Refurb-to-Let is a popular mortgage type for many landlords. For thoselooking to boost yields on their current investments or hoping to purchase a ‘fixer-upper’, find out how this product could benefit you.
What is Refurb-to-Let?
The popular Refurb-to-Let facility is unique as it combines the flexibility of bridging finance with the security of an exit onto a buy to let mortgage in one product. This works by issuing an initial valuation at the point of application to determine the property’s current value as well as its forecasted or developed value once the proposed works are completed.
Once the lender has underwritten the mortgage and is happy to continue, the bridging and buy to let finance offers are offered simultaneously, with just one application form and one set of legal fees for you to sort. With the offers in place, you can comfortably complete the refurb project without worrying about sourcing buy to let finance when the bridging term ends.
It’s important to bear in mind that the refurbishment works must be completed within the buy to let offer validity period, which is typically six months from the property’s initial valuation. Once the works are complete, there is a final property valuation, which acts mainly as a sense-check that all refurbishment has been carried out as stated on the application.
Why might landlords use the Refurb-to-Let product?
There are a number of reasons a property investor may choose to use the Refurb-to-Let facility. It could boost rental yields on their current properties, by adding value through heavy refurbishments such as an extension. Or, landlords may use a Refurb-to-Let product to improve a property’s EPC rating.
For this specific Refurb-to-Let product, there are three exit options to consider.
The first, Standard Refurbishment, is for when works have been carried out to ensure the property is lettable and habitable for tenants. This option is ideal for landlords purchasing at auction or changing the use of a specific room within the property. You may even use it to change the use of the whole property, such as converting a typical residential home into a six-bedroom HMO, for example.
The second is Energy Efficiency Refurbishments. This route is ideal for any work carried out to improve energy efficiency on a property, such as fitting double glazing or new boilers.
Finally, there is the EPC C+ Refurbishment exit, which is specifically for properties that already have an EPC rating of C or above, or will be awarded a C rating once the works have been completed.
What are the benefits of Refurb-to-Let?
Landlords benefit from a more straightforward and less expensive mortgage application process with the Refurb-to-Let product than with typical bridging finance. With all underwriting and valuation stages completed simultaneously for both parts of the mortgage, as well as just one set of legal fees, it’s unsurprising this is such a popular facility.
Similarly, the rates for the bridging loan are particularly competitive, as are the arrangement fees. As such, property investors could save a substantial amount of money going down this route to complete their works.
What are the drawbacks of Refurb-to-Let?
While using the Refurb-to-Let facility has many benefits, a couple of drawbacks could make this route unsuitable for your property investment journey.
It’s important to consider how unforeseen circumstances, such as the weather, could impact your refurbishment works. Poor weather can unexpectedly impact potential building works, which can be a cause for concern when working with restricted time frames. Similarly, as with most refurb projects, the likelihood is that the time to complete the work will be longer than expected, which isn’t feasible when it comes to this product.
The main drawback, however, is the buy to let rates on offer for the end term of the mortgage. Whilst you could access some competitive deals for the bridging finance, you won’t necessarily access the best deal for your buy to let mortgage. It’s best to speak to a broker who can help you to cost up your options for you – it may be that the standard route of sourcing bridging finance separately to your buy to let loan is more affordable.
Next Steps
If you would like help securing this type of property finance, please get in touch. We have expert brokers across the buy to let, and bridging finance sectors, all familiar with these mortgage application processes. We can help support you through your next property finance venture, submit an enquiry here to get in touch, or call us on 0345 345 6788.
Alternatively, use our bridging calculator to see what types of rates you could access for your refurbishment project.
