Refurbishment finance for residential and commercial property

• A house or flat bought to renovate and sell. Probate, repossession and auction sales often need rewiring, a new boiler, kitchen and bathroom before a buyer's mortgage lender will lend on them, so the discount reflects work a cash-funded developer can carry out.
• Bringing an empty home back into use. Renovating a dwelling that has stood empty for two years or more can qualify for a reduced rate of VAT on the builder's work, as HMRC's guidance on construction VAT (Notice 708) explains, which lowers the cost the loan has to fund.
• An EPC that stops you letting. Under the non-domestic minimum energy efficiency standard, a landlord generally cannot grant a new lease of a building rated below E. Lighting, heating, glazing and insulation works can make a building lettable again.
• A vacant secondary office or shop. Modernising services, toilets, reception and finishes turns a building that has sat empty into one tenants will view.
• A purchase that is not mortgageable yet. Buildings with no working kitchen or toilets, failing roofs or outdated electrics often sell at a discount because conventional lenders will not fund them as they stand. Many arrive via auction finance.
• Splitting or reconfiguring space. Dividing a large commercial unit into smaller ones, adding mezzanine floors, or turning a large house into flats for sale; changing the number of homes needs planning and usually counts as heavy refurbishment.
• Changing use within the same use class. Many retail, office, café and clinic uses sit within Class E, so a building can often be converted between them without planning permission; the Planning Portal's guide to use classes explains which changes need consent.

If you are fitting out premises you occupy rather than improving a building as an asset, fit-out finance may suit better. Ground-up builds sit with property development finance, and changes of use such as office to flats are covered on our conversion finance page.

A refurbishment loan has two parts. The first is a day-one advance against the property's current value or purchase price. The second is the works element, funded either upfront for light schemes or in arrears in stages for heavier ones, so you or your contractor fund each stage first and the lender reimburses it after inspection. Lenders cap the total against both the costs and the expected value once the works are done, and you fund the balance.

Interest is usually retained from the advance or rolled up and paid at the end, so there are no monthly payments while the building earns nothing. That helps cash flow, but it means the loan grows over the term.

Illustration. A company buys a vacant two-storey office for £400,000 that has been empty since its EPC fell below the letting threshold. A costed schedule of works of £100,000 covers LED lighting, a heat pump, new WCs and redecoration. The lender advances part of the purchase price on day one and releases the works money in two stages after inspection. Once the works are signed off and a tenant has signed a lease, the company refinances onto a commercial investment mortgage based on the let value.

Illustration. A developer buys a 1960s semi-detached house for £200,000 that has not been touched in decades. A £50,000 schedule covers rewiring, a new heating system, kitchen, bathroom and redecoration, and a local agent expects it to sell for around £300,000 once finished. The lender advances part of the price, funds the works and is repaid from the sale. Had the developer intended to keep the house and let it, the long-term refinance onto a buy-to-let mortgage is not something we arrange. The figures in both examples are hypothetical and every lender sets its own limits.

Costs overrun more often than they come in under, and with staged funding the overrun is yours to fund before the next release. Contractor failure halfway through a job is the most damaging risk, so check their finances and avoid paying ahead of work. Sales and lettings can take longer than planned, and commercial tenants often expect rent-free periods, which can lower the value a refinance lender will accept. Each extra month on bridging adds cost. If the works are modest and the building is already mortgageable, a longer-term secured business loan or a commercial property refinance with capital raising may cost less than bridging.