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Categories: bridging loans | second charge | development finance

According to new data by Shawbrook Bank, two out of 10 landlords use a credit card, or other short-term borrowing such as bridging loans or development finance, to refurbish their buy to lets.

Renovations all round

In their latest Buy to Let Report, Shawbrook have highlighted that 62% of landlords have undertaken refurbishments in the last 12 months.

18% of landlords have renovated more than one of their properties.

The average renovation costs per landlord sat at a staggering £13,000 last year. When looking at portfolio landlords specifically, this number rose to £17,000.

Landlords are utilizing gaps in tenancies caused by the pandemic to make repairs efficiently and not disrupt tenants.

Financing these renovations appears to come from a mixture of sources, with 60% surveyed used personal savings or investment.

12% used a second charge mortgage, which uses property as the security of the loan.

Second charge mortgages can be an alternative source to remortgaging, to borrow extra money. You would be able to keep your current buy to let mortgage rate, but they do require significant equity in the property.

19% of landlords used a credit card for the renovations instead.

Concern about credit

Shawbrook managing director John Eastgate commented on the recent report, highlighting concerns that the bank has around the use of credit cards to fund renovation work:

“Ensuring that properties are up to a good standard and meet the current demands of tenants is a mark of a responsible landlord, however, it’s important that landlords are not putting themselves at risk financially in order to undertake this work.

“There are other finance options available to landlords which can often be less well-known but a suitable alternative to short-term credit or using personal savings. For example, a second charge mortgage can be a good option for landlords looking to refurbish. We’d encourage any landlord considering a renovation to speak to their broker about their options before putting it on a credit card.

“Renovating your properties can help attract more tenants, secure higher rents and boost the value of the property, but don’t do so at the expense of your own financial security.”

Credit card protection

The concerns around risk to a landlord’s financial security lay in the high interest rates often associated with credit card borrowing, rather than the risk of renovations being completed incorrectly.

Some of these renovations paid for on credit cards would be protected under section 75 of the Consumer Credit Act 1974.

This means that if the work costs between £100 and £30,000, the credit card company is jointly liable for any breach of contract by the retail or trader that the card has paid.

According to which.co.uk:

“This means [the credit card company] is just as responsible as the retailer or trader for the goods or service supplied, allowing you to also put your claim to the credit card company. This right is particularly useful if the retailer or trader has gone bust, or it doesn't respond to your letters or phone calls.”