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.