Yasin Patel

A guide to light and heavy refurbishment loans



In the last few months, Arbuthnot Specialist Finance Limited (ASFL) have processed loan enquiries collectively valued at over £400m, with a significant number of these earmarked for property refurbishment projects.

To us, this is a clear signal that property professionals are taking advantage of the financing available to carry out improvements to their properties. This can often be with the aim of increasing the value of a property before selling, but also to allow for an increased level of rental income as they retain them within their investment portfolio.

With refurbishment projects, depending on the amount of work needed to the property, lenders tend to categorise them into two types of refurbishment products: light and heavy refurbishment. At ASFL, we categorise these as ‘light refurbishment’ and ‘heavy refurbishment and conversion’.

Purpose 

Light refurbishment loans cover projects where no structural changes are to be made to the property. This means the work is done within the existing structure to enhance the value. These loans are typically used to cover installations of a kitchen and/or bathroom, rewire and re-plumb, as well as enhancing the value of dilapidated properties. 

Heavy refurbishment loans cover projects that involve structural change to the property. Typically, these are small-scale PDR or planning permission-led schemes, including extensions to residential properties, HMO conversions, change of use of commercial premises into multiple residential dwellings, and refurbishment of residential properties of a more significant nature.

Timescales 

When a lender receives the initial application for a refurbishment project, the approval to lend for a light refurbishment can be granted faster than for heavy refurbishment applications. 

For heavy refurbishment, it is important to ensure that works will be carried out in accordance with planning and building regulations. As part of this due diligence, a lender will usually need a report from a property surveyor (development appraisal) and a project monitoring surveyor, depending on the level of works, before an applicant is granted financing. 

Monitoring 

The lender will monitor the progress of the project at several stages to determine whether to release further funds from the agreed loan total to the property professional. Levels of monitoring may differ between each lender. 

At ASFL, light refurbishment loan drawdowns will mainly be subject to a panel-appointed asset manager for review. For heavy refurbishment, drawdowns will be subject to a panel-appointed quantity surveyor certification and/or regular site visits by an ASFL-appointed asset manager. Monitoring will also likely be required by the Local Authority Building Control. These additional oversight and controls reflect the higher risks associated with these more complex refurbishments. 

Fees

As light refurbishment has lower risk for the lender compared to heavy refurbishment, you will often see these advertised with a lower fee structure. ASFL charges a rate from 0.65% pcm for light refurbishment vs from 0.75% pcm for heavy refurbishment projects, for example. 



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