Property investors undertaking refurbishment projects should factor in contingency budgets from the outset, as average project costs approach £86,000, according to analysis from specialist lender Octane Capital.
The lender said refurbishment opportunities continue to offer some of the strongest value-add potential in the property market, particularly for investors targeting auction properties and unmodernised homes.
Recent research by Octane Capital found that auction properties currently sell at an average discount of 44.8% compared with wider market values, while unmodernised homes continue to offer scope for significant value uplift through renovation and improvement.
However, the supply of such opportunities is shrinking. Octane Capital’s analysis found that the number of unmodernised properties available across England has fallen by 17.1% over the past year, increasing competition among investors and placing greater emphasis on the ability to act quickly when suitable opportunities become available.
The lender said specialist refurbishment finance is becoming increasingly important in helping investors secure these properties, particularly where traditional lenders may be reluctant to finance homes in poor condition or those considered unmortgageable.
According to Octane’s analysis, the average refurbishment project now costs £76,690. However, the lender warned that projects rarely proceed exactly as planned, with issues such as structural defects, outdated plumbing and electrical systems, damp, energy efficiency improvements and unforeseen repairs often adding to costs once work has commenced.
Based on a contingency allowance of 12.5%, investors should budget an additional £9,586, taking the total average refurbishment requirement to £86,276.
Octane said this additional provision can help projects continue without interruption should unexpected costs arise, reducing the risk of delays, funding gaps or projects stalling before completion.
The lender also highlighted the importance of accounting for finance costs. Based on its refurbishment finance example, interest and associated costs over a typical 12-month project total £15,886.
These costs include interest payments, arrangement fees, valuation fees, legal fees, inspection costs and other associated charges.
Jonathan Samuels, chief executive of Octane Capital, says: “Refurbishment remains one of the most effective ways to create value within the property market, whether that’s improving a rental asset, increasing energy efficiency, or bringing an outdated property back to market.
“At the same time, many of the best opportunities require investors to move quickly, particularly where auction purchases or poor-condition properties are concerned. Access to specialist finance can therefore be crucial in helping secure these opportunities before they are lost to competing buyers.
“However, one of the biggest mistakes investors can make is focusing solely on the headline cost of the works themselves. Refurbishment projects rarely progress exactly as planned and unexpected costs are often part and parcel of improving older housing stock, which is why contingency planning is so important.
“It’s also important that investors assess the wider funding market and compare lenders carefully. Whilst speed and flexibility are often key considerations, factors such as arrangement fees, legal costs and exit fees can all influence the profitability of a project.
“For example, Octane Capital doesn’t charge exit fees, and incentives such as these can help investors maximise profit margins that little bit more once a project is complete.”
