Light refurb v heavy refurb

Property refurbishment is a popular way for investors to maximise returns, by renovating a building to increase its capital and rental value. Renovation, of course, can cover a large scope of projects – from decorating and updating fittings through to large structural changes and even altering the use of a property.

In general, where a renovation project doesn’t require planning permission or building regulations it’s considered to be light refurbishment, whereas more involved projects, which can potentially provide investors with better returns, would be heavy refurbishment. Lenders will often offer different products for light and heavy refurbishments. Here’s a more detailed look at the differences between the two:

Light refurbishment

For those investors looking to increase yield, either on an existing property within their portfolio, or one they are planning to buy, light refurbishment could be the most straightforward option.

Light refurbishment often refers to non-structural changes. These might be either cosmetic or necessary safety updates, including redecoration, plastering, rewiring and plumbing, installing new doors or windows, laying flooring, or replacing fixtures and fittings, including a new bathroom or kitchen. Light refurbishment might also come into play in order to keep up with new minimum requirements for Energy Performance Certificates (EPCs) on rental properties.

These kinds of refurbishments often don’t require planning permission or building regulations, so it can be a lower risk, less stressful option, particularly for first-time or less experienced investors. By undertaking these improvements to a property, an investor can increase either its resale or rental value. It also has the benefit of potentially helping landlords to attract higher quality tenants and reduce long-term maintenance costs.

There are some lenders that will consider larger projects for a light refurb bridging loan. For example, at Castle Trust Bank we can consider works that fall under permitted development rights (PDR), where no planning permission is required but where building regulation sign-off may be needed. This could include residential to HMO conversions up to six tenants.

Heavy refurbishment

Heavy refurbishment projects are projects that more often than not require planning permission, building regulations, and input from an architect – this might mean major structural work, a change of use, or small extensions, even through to fully gutting the property.

Heavy refurbishment loans tend to be used by more experienced developers or investors and might have terms up to 18 or 24 months in order to cater for the more ambitious nature of the projects.

The scale of these projects means they are more likely to be used in order to increase yield substantially, such as through a change of use – either between commercial and residential or mixed-use, or from a single dwelling to a house in multiple occupation (HMO) or multi-unit freehold block (MUFB). This allows for the more substantial investment in structural changes to translate into much higher rental yields or resale values.

The larger the project, the more likely it is that the build time for the project will be extended over a long period, with payments to contractors spread throughout the construction.

In these instances, borrowing the whole amount required to complete the build at the outset can leave the borrower incurring unnecessary expense, as they are left paying the balance for the entire loan for a long period before they need to deploy the funds. So, at Castle Trust Bank, last year, we launched a heavy refurbishments with drawdowns product that enables borrowers to only pay interest on the balance of the loan they have drawn down, with the remaining facility available to draw down at a later date. This means investors are not wasting money by holding borrowed money but can instead stagger their borrowing for when they have costs to fund – making it a more efficient way to complete their project.

Conversions and PDR

Permitted development rights (PDR) provide automatic planning permission for certain building works and changes of use, such as office space to residential.

PDR was originally introduced in 2015 and, more recently, changes have been made to encourage the refurbishment of disused commercial properties, such as those on high streets.

To qualify for PDR, a project has to meet certain predefined criteria, having been in use under one of the Class E uses for at least two years prior to the submission of the prior approval application, and having been vacant for at least three months. Prior approval is relatively easy to achieve within two months, whereas full planning permission is much more uncertain and might take many months.

Depending on the type of project, making use of PDR could mean that investors are able to achieve their goals using Light Refurb bridging. For example, the conversion of a residential property to an HMO for up to six people may not typically require planning permission, however, this isn’t always the case.

Article 4 of the Town and Country Planning (General Permitted Development) Order allows local councils to remove permitted development rights in specific areas, including those for HMOs. When Article 4 is invoked, it means that in designated areas, any such HMO conversions will require planning permission from the local council, even if they would otherwise fall under PDR. This allows councils to better control housing density and manage local infrastructure impacts, such as parking and waste disposal, as well as protect neighbourhood character by limiting unchecked HMO growth.