Unlike the large-scale development loans that are issued to developers building new properties from the ground up, a popular and effective form of financing is for the refurbishment, extension and renovation of existing properties.
Light vs. heavy refurbishment
Refurbishment development projects fall into one of two categories and this categorisation can affect how much financial investment you may be eligible for and how easily you can secure a loan.
- Light refurbishment – This refers to fully interior renovations where the floor plan and structural frame of the home is not affected. Financing tends to be for relatively small amounts and can be loaned to individuals, as well as companies and trusts
- Heavy Refurbishment– As the name implies, this kind of renovation involves changing the structure of a property, often to change to properties’ use. This includes extensions or conversions from a single home to an HMO (for which a license is needed)
While smaller loans for light refurbishment can often be found through high street banks, the amount of money required for major heavy refurbishment may require a bridging loan from an alternative development finance firm.
Bridging loans tend to be short-term loans with the value repaid after the sale of the completed renovation project, along with any accrued interest.
These loans are an extremely useful market tool that allows developers to invest significant capital into building renovations that add significant value to a property portfolio.
These refurbishment-centred bridging loans quite simply do as the name suggests. They bridge the gap in capital between paying for the renovation work, and securing the increased sale value when a property is bought.
How much can be borrowed?
Depending on the size of the refurbishment task, and how many properties are being renovated, the size of a bridging loan for property refurbishment can be up to £2.5million, though it will often be closer to the lower end figure of £100,000.
Don’t forget the regulations
Just because a project involves renovating an existing home, it does not necessarily mean that you do not have to secure planning permission.
Before you apply for refurbishment financing, you must check whether your proposed renovation work is exempt from planning permission regulations under the ‘permitted development’ clause.
However you intend to renovate a property, whether it’s simply a new interior decor, or a full extension, remember that the financing options are out there to achieve major results, and that regulations must always be adhered to ensure a smooth development project.