How to Get a Loan to Buy, Refurbish and Sell a Property : The Complete Guide


August 16, 2022

What is Property Refurbishment Finance?

Investors and developers use property refurbishment finance to buy and refurbish a property before selling it for a profit.

Refurbishment projects are growing in popularity among investors and developers who want to generate income through property investment. When done right, purchasing a property to fix up and later sell can increase the sale value and provide a good return.

If you want to purchase and upgrade a property to increase its value but don’t have the money to complete your project, you might need a refurbishment loan.  

What is a Property Refurbishment Loan?

Often referred to as a refurbishment bridging loan, a refurbishment loan provides you with the funding needed to refurbish a property before selling it. It is often used for smaller projects than property developments and offers short-term finance to carry out light or heavy refurbishments on your residential or commercial property. 

A refurbishment loan can help finance your property improvement project or cover the cost of buying a property and refurbishing it. You have to pay back the loan when you sell the property, so the aim is to make sure the property increases in value enough to cover the refurbishment costs and leave you with a profit. 

There are two kinds of property refurbishment loans, including:

Light refurbishment: If the property only requires cosmetic changes or minor improvements, such as redecoration or a new kitchen or bathroom, you can use a light refurbishment loan to finance your project. Light refurbishment refers to anything that does not require planning permission or change the use of the property.   

Heavy refurbishment: You will need a heavy refurbishment loan if you plan to make structural changes to the property. Heavy refurbishments can include making significant changes, such as adding an extension or reconfiguring the property layout and removing interior walls. All heavy refurbishment projects require planning permission and must comply with building regulations. 

A property development finance product might be more appropriate for funding a large-scale project or a comprehensive renovation. For example, if you want to convert a building into a block of flats, development finance could be the most suitable option for you.

How to get the Best Funding Offers for Property Development and Refurbishment

It’s vital to understand the precise nature and associated risk of your building project to secure the best funding offers available.

Low Risk Loans

  • Projects that require very little, or no structural changes
  • Typically find it easier to receive funding offers

High Risk Loans

  • Full ground up development scheme
  • More difficult to receive funding offers

It’s therefore very important to ascertain the precise nature of your project before seeking borrowing provision.

How Much Can I Borrow for a Property Refurbishment Loan?

The amount you can borrow with a refurbishment loan depends on your circumstances. Most lenders will assess your income, your credit history and the expected future value of the property. Refurbishment finance typically starts at 75% of the post-refurbishment value of the property. However, lenders will want you to meet their criteria before they approve your loan application. 

The eligibility criteria and necessary documentation may include the following:

  • You have experience in property refurbishment projects
  • You have equity in the property
  • You must be up to date with any mortgage payments
  • You must provide plans and costings of the refurbishment
  • You must provide an estimated projected future value of the property
  • You must provide an exit strategy – a plan for paying back the loan

You may find it difficult to satisfy lenders if you are currently self-employed as it can be hard to prove your income, but there are still options available if you work for yourself.

What Does a Property Development Lender Want in an Application?

A lender wants to know your project delivers a profit.

Property development funders tend to ask for a substantial amount of paperwork before they consider making an offer.

This may include:

  • Your build cost
  • Purchase price
  • Site value
  • Any current debt accrued
  • A CV, to understand what experience you have of similar projects.

Additionally Lender May Ask for:

  • Proof that you have no intention of occupying the site yourself, otherwise that would fall under regulated mortgage providers, or self build loan providers
  • A Quantity Surveyor to sign off at each stage of the loan drawdown. While it can seem intrusive, this will work for you to ensure things are proceeding as planned at the agreed costs.
  • A Building Regulations Surveyor to approve that all works meet legal specifications.
  • Don’t forget to inform your buildings insurance company of all intended work to ensure you remain covered during the development period

What Fees are Associated with a Refurbishment Loan?

As with all property finance products, there are fees to pay when you take out a refurbishment loan. 

The fees associated with this type of finance can include:

  • Broker fee: Only if you use one to find a lender
  • Arrangement fee: Charged by the lender for arranging your loan
  • Valuation fees: A property valuation is required before and after the refurbishment 
  • Exit fee: Some lenders charge an exit fee at the end of the loan

Remember, you have to pay interest on the money you borrow. As a general rule, the more complex the refurbishment project, the higher the interest rate. Your credit history also determines the borrowing costs, as does your current financial status. 

Provide’s expertise in securing finance solutions for a wide range of property development and refurbishments projects ensures our users benefit from our support. We can help you to prepare an appraisal document to identify project profit, and share your plans with local agents to gain a buyers’ valuation and perspective.

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