Light Refurbishment Finance Available Today
In the previous post we looked at light refurbishment and how it works.
Let’s have a look at the different light refurbishment products offered by the different lenders.
Here’s how the Paragon limited refurbishment scheme limited works.
The minimum valuation requirement is £75,000.
Up to 75% of the purchase price or the valuation, whichever is the lower, will be advanced upon completion of the purchase.
A retention amount, being a minimum of £2,500 up to a maximum of £25,000, will be held and, once works are completed, up to 75% of the after-works value can be released.
The works must be completed within three months of the initial advance.
The maximum £25,000 retention is the maximum that will be released on refurbishment.
In other words, even if you increase the value of the property by more than £25,000, £25,000 is the maximum amount of extra equity they will release.
If you run the numbers it means that the most efficient way of using it is to buy a property for £75,000, spend £6,000 doing it up to produce an end value of £108,250. Then we’ll be able to get the full £25,000 back out.
But how many properties will fit that scenario? Not many.
But it’s not all bad news! There are other lenders with different products
Saffron Building Society
Saffron Building Society also offer a popular buy to let mortgage specifically for light refurbishment works. The minimum valuation of purchase price is £100,000.
They are currently advertising two buy to let light refurbishment products.
One has a 75% LTV and is on a 2 year fixed rate of 4.47%
The other, which is potentially much more interesting to us, has an 80% LTV and a five year fixed rate of 5.07%.
Their website gives this example;
Purchase price of property £100,000
Initial advance £75,000
Property value after improvements £130,000
Total borrowing £97,500
Further advance £22,500
Aldermore offer a light refurbishment product.
They will advance 65% LTV on day one on the lower of the purchase price or the valuation with a retention on the advance to take the total advance up to 70% of the completed value.
The works must be undertaken within six months from the date of drawing the original advance.
There is an arrangement fee of 2.5% with a procuration fee of 0.75% and a minimum interest margin of 5% over the base rate of 3%, with an additional loading of 1% during the refurbishment phase.
Shawbrook offer a short term mortgage for refurbishments, with a 75% LTV and a minimum loan of £75,000, meaning a minimum valuation of £100,000. The maximum loan period is 18 months. The rate charged is 8% above 3 month Libor which means it’s roughly 8.5% a year at today’s rates.
So this is really a bridging facility.
But you can switch to their standard buy to let mortgage, again with a LTV of 75% and a minimum loan and value of £75,000 and £100,000 respectively, with the choice of interest only, capital repayment or partial capital repayment terms.
The maximum term for interest only is 10 years and the rates are nearer 4% at the moment.
Precise have a Bridge to Let facility. Here’s a quick summary of how it works.
They offer a light refurb bridging facility with a maximum LTV of 70% for a maximum of 18 months. The minimum loan and valuation amounts are £50,000. The monthly rate is 0.95%. and there is a 2% facility fee.
Once the works are completed, within 4 months you can switch to their Bridge to let buy to let mortgage. This has an 80% LTV for loans under £500,000, with a maximum term of 30 years and with rates of around 5%.
So there’s lots of different products, each with the pluses and minuses. Whether it’s worth using one of these more expensive bridging type products will all depend upon the figures. You may consider it worthwhile to use a more expensive product initially if you intend to refinance down the line and then switch to a cheaper product like a normal buy to let product.
So it’s worth playing with the figures and seeing which combination works best for you.
If you are interested in renovating property, either to sell-on at a profit, or so you can refinance and borrow all of your money back out to spend on your next project, you might be interested to know that I have rewritten and updated my best selling ebook The Successful Property Renovator’s Workshop.
This is a ‘course in a book’, which will take you through the whole process in detail including how to do your sums to make sure you make a profit, how to raise finance for the purchase and the project, and how to refinance when you have completed.
The good news is that I’ve taken all my knowledge and experience, which I have gained over the years from doing countless renovation projects, and have put it all down on ‘paper’ in this ‘easy to read’ ebook. In it I’ll show you how you can find, plan, prepare and do each project to ensure your own profitable success every time.
And none of this is just dry theory. This is all based upon my own, personal experience of refurbishing and renovating property, which is why I use case studies of actual properties I’ve refurbished, along with photographs, to illustrate many of the points made.
I’ll show you all the things I did right, so you can copy them, and all the things I did wrong, so you can avoid them. They say that ‘trial and error’ is one of the most effective ways of learning but I can save you the time, the grief and the cost of having to go through it all. Hopefully I can save you months, even years, of trying to work it all out for yourself!
To find out more, please go to:
Here’s to successful property investing
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor