Refurbishment Bridging Loan: Quick Financing for Property Renovations
Are you looking to renovate a property but lack the funds to cover both the purchase and refurbishment costs?
A refurbishment bridging loan could be the solution you need. This type of short-term finance allows you to buy, refurbish, and sell a house quickly, capitalising on lucrative property deals.
Refurbishment bridging loans typically range from £150,000 with no upper limit and loan-to-value ratios up to 75%. Some lenders may even offer 100% LTV options if you can provide additional security.
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Bridging
What is a Bridging Loan?
A bridge loan is a short-term loan that gives you fast access to the money you need, usually within days.
This loan is secured against a property you own or are buying, but other assets can be used too.
Bridging loans are extremely flexible and quick to arrange. They can be used for many situations including:
- Buying a property at auction
- Buying a property to refurbish
- Breaking a property chain
- Raising finance quickly
Using bridging finance for refurbishment projects
A ‘plain’ bridging loan will be based on the current value of a property. And depending on the LTV that you need, this may be just right.
But many investors are looking to fund some of the refurb costs as well.
This is where a refurbishment bridging loan can help.
In general, loan providers offer loans to a maximum of 75% of the property’s projected post-refurbishment value (GDV).
You can use them to fund renovation and improvement projects or to cover both the property purchase and subsequent refurbishment costs. Once your project is complete, you can repay the loan through various exit strategies, such as selling the property or refinancing with a long-term mortgage.
Related reading: Loan to Gross Development Value: What is LTGDV?
Basics of Refurbishment Finance
Refurbishment finance is designed to finance property improvements.
Terms range from a few months to three years. These loans allow you to borrow against the potential value of a property after renovations.
You can use these loans for various purposes, such as:
- Updating kitchens and bathrooms
- Adding extensions
- Replacing the roof
- New wiring/plumbing
- Converting lofts or basements
- Structural repairs
The type of loan you need will depend on the scope and scale of your project. In the following sections, we’ll explore each type in more detail, helping you determine the best fit for your refurbishment plans.
Types of Loan
The extent of the planned works will determine whether a ‘light’ or ‘heavy’ refurb loan is needed.
Light Refurbishment
Light refurbishment bridging loans are perfect for cosmetic enhancements and minor repairs, such as painting, decorating, and updating fixtures.
Think of it as a ‘facelift’ for your property.
Heavy Refurbishment
Heavy refurbishment bridging loans are designed for extensive renovations that significantly alter the property’s structure, layout or require planning.
These loans are suitable for projects like extensions, conversions, or complete overhauls.
Light Refurbishment Bridging Loans
A light refurbishment project focuses on cosmetic enhancements and minor repairs to improve the property’s appearance and functionality.
This could include:
- Redecorating: Painting, wallpapering, and replacing flooring.
- Kitchen and bathroom updates: Installing new worktops, cabinets, or appliances.
- Minor repairs: Fixing leaks, replacing broken tiles, or updating electrical fixtures.
Typical Loan Terms
Borrow: Up to 75% of the current value.
Loan Term: 3 to 12 months.
Interest Rates: From 0.44% to 1.5% per month.
Eligibility Criteria: A clear project plan, budget and a viable exit strategy.
Benefits
- Ideal for smaller-scale projects with a shorter timeframe.
- Less stringent eligibility criteria than heavy refurbishment loans.
- Lower interest rates compared to heavy refurbishment loans.
- Faster approval process due to the lower risk involved.
Heavy Refurbishment Bridging Loans
Heavy refurbishment projects involve major structural changes and extensive renovations that significantly alter the property’s layout or functionality.
This might include:
- Extensions: Adding extra rooms or increasing the property’s footprint.
- Conversions: Changing the property’s use (e.g., from a house to flats).
- Major renovations: Gutting and refitting the entire property.
Typical Loan Terms
Borrow: Up to 75% of the post-refurb value (GDV).
Loan Term: 6 to 36 months.
Interest Rates: Usually higher than light refurbishment loans.
Eligibility Criteria: A clear project plan with timeline, budget and a viable exit strategy. Proof of experience in managing similar projects.
Benefits
- Higher borrowing potential when compared to a ‘light’ refurb.
- Ability to increase the property value
- Longer repayment period
- While lenders will monitor your progress, they also have a lot of support and guidance available.
Partner with an expert
Trying to arrange bridging loans yourself can be challenging. Many lenders just aren’t geared up to deal direct with borrowers.
Working with an experienced and specialist finance broker will streamline the process, help you secure the best rates, and ensure you’re fully prepared for auction day.
Our specialist brokers understand the unique challenges and opportunities of the property market. Yes they can arrange the finance; but they will also guide you through the entire process.
Choosing the right type of refurbishment bridging loan depends on your project’s scope, budget, and experience. If you’re unsure which option is best for you please call us on 0330 030 5050.
Don’t get left behind.
Eligibility
While refurb finance offers a huge amount of flexibility, lenders still need to assess your financial situation and the viability of your project.
Here are the key factors they consider:
Deposit or Equity
For 75% bridging loans you’ll need a deposit of at least 25%, or you can leverage equity in another property you own. The more you can put down, the stronger your application is, with the possibility of securing improved terms.
