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For many property investors, refurbishment projects are a great way of generating income either through selling the property post works or by maximising the potential rental income and keeping as a Buy to Let investment.
For many of these projects, a standard mortgage is often not available therefore many lenders have released specially designed products aimed at those properties that require a ‘refurbishment loan’.
What is a refurbishment loan?
Refurbishment loans are a form of short-term lending that are available for property investors, landlords and developers that require funding for properties that require work to maximise rental yield, or to maximise profit if looking to sell the property post refurbishment. Some lenders allow for the cost of works to be included in the loan (subject to product specific criteria) and allow for up to 75% loan to value on day 1.
Light Refurbishment vs Heavy Refurbishment
There are two categories that a property will fall under when looking at refurbishment loans: light refurbishment and heavy refurbishment.
Light Refurbishment
Eligible properties for light refurbishment loans are those where the works are mainly internal and do not require planning permission or building regulations.
Examples of eligible works:
- Conversions into HMOs (non structural)
- New kitchens and bathrooms
- Internal reconfiguration (non load bearing)
- Properties that are at ‘wind and water tight’ stage that need to be completed
Heavy Refurbishment
Heavy refurbishment loans allow for more extensive projects which fall short of development finance criteria but require more extensive work than a light refurbishment.
Examples of eligible works:
- Works requiring planning permission and/or or structural work
- House to be converted into flats
- Permitted development schemes (ie commercial into residential)
- Full refurbishment of un-mortgageable properties
- Extensions/loft conversions.
Experience Requirements
Depending on the lender, applicants may not need to have experience for light refurbishment loans. Heavy refurbishment loans however, would require applicants to have experience of similar completed projects unless from an industry related background, or the appointment of a project manager at which point they may be considered subject to referral.
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