Properties needing heavy refurbishment mortgages
For a property to be granted a mortgage, it has to be habitable. It has to have a fully functioning bathroom and kitchen. It also has to be wind and water tight.
If a property needs re-plastering, redecorating, rewiring or a newly fitted kitchen or bathroom, this can be arranged through a light refurbishment mortgage. The project cannot involve any changes of use or require planning permission.
However, some refurbishment projects are more involved. If the works require a change of use, for example, converting offices into flats, or any structural works requiring consent from the local authorities, this would be considered a Heavy refurbishment project and would require a heavy refurbishment mortgage.
Heavy refurbishment mortgages are a short term funding line. They enable experienced property developers and investors to fund both the purchase of a property needing work, and the funds to carry out the heavy refurbishment.
Where a heavy refurbishment mortgage is required, the lender will want to see a ‘schedule of works’. This is a break down of all the costs involved in the project. They will also want to know how long the project is predicted to take. A valuer will comment on whether the intended budget is realistic and if the time scale is achievable. They often comment on the value of the property on day one (before the work has been carried out), and then what the Gross Development Value (GDV) is. This is also known as the post refurbishment works value.
Experience is key
When it comes to arranging heavy refurbishment mortgages, the lenders will want to see evidence of past projects. This is to ensure they have been carried out within the allotted time frame and within budget. They will also want to see evidence of any previous loans being paid off either by selling the property or refinancing to another mortgage.
The intended method for repaying the loan must be clearly outlined at the start of application. A lender will insist on this. Repayment would usually be via sale or refinance. If the property is being sold, the lender will want to see whether the estimated sale price, demand and time scales are realistic to ensure the loan is paid off in full before the end of the term. If the exit route is via refinance, the borrower will need to provide evidence that they can obtain a mortgage elsewhere, usually by way of an ‘agreement in principle’ from another bank.
Heavy refurbishment mortgages are often seen as a more expensive option when compared to a traditional mortgages. But they have proved a popular solution to many property developers and investors who want to make money from refurbishing properties.
Light refurbishment mortgages are also available through many of our lenders.
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