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Refurbishment finance applications are assessed on their individual merit. Unlike conventional loans and mortgages, decisions are not made on the basis of ‘binary’ factors like credit scores or annual income.
Instead, your lender will expect to be presented with formal evidence to demonstrate the credibility of your case. More specifically, there are five fundamental aspects of refurbishment finance applications, used by lenders to determine eligibility.
The Numbers
First and foremost, the numbers need to be convincing and believable. This includes creating a realistic budget for the project, outlining how the funds will be used and proving to the lender that you can afford to repay the loan.
The amount of money you apply for should be appropriate to the actual costs of the proposed refurbishments. In addition, you will need to provide evidence of having sufficient equity in your property to cover the costs of the loan (security).
The Legal Aspects
It is highly likely you will need to enlist the support of a solicitor, given the potential complexities involved in obtaining refurbishment finance. The solicitor you hire will help you prepare the paperwork needed to present your case to your lender as convincingly as possible.
Evidence may need to be presented with regard to the planning permission, building regulations and so on. Your lender will want to know that you have the legal right to conduct the refurbishments you intend to perform, before issuing the capital needed to fund them.
The Exit Strategy
This refers to the means by which the loan (and all applicable borrowing costs) will be repaid within the agreed timeframe. Your lender will need to see formal evidence of a concrete exit strategy so that they know when and where they will get their money back.
Typical examples of exit strategies include selling a property upon completion of the refurbishments, using inheritance to repay the loan or transferring the balance to a longer-term facility. All plausible exit strategies will be considered, but this will be the primary make-or-break factor used to assess your eligibility.
The Contingency Plan
This is something that feeds into the above, as your lender will want to know whether or not you have taken all possible outcomes into account. Is there a possibility that the true costs of the project may exceed your budget? What happens if delays or disruptions affect the planned time scale for the project? Is there a chance your main exit strategy could fall through at the last moment?
Lenders acknowledge and accept the fact that nobody can predict the future, or indeed plan comprehensively for every plausible eventuality. Even so, you can expect your plans to be questioned and scrutinised quite extensively, so you need to have the right answers ready.
The Alternative Options Available
Your broker will help you establish your suitability for specialist refurbishment finance at an early stage. Refurbishment finance is far from the only option available for funding small and large property development projects. Depending on your requirements, your objectives and your current financial status, there may be alternative options available that are more suitable.
This is something that must be established in advance, prior to the submission of an application for funding. If your lender believes that an alternative to refurbishment finance is a better option, your application will be denied. After which, it may prove more difficult to secure the funds you need to finance the project. Consult with an independent development finance broker and seek their recommendations on the most appropriate products available.
