The Intermediary – October 2026 - Flipbook - Page 62
SPECIALIST FINANCE
Opinion
In a volatile market,
structure matters
M
ortgage pricing
is on the move
again, providing
another reminder
of just how
quickly the cost of
borrowing can change.
By mid-September, despite the Bank
of England (BoE) holding the Base
Rate, several high street lenders had
announced their second rate increases
in a maer of weeks following rises in
swap rates, with Moneyfacts saying
the average 2-year fixed mortgage rate
had increased by nearly 90 basis points
(bps) since the start of March.
For brokers working with
property investors, an environment
like this naturally places greater
emphasis on price.
However, when financing a
refurbishment project, the headline
rate is only one part of the overall cost.
Just as important is the amount on
which that interest is charged.
Controlling the cost
Refurbishment projects rarely
require all their capital on day one.
Expenditure typically comes in stages
as works progress, so an investor who
draws the entire amount at the outset
could find themselves paying interest
on money that will not be used until
much later.
A staged drawdown facility offers
an alternative. Rather than releasing
all the agreed funding upfront, capital
can be drawn in phases to match the
programme of works, with interest
charged only on the funds that have
been released.
This can be particularly valuable
when borrowing costs are under
pressure. Investors can’t control
movements in the wider rate
environment, but they can consider
how efficiently their finance
is structured.
At Castle Trust Bank, we offer
staged drawdowns across both light
and heavy refurbishment bridging,
60
The Intermediary | October 2026
enabling funding to be more closely
aligned with the progress of a project.
ANNA LEWIS
is commercial director
at Castle Trust Bank
Timing that converts
Consider two investors carrying out
identical six-month refurbishment
projects requiring £300,000 of
funding. For illustrative purposes,
assume an interest rate of 0.75%
per month. The first investor draws
the full £300,000 on day one. Their
interest cost over six months would be:
£300,000 x 0.75% x 6 = £13,500
The second investor draws £100,000
at the beginning of month one,
another £100,000 at the beginning of
month three and the final £100,000 at
the beginning of month five.
Their interest costs:
Months 1–2: £1,500
Months 3–4: £3,000
Months 5–6: £4,500
Total: £9,000
That represents an illustrative saving
of £4,500, or a third of the interest
cost, despite both investors paying
exactly the same rate.
Every project will, of course,
be different, and actual costs will
depend on the facility, rate and timing
of drawdowns. But the example
demonstrates why the headline rate
alone doesn’t tell the whole story.
Matching finance
Refurbishment projects rarely involve
one contractor completing all the
work at once. Different trades are
brought in at different stages, which
means the funding requirement also
changes as the project progresses.
An investor might initially need
capital for strip-out and demolition
work, before moving on to structural
alterations and then bringing in
electricians and plumbers. Later in
the programme, further funds may
be required for plastering, kitchens
and bathrooms, flooring, decorating
and final finishes.
When financing a
refurbishment project, the
headline rate is only one
part of the overall cost”
A staged drawdown facility can be
structured around that schedule, with
funds released as each phase of work
begins rather than advancing the full
amount on day one. This means the
borrower is only paying interest on the
capital that is actually required at that
point in the project.
For brokers, understanding
the client’s programme of works
can therefore be just as important
as understanding the total
refurbishment budget. If the funding
is aligned with when contractors
need to be paid, it can help reduce
unnecessary interest costs while
ensuring capital is available when the
project reaches each stage.
This approach can work particularly
well for conversions, larger
refurbishment projects and more
substantial renovations where several
different trades are involved and
expenditure is spread over a number
of months.
Price will always be an important
consideration when brokers assess
funding options for their clients.
But the lowest headline rate will not
necessarily deliver the lowest overall
borrowing cost.
For refurbishment cases, asking
when a client needs the money can
therefore be just as important as
asking how much they need. ●
