The Intermediary – September 2025 - Flipbook - Page 66
SPECIALIST FINANCE
Opinion
Why now could be
a smart time for
heavy refurbs
B
uilding costs have
dominated investor
conversations in
recent years, and
rightly so. The sharp
rise in construction
and materials inflation following
the pandemic created significant
headwinds for those looking to add
value through refurbishment. But that
landscape is starting to look different.
The latest data from the Building
Cost Information Service (BCIS)
shows that building costs are forecast
to rise by 14% between mid-2025 and
mid-2030.
That might sound significant
in isolation, but in real terms, it
represents a relatively modest 2.66%
compound annual increase – lower
than general inflation, and a world
away from the double-digit spikes
seen at the height of supply chain
disruption. There was even a brief fall
in material prices earlier this year,
before forecasts returned to a more
gradual upward trend.
For experienced property investors,
this more stable cost environment
could mark the return of the heavy
refurb. Projects that were previously
shelved due to unpredictable materials
inflation may now be worth revisiting.
This is particularly relevant where
there’s an opportunity to create value
through structural change, conversion
under permied development rights,
or enhancement of existing stock
into higher-yielding formats such
as houses in multiple occupation
(HMOs) or multi-unit freehold
blocks (MUFBs).
Timing maers. When cost
inflation is high, the margin for error
narrows and unexpected delays or
budget overruns can quickly erode
returns. But when inflation flaens,
even temporarily, investors are in
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The Intermediary | September 2025
a stronger position to plan with
confidence, price more accurately, and
build in realistic contingencies.
The broader market conditions are
also worth considering. Rental growth
has slowed significantly, with recent
data showing annual rent inflation
at its lowest point in over three years.
At the same time, supply is starting
to increase. While demand for rental
property remains strong, landlords
are no longer operating in a market
where steeply rising rents are a given.
Investors must focus on the quality
and appeal of their assets to maintain
occupancy and protect income.
That’s where refurbishment has a
key role to play – not only in adding
capital value, but also in aracting
higher-calibre tenants, reducing
void periods, and creating properties
that stand out in a more competitive
rental market.
For brokers, this opens up an
opportunity for fresh conversations
with investor clients.
Is now the right time to move
forward with a project that was
previously delayed? Do the current
market conditions present an
opportunity to lock in costs and
improve the rental profile of a
portfolio? And importantly — is
ANNA LEWIS
is commercial director
at Castle Trust Bank
the funding structure in place to
support phased development over a
longer timeframe?
One of the trends we’ve seen at
Castle Trust Bank is the high demand
for facilities that allow staged
drawdowns, enabling borrowers to
access funds when they’re needed
during the build, rather than
paying interest on the full amount
from day one.
That kind of approach can be
particularly useful on large or phased
refurbishments, helping to preserve
capital and reduce unnecessary costs.
In response to this demand, we built
drawdowns into our Heavy Refurb
proposition, and it’s proven to be
one of the most popular elements of
our proposition.
With building cost inflation
slowing, rental market dynamics
shiing, and demand for high-spec
rental properties rising, there’s a
strong case for brokers to help clients
reassess their pipeline.
The opportunity may not lie in
waiting for the perfect moment, but
in recognising when the conditions
are good enough to move forward
with confidence. ●
From derelict to decorated: The opportunity for heavy refurb is on the rise
