How to fund a buy-to-let renovation

Landlords have a responsibility to ensure that their properties meet the Government’s health and safety requirements, as well as being at a good standard to attract renters.

This means that buy-to-let (BTL) properties often need refurbishing and, according to a report published by Shawbrook Bank last month, 62% of landlords have undertaken refurbishments in the last 12 months.

Of these, 18% renovated more than one of their properties.

The majority of landlords surveyed by Shawbrook Bank found themselves out of pocket paying for the refurbishments, with 60% using personal savings or investments.

Although, using personal funds to pay for revamping a BTL property may be a good option, there are alternatives for landlords looking to renovate a BTL.

Landlords looking to carry out small renovations costing a few thousand pounds could consider using a 0% purchase credit card.

A 0% purchase credit card offers an interest-free period on purchases made using the card. This means that landlords who repay the balance in full before the interest-free period ends will not have to pay interest on the money borrowed. After this period, interest will be added to outstanding balances.

The longest interest-free term on a 0% purchase credit card is currently 23 months, available on Tesco Bank’s Clubcard Credit Card Purchases Mastercard. A further six 0% purchase credit cards offer interest-free terms of 22 months and two offer 21 months of no interest.

Another option available to landlords looking to fund a BTL renovation is a personal loan.

A personal loan could be a good choice for those looking to fund refurbishments costing £5,000 to £10,000, such as installing a new bathroom or kitchen.

Interest rates on personal loans have remained competitively low over the last few months.

For example, someone looking to borrow £10,000 over a five year period, will find that a number of lenders offer personal loans from 2.8% APR, which would result in monthly repayments of £178.64 and a total amount of £10,718.40 being repaid.

Landlords needing to make extensive renovations to a property, or fund multiple renovations, costing £20,000 or more may want to consider using a second charge mortgage, also known as a secured loan.

A second charge mortgage allows property owners to borrow a substantial amount of money, but an existing mortgaged property must be used as security against the loan.

This makes a second charge mortgage a much risker borrowing option compared to credit cards or personal loans, as if the borrower does not keep up with the repayments it could result in them losing their property.

Saying this, for landlords a second charge mortgage can be a good way of obtaining funds to carry out extensive renovations, but they should factor in the cost of the repayments when setting rent and be confident that they will meet all repayments. More information about second charge mortgages can be found on our secured loans page.