Property refurbishment loans

Refurbishment loans do what they say on the tin - they provide property investors and landlords with funds to refurbish or convert a residence or commercial building with the aim of adding to its value. Individuals, sole traders and limited companies can apply for a refurbishment loan.

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Property refurbishment loans

What are commercial refurbishment loans?

Before you apply for a refurbishment loan, it’s useful to gain an understanding of what refurbishment finance can be used for and what you’ll need to apply. 

Loans for property refurbishment

Property refurbishment finance is a type of short-term business finance. It is primarily used by investors, landlords and property developers for the purpose of refurbishing a property before renting or selling it. 

In many cases, the aim is to increase the property’s value in preparation for sale. As detailed below, you can use the finance for extensions, conversions, refurbs...the works!

Refurbishment loan

Refurbishment loans come in two forms: first and second charge. First charge means the loan is the principal loan on the property. A second charge refurbishment (or bridging) loan is designed for borrowers who have, for instance, a mortgage secured against the property in question but need further funds for the short-term. 

Residential refurbishment loan vs commercial refurbishment loan

You can use a refurbishment loan to renovate residential and commercial properties, such as cafes, offices and shops. Refurbishment finance can be used to refurbish industrial developments too.

It could be the solution you’re looking for if you want to refurbish a residential property or a commercial one. Or, in fact, a mixed-use development. 

Bridging loans refurbishment

A bridging loan is one of the most popular types of property development finance. Often, bridging loans are used for the purpose of ground-up or light refurbishments on residential and commercial properties. 

However, bridging loans can also be used for other short-term business purposes. When you apply for bridging finance, you’ll be expected to provide the lender with your ‘exit’ strategy (how you’re going to pay the loan off).

What types of works are acceptable when using a property refurbishment loan?

The type of works that you are permitted to carry out using a refurbishment loan will be stipulated by the lender. As with any type of business finance, lenders vary and each will have their own unique sets of rules and criteria. 

A few common examples of works include:

  • General refurbishment projects - residential or commercial

  • Property extensions, e.g. loft or conservatory

  • House-to-apartment conversion

  • Commercial-to-residential conversion

  • Residential-to-HMO (multiple household) conversion

  • Refurbishment for buy-to-let

What’s the difference between light refurbishment and heavy refurbishment?

Light refurbishments include things like changing fixtures and fittings, interiors and flooring. Loft and basement conversions are often counted as heavy refurbishments. Loans are available for both light and heavy refurbishments. 

Light refurbishment loan

Light refurbishments will cost under 15% of the value of the property and focus primarily on aesthetic improvements such as repainting or fitting a new kitchen. 

Heavy refurbishment loan

Heavy refurbishments will usually cost more than 15% of the property’s value. Work could be structural and require planning permission, as well as adherence to building regulations.

 What are the key features of refurbishment finance?

Refurbishment finance for a typical buy-to-let property is available for 75% or less of the end value of the property. Finance is also, of course, available for other types of properties such as HMOs, commercial or industrial purposes and multi-unit flats.  Loans are available for first-time investors and experienced property development limited companies alike. 

Interest rates

As expected, the more complex the project, the higher the interest rate could be. Interest rates will also depend on whether you’re going to hold onto the property after the refurbishment as an ongoing investment or if you intend to sell it once the work is complete. 

Just to give you a general idea, interest rates can start at around 5.5% for light refurbishments on a property that you intend to let out.

What are the refurbishment finance lending criteria?

The following criteria could apply, however it will very much depend on the individual lender.

  • The borrower must have equity in the property

  • The property cannot be the borrower’s primary residence

  • A valuation must take place

  • Mortgage repayments must be up-to-date

  • Costings, pricing and an exit strategy must be provided 

What information will I need to provide?

When you apply for a bridging loan to refurbish a residential or commercial property, the lender may ask you to provide information/paperwork pertaining to:

  • Your current circumstances

  • Assets and liabilities

  • The property

  • The planned works, including timescales

  • Estimated projected value after works

  • Your property development experience

  • Exit strategy

What is an ‘exit strategy’?

Your exit strategy is what the lender looks at to help determine if you’ll be able to pay the loan back. You need to satisfy the lender’s expectations and be confident that you can pay the loan back at the end of the term to avoid serious financial implications. Examples of an exit route include the sale of the property at the end of the refurbishment project or refinancing to a mortgage. 

What fees are involved in refurbishment finance loans?

You’ll be required to pay fees when you take our refurbishment finance, as you would with most types of business finance. Here’s what you could be expected to pay: 

Arrangement fee

The lender’s fee for arranging the loan is usually between 1.5-2% of the loan amount.

Exit fee

Some lenders charge an exit fee. This could be a percentage of the loan amount or the gross development value. 

Valuation fee

A surveyor will value the property both before and after the refurbishment. The cost will depend to some extent on how big the project is. 

Broker fee

If you use a broker to find a lender, you may be charged a fee.

Looking for a refurbishment finance?

You can use the Funding Options platform to find out how much property refurbishment finance you could be eligible for today. Tell us how much you need to borrow, what it’s for (‘property finance’) and how quickly you need the funding. 

We’ll compare 120+ lenders on your behalf and match you with some options.


Vivek Seda
Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

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