If you’ve got plans for a property renovation but don’t have the immediate funds, you might be wondering about your financing options.
A popular option among investors, landlords and developers is bridging loans. Let’s go through everything you need to know about using bridging finance for your refurb project.
What is a Bridging Loan?
A bridging loan is a type of short-term mortgage.
You can borrow up to 80-90% LTV for almost any purpose, so borrowing for some refurbishment work is no problem.
These are secured against property and can be arranged much quicker than a mortgage. You can borrow from £150,000 to several million pounds and loan terms from a few months to a couple of years.
Read more:
How Bridging Loans Work for Renovation Projects
For renovations bridging loans are a real game changer. They’re perfect for properties that need work before they’re mortgageable or ready to sell.
Bridging loans can be used for two types of renovation projects: ‘light’ refurbishment and ‘heavy’ refurbishment.
Light refurbishment might be cosmetic work such as new kitchens or bathrooms, heavy refurbishment could be structural work or a full property overhaul.
The amount you can borrow depends on the property’s value and the extent of the renovations.
Typically lenders will offer 65-75% of the property’s current value but some will go up to 80-85% for the right project.
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Benefits of Using Bridging Loans for Renovations
Speed of Funding
One of the big advantages of bridging loans is the speed.
A standard mortgage can take weeks or even months to arrange, bridging finance can be sorted in a matter of days. It’s not uncommon to have bridging loan approval within days.
This speed can be a real life saver in the fast paced property market. It means you can act quickly when you see a renovation opportunity without the risk of missing out to a cash buyer.
Read more: How Quickly Can You Get a Bridging Loan?
Flexibility in Property Types
Another big advantage is the flexibility bridging loans offer when it comes to property types.
Mainstream lenders will shy away from properties in poor condition but bridging lenders are more open minded.
This means you can get finance for properties that are considered ‘unmortgageable’ by high street lenders. We’re talking about properties without a working kitchen or bathroom or even derelict buildings that need a full overhaul.
Read more: Using Bridging Loans for Mixed-Use Property Purchases
Increased Property Value
Let’s not forget the potential of renovation projects. By using a bridging loan to fund the improvements you could increase the property’s value. Major renovations can add 20-30% or more to a property’s value.
This increased value will make it easier to get a traditional mortgage or sell the property for a profit once the work is done.
What Can Bridging Loans Be Used For?
Bridging loans are incredibly versatile when it comes to property renovations.
They can fund a wide range of projects, from minor touch-ups to major overhauls. Here’s a breakdown of common uses:
Light Refurbishments
These are cosmetic improvements that don’t require planning permission or structural changes.
Examples include:
- Updating kitchens and bathrooms
- Redecorating (painting, new flooring, etc.)
- Installing new windows or doors
- Upgrading heating systems or electrics
Heavy Refurbishments
These involve more substantial work, often requiring planning permission.
Uses include:
- Converting lofts or basements
- Adding extensions
- Reconfiguring internal layouts
- Underpinning or other structural work
Property Conversions
Bridging loans can fund development projects that change a property’s use, such as:
- Converting a house into flats
- Turning a commercial property into residential units
- Transforming a single-family home into a House in Multiple Occupation (HMO)
Uninhabitable Properties
Standard mortgage lenders won’t finance properties deemed uninhabitable.
Bridging loans can be used to:
- Renovate properties without a working kitchen or bathroom
- Restore fire or flood-damaged buildings
- Bring derelict properties back to life
Quick Turnaround Projects
For investors looking to ‘flip’ properties, bridging loans can:
- Fund the purchase and renovation of auction properties
- Enable quick refurbishments for a fast resale
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Who can apply?
Renovation bridging loans are available to a wide range of borrowers. Whether you’re an individual, a partnership or a company/SPV you can apply for bridging finance.
Your credit history is considered but it’s not always the deciding factor. If you feel that this might be an issue then there are some bad credit bridging lenders and a few even work on a non-status basis, where credit checks are not required.
Lenders are more interested in the property and your exit strategy. That said if you’re new to property renovation some lenders will want to see evidence of your ability to manage the project, particularly for heavy refurbs.
Options for Loan Security
What we mean here is what the loan is secured against.
A standard scenario would see the bridging loan secured against the property to be refurbished. This could either be to buy and refurb, or just to refurb.
Alternatively, the loan could be secured on another property that you own. If there’s no mortgage already then this would be a first charge, otherwise you would need a second charge bridging loan.
Lenders in this space are very accommodating and loans can even be secured over more than one property using a cross-charge.
Read more: First, Second & Specialist Charges in Bridging Finance
Choosing the Right Bridging Loan
Bridging loans are really versatile, and quick to arrange.
But they also come with high fees and rates, so choosing the right one is important. By using a broker like ourselves, you will get access to over 100 short-term lenders, giving you loads of choice.
Short-term finance can be a real lifeline for some projects but we would recommend always using a finance broker to help you secure the right loan at the right price.
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.
