What is a Refinance Bridging Loan?
A refinance bridging loan, often referred to as ‘re-bridging’, is a short-term loan that’s designed to pay off an existing bridging loan.
It’s essentially a new bridging loan that replaces your current one, offering you a fresh start. A bit like when you remortgage a main mortgage to a new lender.
These loans range from £50,000 to £100 million, with terms lasting anywhere from 1 to 24 months.
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Why Consider Refinancing Your Bridging Loan?
Life doesn’t always go according to plan, especially in the world of property development and investment.
There’s several reasons why you might need to change your bridging loan.
Let’s look at a few of them:
Extending Your Loan Term
You might find yourself needing more time to complete a renovation project, sell a property, or secure long-term financing.
A refinance bridging loan can provide that crucial extension, typically offering up to another 24 months to get your affairs in order.
For instance, imagine you’re renovating a property and unexpected structural issues have delayed your project. Rather than facing hefty penalties or the risk of default on your original loan, refinancing gives you the breathing room to complete the work and maximise your property’s value.
Securing Better Rates
The bridging loan market is dynamic, with rates and terms constantly evolving.
If you secured your original loan when rates were higher, or if your financial situation has improved, refinancing could lead to significant savings. Even a small reduction in your interest rate can translate to substantial savings over the term of your loan, especially on larger amounts.
Raising Additional Funds
Sometimes, you might find yourself in need of extra capital midway through a project.
Perhaps you’ve uncovered an opportunity to add value to your property with additional renovations, or you need to cover unexpected costs.
Refinancing your bridging loan can allow you to access these extra funds without the need for a separate loan, streamlining your finances and potentially saving on additional arrangement fees.
Common Scenarios for Re-Bridging
Property development delays, slow property sales, and incomplete refurbishment projects are all common reasons for seeking a refinance bridging loan.
Each of these scenarios can benefit from the additional time and flexibility that re-bridging offers.
For example, if planning permission issues have stalled your development, a refinance bridging loan can provide the time needed to resolve these challenges without compromising your project.
Similarly, in a slow property market, re-bridging can give you the flexibility to wait for the right buyer rather than accepting a lower offer to meet your loan deadline.
In the case of refurbishment projects, unexpected issues like structural problems or the need for rewiring can quickly derail your timeline and budget.
Re-bridging allows you to complete the works to a high standard, potentially increasing your property’s value and attractiveness to buyers or long-term lenders.
The Re-Bridging Process
The first step in refinancing your bridging loan is a thorough assessment of your current position.
This involves evaluating the terms of your existing loan, understanding your outstanding balance, and clarifying your future needs.
Are you simply looking for more time, or do you need additional funds?
Having a clear picture of your situation will help you make better decisions and present a stronger case to potential lenders.
Finding the Right Lender
Not all lenders offer refinance bridging loans, and those that do may have different criteria and specialities.
This is where the expertise of a specialist broker can be invaluable. They have in-depth knowledge of the market and relationships with a wide range of lenders, including those who might not be directly accessible to borrowers.
A good broker will not only help you find a lender who’s willing to refinance your loan but will also negotiate on your behalf to secure the best possible terms.
They can often access exclusive deals and have the experience to navigate complex cases that might be rejected by mainstream lenders.
Application and Approval
Once you’ve found a suitable lender, the application process begins.
You’ll need to provide comprehensive documentation, including details of your current loan, up-to-date property valuations, and a clear exit strategy. Be prepared to explain why you need to refinance and how you plan to repay the new loan.
The good news is that refinance bridging loans can often be arranged quickly – sometimes in as little as 5-10 working days.
This speed is essential if you’re quickly approaching the end of your current loan term. However, it’s always wise to start the refinancing process well in advance to avoid any last-minute pressure.
Key Considerations
When considering a refinance bridging loan, it’s important to understand the factors that will influence your application and the terms you’re offered.
These include the loan-to-value (LTV) ratio, interest rates and fees, and loan terms.
The LTV ratio, typically up to 75% but sometimes higher with additional security, will affect both your eligibility and the interest rate you’re offered.
If your property has increased in value since your original loan, you might be in a stronger position when refinancing.
Interest rates for refinance bridging loans are calculated monthly, ranging from 0.44% to 1.5%.
While the headline rate is important, don’t forget to factor in additional costs such as arrangement fees (usually 1-2% of the loan amount), valuation fees, and legal costs.
The loan term, typically between 1 and 24 months, should be carefully considered.
While a longer term provides more flexibility, it also means paying more in interest over time. Strike a balance between giving yourself enough time and minimising your overall costs.
Exit Strategies for Refinance Bridging Loans
A clear and viable exit strategy is needed when applying for a refinance bridging loan.
The two most common exit strategies are property sale and long-term refinancing.
If you’re planning to sell the property, work with experienced local estate agents to develop a realistic timeline and pricing strategy. Understand current market conditions and how to position your property effectively.
If your plan is to refinance onto a mortgage, start preparing early. Understand the criteria of potential long-term lenders and work to meet them. This might involve demonstrating rental income for buy-to-let properties or improving your credit score. Having an AIP in place will enhance your application.
A well-thought-out exit strategy not only increases your chances of securing a refinance bridging loan but also ensures you have a clear path to repaying the loan when the term ends.
Read more: Bridging loan exit strategies
Pros and Cons of Refinance Bridging Loans
Refinance bridging loans offer several advantages, including flexibility, additional time to complete your project or secure a sale, and the opportunity to avoid defaulting on your original loan.
In some cases, they may even offer cost savings through better rates or terms.
However, it’s important to be aware of the potential drawbacks.
Refinancing means taking on another short-term loan, which can be more expensive than long-term financing options. And you need to factor in the arrangement fees etc.
There’s also the risk of becoming reliant on short-term finance, which can be a slippery slope if not managed carefully.
Who Can Benefit from Refinance Bridging Loans?
Refinance bridging loans can be a valid option for a wide range of borrowers.
Property developers might use them to cover unexpected project delays or cost overruns. If planning consent has been delayed then the original planning gain finance may need to be replaced.
Buy-to-let investors could benefit when refurbishment works take longer than anticipated or when transitioning between tenants.
Home movers caught in complex property chains might use re-bridging to prevent a dream purchase from falling through.
How to Get the Best Deal
Working with a specialist broker is undoubtedly the best way to secure the best refinance bridging loan.
They can provide access to the widest range of lenders, including those who specialise in complex cases. Their expertise can be particularly valuable if you’re refinancing due to difficulties with your original loan, as they can help present your case in the best possible light.
When preparing your application, focus on presenting a strong case. This means having a clear, realistic exit strategy, up-to-date property valuations, and a comprehensive explanation of why you need to refinance and how you’ll ensure successful repayment this time around.
If you’re considering refinancing your bridging loan, the first step is to speak with a specialist broker.
They can provide personalised advice based on your specific situation and help you understand whether refinancing is the right move for you.
Remember, while refinancing can provide valuable breathing room, it’s important to have a solid plan for ultimately exiting short-term finance. Whether through property sale or long-term refinancing, your goal should be to transition to a more stable financial position.
With careful planning and expert guidance, a refinance bridging loan can be the tool that turns a challenging situation into a successful outcome, allowing you to achieve your property goals on your own timeline.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
