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Property Improvement Loans

Home improvement is one of the most popular reasons for people borrowing money, particularly now that property prices are high. This has led to a large number of homeowners looking for ways in which they can improve their current property and increase its value. This is often in order to either fetch a larger return on their property when put on the market or in order to increase the value so they are able to secure a larger residential mortgage on their property.

There are however many ways in which different loans can be used for the purposes of property improvements and refurbishments to varying degrees. It is possible for example to spend a relatively small amount on home improvements, yet fetch a decent return. For example, simple redecorations of a property can improve the value of the property by a few percent.

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There are of course other ways in which a property may be improved to fetch a larger return. For example, a loft conversion or basement can improve a property’s value by much more. Logically though, the more the works improve a property’s value, the more the required works are likely to cost.

A homeowner may utilise all nature of loans to achieve these improvements in value.

This ranges from specifically tailored loans such as refurbishment loans to other, smaller loans such as payday loans. However, one may also apply for a guarantor loan, with a view to improve their property’s value and done correctly, this can be a very sound investment. Moreover, according to data from the Council of Mortgage Lenders, there has been a shift in recent years away from mortgages for home movers towards remortgaging. This leaves a great deal of room for those looking for home improvement loans.

Property-Specific Loans

These loans are those that are used for the sole purpose of property improvements and refurbishments and are marketed as such. They are typically used by landlords and those who own at least one property for buy-to-let purposes.

Whilst in past times borrowers would be able to secure a relatively small mortgage on their property for almost any purpose, in recent times, things have been tightened up. This means that banks and other traditional high street lenders are stricter with regards to what they lend, how much they will fund and who they will provide loans to.

This has however, opened the door to a number of lenders and brokers who can provide specific loans such as those for property refurbishments. These loans, known as refurbishment (or development) loans are designed to provide the much-needed funding for either heavy or light refurbishments. There are also other property-related loans that may be utilised to this end such as bridging loans.

Refurbishment Loans

These loans are split into two categories, light and heavy refurbishment loans. Often these loans are used by landlords to increase the value of a rental property to allow them to increase their rental yield or in order to update the status of the property. for example, a landlord may wish to convert a single house in to a house of multiple occupancy (HMO) to be able to rent it out to an increased number of people for a larger return. However, finance will be needed in order to make the necessary updates and improvements.

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Heavy Refurbishments – This refers to works which change and alter either or both of the property’s structure and/ or its purpose. For example, normal loft conversions, which can increase a property’s value by more than 10% do not tend to need any additional permissions, such as those granted by the Local Planning Authority (LPA.) however, larger works such as mansard loft conversions do as they alter the structure of the property.

These heavy refurbishments also include the likes of basement conversions and the work required to transform a property from a house to an HMO. Additional permissions are required and therefore this falls into the ‘heavy’ category. This type of work also tends to require funding worth more than 15% of the property’s market value.

Light Refurbishments – These works do not alter the structure or intended use of a property. Light refurbishment work is usually used in order to upgrade the kitchen and bathroom of a property. they may also be used to decorate, rewire and re-plumb the property in question. All of these works have a noticeable impact on the property’s value but do not require additional permission or require funding of more than 15%.

Property owners often seek finance for light refurbishments in cases where a property is deemed to be uninhabitable. In order to make it inhabitable, they need a functioning kitchen and bathroom. Furthermore, by improving the décor and upgrading the plumbing and electrics, the property can be sold at a greater profit.

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