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Why use light or heavy refurbishment finance?

Sometimes a property needs to maximise its value through 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

Light refurbishment financing has been issued to cover the costs of minor renovations and improvements. The vast majority of these are likely to be cosmetic in nature but can also hold practical value, such as refitting the kitchen or bathroom.

Short-term bridging loans are typically used for modest rehabilitation loans. This indicates that the loan is intended to be returned as soon as possible and can be negotiated in a short period of time.

Heavy refurbishment finance

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 this include physical extensions to a property, conversion 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, they are still considered heavy refurbishment.

Types of Development Finance

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:

ground up build development finance

Ground up builds

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.

property conversion or restoration finance

Large scale restoration and property conversions

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.

property refurbishment finance

Property refurbishment

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.

bridging loan property development

Bridging loan for property development

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.

How is Development Finance Repaid?

Development finance loans are typically paid in one of the following three ways:

Paid in full

The total loan amount is paid in full, using the profits, when the project is complete, and the properties have been sold.

refinance with long term loan

Refinancing using a long term loan

This usually happens when the developer wants to keep the development for either personal use or for rental purposes.

development exit finance

Refinancing using a Development Exit Bridging Finance

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.

Frequently Asked Questions

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 such as 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, which is 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:

  • Installing new kitchens and bathrooms
  • Replacement flooring
  • All types of painting and decorating
  • Replacing windows and doors
  • Upgrading a central heating system
  • Energy-efficient home improvements
  • Plumbing and rewiring
  • Conducting repairs after an incident

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 similarly 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:

  • All types of major structural works
  • Extensions to existing properties
  • Conversions of lofts, basements and garages
  • Change of use (repurposing)
  • Partial demolish and rebuild projects

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:

  • Residential property
  • Residential buy to let
  • Residential buy to sell
  • Holiday lets
  • House in Multiple Occupation (HMO)
  • Mixed-use properties
  • Semi-commercial property
  • Commercial property

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.

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