Exit Strategy
Lenders need to understand how you plan to repay the loan. Common exit strategies include refinancing with a traditional mortgage, selling the property, or using funds from another source. A clear and realistic exit plan is really important for approval.
Credit History
While a good credit history is beneficial, short-term finance lenders are often more understanding of past credit issues. They’ll focus on your current financial stability, the property itself and the strength of your exit strategy. Our brokers also have access to some non-status bridging loans, where the lender doesn’t need a credit search.
Remember, each lender has its own specific criteria, and our team are here to help you find the ones that best suit your circumstances. Don’t let concerns about your credit history or lack of a large deposit deter you from exploring bridging finance. We’ll work with you to present your case in the best possible light and increase your chances of approval.
The Importance of a Clear Exit Strategy
A well-articulated and achievable exit strategy is the cornerstone of a successful bridging loan application.
It not only demonstrates your commitment to responsible borrowing but also reassures lenders of your ability to repay the loan within the agreed timeframe. For lenders, an exit strategy is more than just a repayment plan; it’s a vital part of their lending strategy and risk assessment.
Your exit plan should align with your overall investment goals and the specifics of your refurbishment project. It should clearly outline how you intend to repay the loan, taking into account potential fluctuations in the property market or unexpected project delays.
Read more: Can You Pay Off a Bridging Loan with a Mortgage?
Bridge to Let Explained
If you’re planning on buying an investment property that needs renovating then perhaps bridge to let finance could be useful.
It’s a product that combines a short-term bridging loan with a long-term mortgage:
Short-term bridging loan
Used for the initial purchase of an investment property where a long-term lender would refuse to lend due to the condition. This allows you to buy the property, with time to refurb it.
Long-term mortgage
When the property is finished, and ready for letting, the buy to let mortgage kicks in and repays the bridge.
explore Bridge to Let FinanceCosts and Fees
The cost of any finance will vary depending on the lender, the loan amount, and the specific terms of your agreement.
However, you can typically expect the following:
Interest Rates: Interest rates are charged monthly and start from 0.40% per month. Many lenders allow you to to roll up the interest, meaning it’s added to the loan balance and paid at the end of the term.
Arrangement Fees: Lenders charge an arrangement fee of 2% of the loan amount. This fee is usually payable upon completion and can sometimes be added to the loan itself.
Valuation Fees: This fee is incurred early in the process and cannot be added to the loan.
Legal Fees: You’ll need to cover legal fees for both your own solicitor and the lender’s solicitor.
It’s important to remember that these are just potential costs, and the actual fees you’ll pay will depend on your specific circumstances and the lender/deal you choose.
Why Use a Broker?
Choosing whether to use a broker or go directly to a lender for your refurbishment bridging loan is an important decision.
While going directly to a lender might seem simpler, using a broker offers several benefits that can make a big difference to your project.
First, applying for a bridging loan isn’t always straightforward.
A specialist broker understands the process inside out and can help you avoid mistakes that could delay your project. They’ll guide you through each step, making sure you have the right information and documents, and that your application is presented in the best possible way.
Second, bridging loan costs can vary a lot between different lenders. A broker knows the market and can find the most competitive deal for your specific needs, potentially saving you a significant amount of money.
Third, brokers have access to a lot more lenders than you can find on your own. This means they can compare a wider range of options and find the loan that best suits your project and your financial situation.
If you’re comfortable researching lenders and comparing deals yourself, going directly to a lender might be the right choice. But if you want expert help, access to more options, and potential savings, using a specialist finance broker could be the smarter move.
FAQ
Refurbishment Finance is available to UK residents, expats and foreign nationals, also partnerships, LLPs, SPVs, Ltd companies, offshore companies and pension funds.
The different types reflect the level of work needed, and also the timeframe to do this in. The two main types are: light refurbishment loans (for minor cosmetic work) and heavy refurbishment loans (for major renovations).
The approval process can be really quick, often within a few days, but it depends on the complexity of the project and the lender’s requirements.
Terms usually range from 3 to 24 months.
Read more: How long can you have a bridging loan for?
Yes, some lenders offer bridging loans that cover both the purchase and refurbishment costs. It this way, these loans are quite similar to property development finance.
In most cases this is OK, although it will depend on the type of bad credit, the sums involved and how long ago it occurred.
Read more: Bad Credit Bridging Loans
You will need to budget for arrangement fees, valuation fees, legal fees, and exit fees.
Yes, refurbishment bridging loans can be used for both residential and buy-to-let properties. Second charge bridge loans are suitable where you have a main buy to let mortgage in place.
Retained interest means that interest paid on a loan isn’t paid monthly. Instead, all the interest due is deducted from the initial bridging loan sum. The lender gets paid early and ‘retains’ the interest.
Yes, but it may be more complex due to the additional restrictions and regulations associated with listed properties.
Refurbishment loans can be used to enhance and improve almost any type of property, whether it’s a residential home, a commercial building, or a mixed-use property. It doesn’t matter if the property is in good condition or needs a lot of work.
There are also no restrictions on the types of renovations you can finance with a refurbishment loan. You can use it for simple cosmetic upgrades like painting or new flooring, or for major projects like structural changes and additions.
