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How to finance a buy to let refurbishment

Jeni Browne raves about two new rates and demonstrates how they can be used to buy and renovate a property and generate sufficient profit for your next project.

Maybe it’s the time of year but the property lenders have been a bit slow in coming up with new ideas lately which is why two emails which dropped into my in-box late last week really piqued my interest.

Interestingly, these emails link back to a conversation I was having recently with my better half when he asked me how people actually afford to do refurbs. If you look at the deposit you need, the stamp duty and other fees, and then factor in that you also need the money to do the works, there must be a lot of people who are simply unable to do this type of project owing to a lack of capital.

And so, it was nothing if not ironic that the first email was from a lender who is offering to lend up to 75% of the purchase price, plus up to 100% of the cost of works on a short term loan product. As I read this, the cynic in me immediately started thinking about how astronomically expensive such a wonderful product would be. So, when I read that the lender had loaded only 0.1% onto their normal pricing, I nearly fell off my chair.

The second email that came through was from a lender who has started offering remortgages within the first six months of ownership, and they will lend against open market value (rather than the purchase price) as long as you can prove that work has been done to improve the property.


Example showing how both rates might work together.

I want to buy a property for £200k and spend £25k upgrading it. The end value will be around £325k and I would like to retain this property and rent it out. I also want to be able to recoup as much of my capital as possible so I can buy a further property once this one is done. And for good measure, I want to do this through my Ltd company AND it’s a freehold which contains two flats (no leaseholds).

The first lender will give me 75% of the purchase price plus all of my refurb costs. So my outlay to acquire the property and renovate is £50k, plus the fees associated with financing of say a £5k and stamp duty of £7.5k, so a total outlay of £62.5k.

Three months later the work is complete, the property is ready to let and I’ve spent around £1,400 pcm on loan interest payments.

I can now remortgage this property to 75% of the new, uplifted market value (£325k), although it’s worth bearing in mind that the second lender will go up to 85% LTV. My new buy to let mortgage is for £243k which will be sufficient to repay the original lender their £175k, and give me capital of £68k to go and buy my next property and start the process all over again...


Pretty neat huh?!

I was going to explain this to my other half but at the time of writing, he was utterly engrossed - some football game that was on... COME ON ENGLAND!!!!


Interested in these rates?
If you want to find out more about the rates for both products and talk through how they might work for your next buy to let refurbishment, please talk to one of our expert advisers on the Buy to Let Desk. Our main number is 0345 345 6788 or you can schedule a Call Back here.

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