Guide to buy to let refurbishment loans

Finding the money to refurbish a buy to let poses a problem for many would-be landlords who blow their budget on purchasing a property.

Mortgage lenders like to advance money against the property’s market value and few will consider stage payments or extra finance for building works.

For standard buy to let mortgages, lenders retain funds pending the completion of any works need to bring the property up to scratch.

That leaves landlords funding refurbs or looking for a bridging lender – but there is another way.

Money is available for light refurbishments – which are essentially upgrades of the inside of a home rather than a roof-down redevelopment.

Bridging lenders and banks will consider lending at rates from 0.85% per month on 50% loan-to-value (LTV) to 1.15% for month to 75% LTV.

The main buy to let lender offering light refurb loans is The Mortgage Works

Finding the cash for heavy refurbishments is a lot harder for landlords.

The works involve change of use and/or planning permission as well as extensive building works inside and out.

Banks and bridging lenders will consider lending up to a maximum 65% LTV with rates reaching 1.45% per month.

Underwriting is also tougher for a heavy refurb project.

Lenders will want to see a schedule of works and costings plus a surveyor’s report for the current property price and the likely price on completion of the works.

Funds are released in agreed stages subject to further surveyor’s reports.

Lenders will also want to see an ‘exit route’ – which is an in principle mortgage agreement from another lender that will take out the bridging loan or a realistic business plan for letting or selling the finished project.

Unless the borrower has a track record as a developer, many lenders are unlikely to be forthcoming with the money due to the risk of being left with an unfinished project.

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