Light and heavy refurbishments are the two main types of refurbishments that are undertaken on a range of properties and premises. These works can cover both residential and commercial properties and projects, depending on the precise nature of the works in question. It is important to bear in mind that the relevant permissions and local planning laws should always be checked with the property in question’s Local Planning Authority (LPA) to make sure all works to be undertaken are permitted.
The main different between light and heavy refurbishments, both covered by refurbishment finance, is the extent of the works with heavy refurbishments costing more and altering the structure or nature of the property. Light refurbishments however tend to cover upgrades and improvements rather than restructuring work and overhauls.
Furthermore, as with other types of short term property finance such as bridging or auction finance, the lender will require an exit strategy to ensure the loan has a viable repayment route. This is usually achieved through the sale or refinance of the property for which the finance is required.
Light refurbishments do not require Planning Permission and the property’s structure, day to day use and overall nature will remain unaffected. These types of work usually entail larger than normal upgrades to the property and repairs, redecoration and updating it in its current state. Light refurbishment works tend not to cost more than 15% of the property’s value and no planning applications will be necessary.
Common types of light renovation work include updating a buy-to-let property before tenants move in, to be able to increase the rental yield for the landlord. Equally, these works may be required to allow for the property to be sold at a greater profit or remortgaged at a higher amount, having its amenities upgraded. For example, the kitchen, bathroom and plumbing systems may need updating and upgrading to bring the property up to scratch.
New Kitchens and Bathrooms
A property can only be let with a fully functioning kitchen and bathroom, both basic amenities afforded to the residing tenants. It is not uncommon for properties to need these facilities updated to be able to be rented by tenants and refurbishment finance is often the route of funding in order to achieve this. The landlord will need to have these facilities installed and in working order (such as a consistent supply of hot water) and only then can the property be let on the rental market.
Alternatively, it may be the case that a property is ready to be sold on the market as a buy-to-let property. A new kitchen or bathroom can add value to the property, allowing it to fetch more on the market, providing a greater return for the seller who may seek to make this investment in the property.
Redecorating, Plumbing and Rewiring
Another common type of light refurbishment, redecorating a property, upgrading its plumbing systems (such as the central heating) and rewiring are all ways to improve the property with modest investment that can be acquired through loans for refurbishment and renovation. It may be the case that the landlord simply takes the opportunity between tenants to upgrade these elements of the property, which in turn can add value to it on the market.
However, other benefits of updating the plumbing systems and the electrics of a property are increased energy efficiency and lower bills for the tenants. With upgraded and modern water and electrical systems, the property will be much more energy efficient and in the case of rental properties could see its Energy Performance Certificate (EPC) increase its rating, making it a much more attractive prospect for tenants and future landlords.
Redecorating a property increases the appeal and improves the atmosphere in the property for all who view it. For example, plastering and repainting a property can see its value increase by around 5% and a newly decorated property will feel cleaner and brighter, making it more attractive for prospective tenants who come to view it.
Heavy refurbishments require Planning Permission and will likely need to be applied for with the LPA, unless there are Permitted Development Rights associated with the works. These types of work entail more major works on properties such as structural changes and changes to the status and purpose of the property, for example from non-residential premises to a residential development. Whereas light refurbishments can be applied to most properties, this is not the case when it comes to heavy refurbishments. For example, listed buildings and works not approved by the LPA cannot proceed.
These works tend to cost the property owner more than 15% of the value of the property, but undertaking such development projects can greatly increase the value of the property, sometimes by more than 20%, making for significant returns on investment for the landlord of property owner who may wish to acquire income through the property’s rental, refinancing or sale.
Houses of Multiple Occupancy (HMO)
A house of multiple occupancy (HMO) as the name suggests is a house that is home to numerous people across multiple living units. For example, a large period home may be converted to having a shared kitchen with 4 tenants living in their own self-contained living units. To change a property’s status to an HMO, Planning Permission and consent is needed from the local council. Moreover, the property will need to meet certain requirements to be fit for this purpose and this is often where the refurbishment finance is used.
For example, a large house may be converted to house 5 people, each in their own self-contained studio. In order for the property to be legally classed as an HMO however, there will need to be a suitable kitchen as well as the suitable number of bathrooms for the occupants. The property may also need to undergo some form of extension such as a loft extension to create enough space. The landlord will also need to look at covering legal obligations such as Landlord Safety Certificates for fire safety and Sound Insulation Testing.
These types of work come in various forms. For example, a landlord of a current rental property may seek to convert the loft of the property and restructure the roof (a mansard conversion) to allow for additional rooms in the property which will then be sold. These larger types of conversions need Planning Permission and whilst costing tens of thousands of Pounds, can increase a property’s value by 20-30%, increasing the profits too be made through selling the property, as it will subsequently have more space and potentially more bedrooms.
Heavy refurbishments also include the conversions of non-residential (non-habitable) properties and premises such as factories, warehouses and public houses into residential properties. The landlord will however need to also apply for change of use permissions to be permitted to do so. Such works may be utilised to increase the resale value of the property or to generate profits through subsequent rental arrangements, also adding value to an existing portfolio.