typically defined as those where structural work is necessary, or when planning permission is required to go ahead with the project. Examples of which include physical extensions to a property, conversions of lofts, basements and garages (depending on the extent of the work required), repurposing properties with different uses in mind and so on.
The cost of the renovations required is not the only factor that determines whether a project entails light or heavy refurbishments. Some structural alterations to properties can be surprisingly affordable, but due to their nature are still considered heavy refurbishment.
When looking for development finance it is important to identify the type of project being planned by the developer in order to access the correct funding product. Types of works can include:
New builds nearly always require development finance loans. Once the project is completed, developers may use development exit finance as a more cost effective solution, but this cannot be done before the project is watertight.
for this type of project refurbishment finance is typically the correct type of loan to use, however if the project is larger than the norm, development finance may be a better alternative.
a refurbishment loan, which is a type of bridging finance, is generally used for property renovations. It can be used for various improvements including, installing a new roof, general structural changes, building an extension, refurbishment, and decoration.
Property investors or developers may want to buy property which needs development or completion work still doing and are unable to get funding from their bank. This is a typical scenario when a bridging loan is a suitable alternative.
Development finance loans are typically paid in one of the following three ways:
the total loan amount is paid in full, using the profits, when the project is complete, and the properties have been sold.
this usually happens when the developer wants to keep the development for either personal use or for rental purposes.
this type of short term loan is often used to fund a new development project before the current project is sold. It can also be used to give developers a bit of breathing space to complete minor works and find buyers.
Most lenders restrict their light refurbishment products to a value of 15% to 30% of the property's total value. However, it is possible to borrow much less than this - anything from 10,000 GBP and up.
Typical loan terms vary from 6 to 12 months, after which the full balance of the loan is repaid in a single lump-sum payment. The monthly interest varies from one loan to the next, but can be as low as 0.7% in some instances.
With light refurbishment finance, the loan is secured against the equity the homeowner has in their property at the time. This will determine how much they can borrow - typically no more than 70% to 75% LTV.
But as the funds are to be used for light refurbishments only, it is unlikely a borrower will look to secure a loan against their home with the highest possible LTV.
Light refurbishment finance can be used for almost any legal purpose, if the planned works are permitted by the loan's issuers.
Just a few of the most popular applications for light refurbishment finance include the following among others:
As a rule of thumb, anything that is non-structural in nature and considered a fairly modest makeover falls within the light refurbishment bracket.
Heavy refurbishment loans work in a similar way to light refurbishment loans, though are usually higher in value. The minimum loan amount may be around 15% of the property's value, with no upper limits on how much can be borrowed.
The applicant's property is used as security (collateral) for the loan, and typical terms vary from 12 to 24 months. Monthly interest can be similar to that of a light refurbishment loan, but may be lower on a high-value loan taken out over a year or longer.
All interest is 'rolled up' during the loan term, and added on to the final balance payable on the agreed repayment date.
Heavy refurbishment finance can likewise be used for almost any legal purpose, but projects will typically only be able to go ahead after the appropriate consent has been granted.
Typical applications for heavy refurbishment loans include the following:
Where a project blurs the line between the two categories, it will be down to the lender to determine which type of product is suitable.
Refurbishment finance can be a surprisingly flexible and accessible facility. Anyone who has sufficient equity in their home (or business property) can apply, including individual applicants, partnerships, companies and more.
Almost any type of property can be used as security for a refurbishment finance loan, including but not limited to the following:
Irrespective of your requirements, it is essential to seek independent development finance broker support before applying. Your broker will help you determine the most appropriate product to suit your needs, while negotiating on your behalf to ensure you get an unbeatable deal from a top-rated lender.
Having access to funds for property development purposes allows borrowers to take on bigger projects than they would usually be in a position to finance.
The purpose of the facility is to provide the developer with additional time to sell their completed development, while keeping costs as low as possible.
Qualifying for finance as a first-time developer can be challenging. This is why it is advised to seek support of an independent broker at the earliest stage.
Our products are suitable for large and small hotel development projects of all types, from repurposing existing properties to building new hotels from scratch.
Joint venture development finance works in a similar way to conventional development finance. However, no deposit needs to be paid and rates are typically higher.
Mezzanine finance, aka mezzanine funding, effectively enables property developers to 'top up' their first-charge development finance facility to access extra funding.
No Personal Guarantee (PG) development loans are effectively a form of unsecured funding for major property development and construction projects.
Whether your goal is to maximise the value of a property you plan to sell or to boost rental income long-term, a refurbishment finance loan could be just the thing.
Senior debt development finance is the primary source of funds in the form of a first-charge loan. It is considered a lower-risk facility on the part of the lender.
Stretched development finance can be the perfect choice for investors and developers looking to stretch their own equity as far as possible with borrowing for up to 90%.
'Light refurbishment' is used for cosmetic upgrades and minor improvements. 'Heavy refurbishment' is used to raise funds for structural improvements.
Commercial property development finance can be used to fund, build or develop a property or be used to expand your current business property or space.