Investment Properties: Should Landlords be considering Refurb-To-Let Loans?

How can landlords maximise their financial gain from new property investments in a time of increasingly high house prices? Continue reading to find out why refurb-to-let loans could be a solution to this problem.

Due to the higher house prices, the current market has made it harder for buy-to-let landlords to further their investments and increase cash flow. The Office for National Statistics (ONS) reports that the prices are up 8% in comparison to this time last year. This rise in average house prices has made it hard for landlords to maximise yields on their next property. Refurb-to-let loans offer a different route for buy-to-let landlords, and a refurbishment project may just be the opportunity you are searching for!

If you are up for the challenge of putting time and effort into refurbishing a property to a high standard, you could gain a large amount of profit from your investment by switching from a bridging loan on exit to a buy-to-let mortgage.

So why choose a refurb-to-let mortgage? 

There are many reasons why buy-to-let landlords choose to go with a refurb-to-let loan. For one, it works out to be a lot easier for a landlord to arrange. When applying for a bridging loan from bridge-to-let and a separate exit with a buy-to-let mortgage, you end up duplicating the process with two different lenders. With a refurb-to-let product, you only deal with one lender and one set of legal fees. 

The mortgage is arranged and calculated before completion of refurbishments so landlords can budget for the monthly mortgage repayments before paying for them. On the back of this, no mortgage repayments have to be made while the refurbishments are taking place. This extra time provides landlords with the opportunity to get the payments ready and to spend more on renovating the property to the highest standard possible for when it is let out.

From a financial perspective, the loan from the lenders is based on the predicted value of the property after the refurbishment has been completed. This reassures landlords that they will have sufficient money to get the refurbishments done within the time frame and allows them to ensure that their profit from rental income has increased.

Of course, refurb-to-lets aren’t for everyone. Most lenders require previous landlord experience in order to purchase a property on these types of products, as there is a greater risk for lenders to lend to first-time landlords due to their lack of experience. Should the developments fail to add value to the property, the owner will be required to pay back the loan with less-than-expected rental income. Previous landlord experience provides lenders with more security that the property will be completed to a high standard, and therefore a profit will be secured.

Similarly, there is a restriction with these loans on the kind of work that can be done to the property. For example, if planning permission is needed, there are building regulations, or even heavy refurbishment that needs completing, the chances are that this type of loan would not be appropriate. However, if a landlord is only looking to complete cosmetic work, this should not cause an issue.

There is also an added complication that only a handful of lenders will offer refurb-to-let loans, meaning that the competition in this market is not yet rife. The downside to this is that the prices may be less competitive; but as these products are lesser known, those taking up this opportunity may be at an advantage to those missing out.

So, if you have experience as a Landlord, why not give it a go? If you’re looking for a new project, but you’re unsure of what to turn to because of higher house prices and the withdrawal of the stamp duty holiday, a refurb-to-let offers a financial investment with lots of opportunities to gain large profits. By switching from a bridging loan on exit to a buy-to-let mortgage, after time and effort into refurbishing a property to a high standard, landlords could see themselves gain a large amount of profit from their investment. It would be silly to rule out this kind of opportunity.

1st December 2021