Cost Of Works

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In the current residential property market conditions – a year of price growth, with some areas still rising – an increasing trend that we are seeing with property investor and landlord clients is the purchase of property that either requires refurbishment work, or conversion from commercial to residential use.

Through the identification of a property investment opportunity, and subsequent refurbishment or conversion to the property being in a lettable or saleable condition, the client is able to unlock an immediate capital appreciation in the value of the property.

Landlords immediately add capital value to their long-term investments before refinancing the initial short term financing with a Buy-To-Let or HMO product, as well as maximising rental yields.

Property investors can sell, or ‘flip’, the completed property, releasing their equity and profit to invest into the next property project.

I wanted to look here at that initial short term funding that could be used to both acquire and refurbish or convert the property – including the ‘cost of works’.

Some lenders only advance day one purchase funds with a Bridging Loan, others offer a ‘Refurbishment Bridge’ where a loan for purchase is combined with a contribution to the ‘cost of works’.

At the point when the property is valued for purchase, the surveyor is also provided with a ‘schedule of works’ that are to be carried out, and they provide the lender and client a second valuation estimating the value of the property with completed refurbishment work (the ‘Gross Development Value’).

This allows the lender to determine the overall viability of the project, as well as the amount of the ‘cost of works’ that they would be willing to lend, if that was a part of the product.

I want to set out a Case Studybased on a conversion from commercial to residential, where the footprint of the property was not going to change; the conversion included the internal division of the property, replacement of doors and windows, new kitchens and bathrooms and all supporting internal works. Externally there was some groundwork to create more car parking space and landscaping. 

The property already had planning permission for the conversion (it had originally been constructed as residential and later converted to commercial use), and planning status is something that you need to be clear about with lenders – lenders dislike what they term “planning risk”, where they fund a deal based on planning that hasn’t been granted yet.

This client had experience at refurbishments and conversions – and the fact that some lenders only accept experience is something to remember. But many will accept you using a contractor that can evidence the successful completion of other similar projects – and the contractor will be used to this sort of request from other clients’ lenders I am sure.

Not included in the case study is the interest rate detail, as this is linked to an individual applicant and the property details as evaluated by the lender’s credit team.

Case Study

o   Client acquired an office and car park behind with planning for conversion into 4 x 2 bed flats

o   Purchase price £355,000 and a maximum day one 70% Loan To Value (LTV)

o   The refurbishment bridge was taken over 12 months

o   6 months interest was retained on day one, and the second six months was serviced monthly

o   At the time of the purchase, the surveyor valued the Gross Development Value (GDV) at between £840,000-£900,000 (£210k-£225k per flat) – the lender set their maximum lend to the client off the lower end of the scale at £840,000

o   Cost of works was estimated by the client at £200,000, in staged payments as works were completed, any costs beyond this the client would self-fund

Purchase Price


Lender Day One maximum LTV


Lender Day One maximum loan


Client Purchase Deposit




Gross Development Value (GDV)


Lender maximum Loan To Gross Development Value (LTDGDV)


Lender maximum LTDGDV




Day One purchase loan


Cost of Works (est.)


*To be added: Fees and Retained Interest


Total Bridging Loan




To be added in before the calculation of the total bridging loan: the product arrangement fees and the retained interest element

**Additional costs, including but not limited to, valuation survey, client’s own legal fees, lender’s legal fees, stamp duty (if applicable), any further serviced interest payments and any ‘contingency’ refurbishment costs, need to be budgeted for by the client

The additional costs detailed will slightly increase the client’s LTGDV, but it will comfortably sit below the lender’s maximum threshold, and therefore in this case was an interesting one for the lender.

At the point at which the works are completed, the client completes their ‘exit’ from the Bridging Loan and puts in place limited company Buy-To-Let mortgages. This can be available up to 75% LTV (subject to eligibility) and should clear the Bridging Loan plus funds back for the client’s original purchase deposit and refurbishment costs.

The client now retains equity in a much improved investment property, with an enhanced rental yield.

Not every deal is going to result in the same profit margins for the property investor or landlord – but if the economics of the deal make sense for you to do, then you can probably find support from a Bridging lender to include some or all of the ‘cost of works’ in their product.

We are helping property investor and landlord clients unlock capital value and maximise long term returns with up front work to property – why not see how we can help you?

Mark Grant, May 2021. / 01636 614 014