Refurbishment Loan Vs Property Development Finance
By Cherry Lynn Bonachita
The first thing to consider when dealing with development finance UK is the type
of funding you need. There is a difference between refurbishment loans and property development finance. Basically
residential development finance and commercial development finance is used to build residential and commercial
property respectively, or to carry out large scale renovations to existing property.
It would be used for a fairly serious property development or some major additions or
building works to an existing property. Development finance entails large amounts which are benchmarked at about
150,000 pounds and up. On the other hand, refurbishment loans would be taken out if a property looks worn out and
you would need some basic internal works. Renovating property tends to be small scale in nature so the
refurbishment loans can suffice.
Refurbishment loans can be obtained with some Buy to Let mortgages and cover basic
property renovations. Some lenders for commercial mortgages will allow you to borrow based on the enhanced property
value after the end of the renovations, and not on the property price in its current condition. This way, it
enables you to borrow further. In essence, you receive two loans: the loan on the current property value and the
loan from the completed value. You will need to provide the valuer with a detail of the works you are carrying out.
Then they will assess these once they are carried out to confirm the new property value. The Buy to Let mortgage
route only applies if you plan to keep the property as a rented investment after works are completed.
A developer can get 100% development finance both for large scale property development and
renovations. For 100% development finance in large scale projects, lenders tend to have strict requirement or high
interest rates. For 100% development finance through refurbishment loans, which by nature is small scale, an
additional security is usually required.