Refurbishment Finance: From Fixer-Upper to Profit Maker
Refurbishment finance allows you to purchase properties in need of work, fund their renovation, and dramatically increase their value.
Whether you’re eyeing a run-down Victorian terrace or a commercial space ripe for conversion, refurbishment finance can provide the capital you need to turn your vision into a profitable reality.
From light touch-ups to major overhauls.
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Refurbishment Finance Explained
Property refurbishment finance is specialist short-term funding aimed at property investors, developers, and landlords.
It’s purpose-built to support renovations, improvements, and property conversions. Unlike standard mortgages, which can only fund habitable properties in good condition, refurbishment finance targets projects requiring significant work to reach their full potential.
It can fund both the initial property purchase and the subsequent renovation costs.
It’s the key that allows developers to acquire properties with untapped potential and transform them into sought-after, high-value assets.
Light vs Heavy Refurbishment Finance
Refurbishment finance comes in two main flavours: light and heavy.
Light refurbishment finance
Light refurbishment finance suits projects without structural changes or planning permission requirements.
It typically covers:
- Kitchen and bathroom upgrades
- Aesthetic improvements
- Redecoration
- New flooring or window installations
- Electrical system or heating upgrades
Heavy refurbishment finance
Heavy refurbishment finance, in contrast, is designed for more substantial projects involving:
- Structural modifications
- Property extensions or conversions
- Use-class changes (e.g., commercial to residential)
- Major renovations requiring planning permission
Your project’s scope will determine which type of loan you need.
Light refurbishment loans often feature more attractive interest rates and less stringent criteria, reflecting the lower risk profile of these projects.
If your project is very large, or ambitious, it may be necessary to apply for either Residential Development Finance or Commercial Development Finance, both of which can fund large scale projects.
Who Can Apply?
Refurbishment finance is accessible to:
- Individual investors
- Limited companies (inc SPV)
- Partnerships and LLPs
- Offshore entities
- UK residents, expats, and foreign nationals
While previous experience is beneficial, many lenders welcome first-time developers with robust plans and clear exit strategies.
Property Types
Refurbishment finance caters to a wide range of properties:
- From individual flats to multi-unit complexes
- Office spaces, retail units, industrial facilities
- Mixed-use properties combining residential and commercial elements
The key factor is the property’s potential for value appreciation through refurbishment.
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Refurbishment Finance in Action
Light Refurbishment Scenarios
For properties needing a refresh rather than major structural work:
- Modernising interiors with contemporary finishes and fixtures
- Upgrading kitchens and bathrooms to meet current market standards
- Boosting energy efficiency through improved insulation or window replacements
- Enhancing exterior appeal with fresh paint or landscaping
These improvements can significantly boost rental yields or sale values without extensive structural changes.
Heavy Refurbishment Projects
When properties require substantial work:
- Transforming large houses into multiple flats for increased rental income
- Adding extensions to create valuable additional living space
- Structural changes including loft conversions
- Repurposing commercial spaces into residential units
- Complete interior overhauls
‘Heavy’ projects often require planning permission and adherence to building regulations. While they present greater complexity, they also offer substantial potential for value increase.
Related reading: Financing Your Commercial to Residential Conversion
How does the funding work?
Schemes are available so that you can borrow for the initial property purchase and then further funds are released for the improvement works.
The specifics will depend on the size of the project and the finished value.
All lenders will have a maximum Loan to Gross Development Value (LTGDV) that they are willing to go up to.
This is the debt as a percentage of the expected end value.
Lenders release the first portion of the loan to cover the property purchase.
Funding at this stage is around 65-75% of the property purchase price, allowing you to secure the asset.
For the renovation portion, lenders generally divide the budget into stages.
You complete a stage of work using your own funds or contractors who agree to delayed payment. A surveyor inspects the completed work.
The lender releases funds to cover the completed stage. This process repeats for each stage until the project is finished.
While most schemes will provide 100% of the renovation costs, this is capped against the projected end value, or Gross Development Value (GDV).
Exit Planning
A well-defined exit strategy is the backbone of any successful refurbishment project.
Your exit plan should be clear from the outset and robust enough to withstand various market conditions.
Here’s why it matters and how to approach it:
Selling the Property
If your goal is to sell, research the local market thoroughly. Understand buyer preferences, price trends, and the types of properties in high demand. Your refurbishment should align with these factors to ensure a quick and profitable sale.
Refinancing to a Long-term Mortgage
This option allows you to retain the property while accessing the increased equity. Ensure your refurbishment will result in a property that meets lenders’ standards for long-term mortgages. Depending on your own situation, some lenders may want confirmation that a long term buy to let mortgage or commercial investment mortgage is possible.
Retaining for Rental Income
If you plan to keep the property as a buy-to-let investment, focus your refurbishment on features that attract quality tenants and command higher rents. Research local rental markets to understand what tenants value most.
Flexibility is Key
While it’s important to have a primary exit strategy, always have a Plan B. Market conditions can change rapidly, so being able to pivot between selling and renting, for example, can be invaluable.
Timing Matters
Your exit strategy should include a realistic timeline. Factor in potential delays in refurbishment, seasonal market fluctuations, and the time needed to market the property or secure refinancing.
Financial Projections
Develop detailed financial projections for each potential exit route. This should include expected sale prices or rental income, ongoing costs, and potential tax implications.
Professional Advice
Consider consulting with local estate agents, tax advisers, and property lawyers. Their insights can help you refine your exit strategy and avoid potential mistakes.
Remember, your exit strategy isn’t set in stone—it’s a living part of your project plan. Regularly review and adjust it as your project progresses and market conditions evolve.
Read more: Exit Strategies for Property Developers
How Respect Capital Can Help
At Respect Capital, we specialise in helping developers secure the right commercial development finance for their projects.
Whether you’re browsing, researching or ready to go, we are here for you.
contact us- Access to over 200 lenders: From high street banks to private banks and specialist development finance providers.
- In-depth market knowledge: We understand the nuances of different lenders’ criteria and can match you with the most suitable options.
- Application support: We’ll guide you through the entire process, from initial enquiry to drawdown of funds.
- Ongoing assistance: Our support continues throughout your project, helping you address any challenges that arise.
