Things to look out for when taking out a refurbishment loan
Property developers who decide to take out a refurbishment loan can be seen as very beneficial for the developer and the property they are developing.
A refurbishment loan refers to property developers borrowing money to improve and/or develop a property before deciding to put it on the rental or sales market, the money can either be used for small renovations or heavy refurbishment to an entire property.
Property developers may be unsure of the important things to consider when deciding to take out a refurbishment loan. There are important factors to consider that can influence the lender’s decision to accept or decline the loan offer.
The amount that a property developer can receive when taking out a refurbishment loan takes into consideration:
- Developer’s budget
- Money needed to purchase resources needed to complete the project
- The estimated value of the property
The interest rates
Similar to a regular bank loan, property developers that are receiving property finance loans will still be required to pay interest rates back. However, interest rates from companies that provide refurbishment loans are not always fixed due to their approach to loans being more focused on the potential of the property that is being developed.
Decision time phase
Property developers do not want to spend time waiting for an answer when their time can be used towards getting their property development plans ready. Some companies can take up to two weeks to provide the applicant with an answer concerning their refurbishment loan application which is not ideal for property developers that are working around a strict deadline.
The repayment period can range from 1 to 24 months depending on the company that provides the loan. Companies can provide flexible refurbishment loan repayment plans with different interest rates depending on the needs of the property developer rather than solely focus on the needs of the lending company.
A refurbishment loan can be used for either light or heavy refurbishment purposes.
- Light refurbishment refers to fixing internal works, such as performing work, fixing lights and doing some plastering/decorating. Any project that does not require any planning use is seen as light refurbishment by the developers.
- Heavy refurbishment refers to when a developer is doing work to the property that will change the usage of that property– for example, converting offices to flats. Unlike heavy refurbishments, they tend to take less time for the property developers and do not require planning permission.
Refurbishment loans for properties are very helpful to property developers and the companies provide potential lenders with relevant and helpful information that will make their decision-making process easier.
If you are unsure of a specific lender – do more research into them and don’t be afraid to ask questions.