How to Finance a Property Refurbishment

Refurbishment is the most common route to adding value in residential property, and it is also where conventional mortgage lenders are least useful. A property that needs work often cannot be mortgaged until the work is done. Refurbishment finance fills that gap.

Light versus heavy refurbishment

Lenders distinguish between the two because the risk profile is different.

• Light refurbishment: cosmetic works that do not require planning permission or structural change, such as new kitchens and bathrooms, redecoration and rewiring.
• Heavy refurbishment: structural works, extensions, conversions or change of use, often requiring planning permission and building regulations sign-off.

Light refurbishment is usually funded with a standard bridge against the current value. Heavy refurbishment is assessed against the end value, with a maximum loan expressed as a percentage of GDV and the works cost sometimes released in stages.

The bridge-to-let route

For investors retaining the property, the typical structure is a bridge to fund purchase and works, then a refinance onto a buy-to-let mortgage once the property is let. The refinance is the exit, and it should be evidenced up front with a decision in principle or a clear affordability calculation at the term lender's stressed rate.

What you will need

1. A schedule of works with costs, ideally from a contractor or quantity surveyor.
2. A realistic end value supported by comparables.
3. A programme showing how long the works will take, with contingency.
4. Evidence of your experience, or of the team delivering the works.
5. Your exit: sale evidence or a refinance decision in principle.

Common mistakes

• Underestimating the works cost and running out of money mid-project.
• Taking a term that leaves no time for the refinance if works overrun.
• Assuming a refinance will be available without checking affordability at the stressed rate.
• Ignoring the difference between gross and net advance when budgeting.