Vision for an independent organisation to represent UK landlords20:18 PM, 16th September 2018
About A week ago 62
We receive hundreds of readers emails and telephone calls every month, the vast majority require contacts to arrange funding, hence this article which explores six very different strategies of financing property refurbishment projects.
This is great if you can afford to do it but please bear in mind that it can be difficult (but not impossible) to remortage a property if you need to release extra funds within six months of a purchase. Several people quote the “6 month rule”. The truth is, there is no rule. There are, however, guidelines issued by the Council of Mortgage Lenders advising their members to be extra diligent of the potential abuse of remortgaging within six months. several, but not all, lenders prefer just to refuse lending within six months of a purchase.
This is a very popular method of raising finance as it is often the cheapest. Be sure to fully disclose the use of funds though, e.g. to use as a deposit on an investment property. Please make sure that you deal with an independent mortgage broker. If you intend to raise finance against your family home you need to consider the risks that you are subjecting your family to, therefore it is wise to consult an IFA who can provide holistic advice on your family’s entire financial situation. It is also advisable to consult an qualified accountant to discuss structuring your mortgage account so that you can offset the element of the mortgage interest you will be using for business purposes against any trading profits you make.
In simple terms, this is where you exchange contracts now and agree a completion date in say three months time. You then make your offer subject to these terms and on the basis that you want to be able to refurbish the property between exchange of contracts and completion. Solicitors standard advice to vendors is do not agree to these terms. The risk to the vendor is that the purchaser could destroy the property and significantly reduce its value and then fail to complete. A compromise to reduce the risk to vendors is to pay a 50% deposit on exchange of contracts. Obviously you would have to have cash to do this as a solicitor would never advise a vendor to allow a charge to be taken over the property by a lender or bridging finance company. Such deferred completion arrangements can be the difference between doing one deal at a time or doing two if liquidity is tight.
If a property is considered fit for human habitation and the refurbishment is just cosmetic then you may wish to consider a standard buy to let mortgage. If you intend to sell watch out for early repayment charges. From time to time, some lenders will advance a percentage of the purchase price of the property and an offer to increase the funding once the refurbishment is completed. The lender will expect you to prove that works have been done (usually by the valuer completing a re0inspection) and may well ask you to produce invoices and/or receipts to demonstrate how much you have spent before they will release the extra funds.
Whilst the interest rates and fees for bridging finance often come as a shock to people it can still be a very effective method of funding property refurbishment projects. If you only need the money for a relatively short period of time then bridging finance can sometimes work out cheaper. If you have unencumbered property (no mortgage) it is possible to arrange 100% funding for the purchase and refurbishment by providing a charge against an existing property and the one being purchased to refurbish. Bridging financiers tend to be far less fussy about than mortgage lenders in terms of the condition of a property and tend to take a similar view to transactions as “pawn-brokers”. Another way to look at this is that they will lend to pretty much anybody against pretty much any property so long as they can make a return on their money and can be satified that they will get their money back if you default and they need to sell their security at auction. >>> Click for more info
If your refurbishment is of a larger nature, e.g. over £250,000 then Development Finance may be an option to consider. Whilst the high street banks seem to have lost their appetites to offer this type of funding the competition for quality business is rife between the niche providers of and there are several of them. Typical projects where development finance is often sought involve converting commercial building into residential units. Examples include converting pubs, hotels, guest houses, care homes, offices etc. into blocks of flats. >>> Click for more info
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