A Full Guide To Financing Your Next Property Renovation: Refurbishment Bridging Loans

19-January-2023
19-January-2023 12:03
in Development
by Sam Hodgson
Refurbishment Loans: A Full Guide To Financing Your Next Property Development

Whether you're an established developer with a large property portfolio or a first-time investor just getting into property investment, refurbishment finance can be an extremely useful tool to help you take advantage of those golden opportunities that come your way.

So, what is refurbishment finance? 

Here are 3 key points:

Point 1

Refurbishment finance (sometimes known as a refurbishment mortgage, refurbishment loan, or renovation mortgage) is a short-term loan to fund a property purchase and any light or heavy development work that needs doing.

Point 2

You can raise a significant amount of refurbishment finance quickly to 'bridge' the gap in funding your project, and you can repay the loan when you either sell the property or refinance it through a mortgage.

Point 3

The application process for refurbishment finance is much simpler and faster than a traditional mortgage loan. In fact, we've helped clients raise funds in a matter of days.

Written bySam O'Neill & Sam Hodgson

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Refurbishment loans explained

Who can get refurbishment bridging finance?


What can refurbishment bridging finance be used for?


Light and Heavy refurbishment loans - what's the difference?


How much can I borrow to refurbish a property?


How quickly can I get refurbishment finance?


How do I apply for refurbishment finance?


Why use a property finance broker?

Property Refurbishment Loans, Clifton Private Finance

Who can get refurbishment bridging finance?

You can be eligible for refurbishment bridging finance as an individual, a sole trader, or through a limited company.

Refurbishment finance is often used by property developers and first time property investors for house flipping - when you purchase and renovate a property to sell it for a quick profit.

Landlords also commonly use them to finance buying and refurbishing buy-to-let properties. 

You don't have to be an experienced property developer or landlord to get finance for your property refurbishment. Most lenders will approve your application if you have a solid exit strategy to repay your loan at the end of the term. 

Every lender's application criteria vary, but if you can meet the following requirements, you should be able to access the refurbishment funds you need within days rather than weeks:

Lending criteria for refurbishment finance

  • The address of the property - its build, location and suitability for raising finance against.

  • Net wealth - to determine other assets you own in case you can't repay your loan. 

  • Having a solid, realistic plan on how to get your property from A to B using your refurbishment finance

  • An exit strategy - will it be easy to get a long-term buy-to-let mortgage or to sell the property when your work is complete? 

And keep in mind that: 

  • Some lenders only offer 'light' refurbishment loans for first-time landlords and investors.

  • A poor credit history is not usually an issue for refurbishment finance, as your ability to repay isn't based on your income. 

Get a bridging loan quote

Related: Read our guide on how to use a renovation bridging loan to buy and renovate a house for a profit

Development Loan Example Case

Sam O'Neill

Sam O'Neill

Head of Bridging

Let us do all the hard work of finding the right bridging lender for your circumstances. 

We secure bridging finance for applications of all types, and we negotiate competitive lending to meet your needs and timescale.

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What can refurbishment bridging finance be used for?

Refurbishment finance is designed to support small development projects. It's different from property development finance, which is another ball game that normally applies to ground-up developments. 

So if you're a landlord or looking to flip a property, you can apply for refurbishment finance for the following:

  • Refurbishment costs on commercial or residential property
  • Minor cosmetic alterations such as redecoration, a new bathroom or kitchen
  • EPC improvements
  • Plumbing and drainage work
  • Rewiring and electrical work
  • Major structural changes, extensions, and change-of-use conversions, i.e. from commercial to residential (typically requiring planning permission)

Related: How to buy an unmortgageable house & How to Get Finance to Buy an Uninhabitable Property

Get a bridging loan quote

Light refurbishment and heavy refurbishment loans - what's the difference?

Depending on the work you plan to do, you will be offered a light or heavy refurbishment loan. They come with different rates and application criteria.

Light refurbishment loan

This type of work doesn't need planning permission or building regulation checks. The intended use of the building remains unchanged and you don't need to have experience in completing previous home improvements. The work can be done by either you or a contractor of your choosing.

You can borrow up to 85% of the property value and some lenders will also allow you to borrow 100% of the amount you need to complete the refurbishment costs.

Heavy refurbishment loan

Heavy refurbishment loans are available for properties when planning and building regulations are required. This includes structural works like an extension, or if the work will lead to a change of use such as when a 5 bedroom house is converted into a 9 bedroom multi-occupancy home.

  • Lenders will often want to see that you have some property refurbishment experience.
  • They will also want to check the list of works, time schedules and costings, and the contractors you have in place to make the project a success.
  • Your planned exit will also be assessed (sale of property or refinance through a mortgage).

Related: NEWS: Heavy refurb finance up to 90% gross LTV from £200k

Book a free and no-obligation telephone consultation with one of our specialist renovation loan advisors to discuss your refurbishment finance requirements.

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Light and heavy property refurbishmentloans, Clifton Private Finance

How much can I borrow to refurbish a property?

  • Loan size: Most refurbishment finance lenders will consider loans from £25,000 up to £25m.

  • Loan To Value: The maximum loan to value is typically 85%, meaning on a property worth £100,000, you can borrow £85,000. It is possible to get 100% LTV refurb finance if you can provide extra security.

How quickly can I get refurbishment finance?

You can expect to get a decision in principle within 24 hours of applying.

And you can expect to have the funds in your account within 7-14 days. In some cases, the cash can be released within a few days, but it depends on the specifics of your case.

How do I apply for property refurbishment finance?

Our team of expert brokers can match you with the lender offering the most competitive loan for your property. 

Here are 5 steps to the process:

  • Step 1: Contact our property finance experts to discuss your requirements. We'll assess your application and connect you with the right lender for your situation.

  • Step 2: We'll strive to get you an offer in principle within 24 hours.

  • Step 3: At this point, your chosen surveyor can value the property to meet everyone's expectations.

  • Step 4: We'll send your solicitor a checklist of requirements. If the valuation report is acceptable for the agreed loan terms, we'll confirm this with your solicitor and then issue the mortgage deed for your witnessed signature.

  • Step 5: As soon as the lender's solicitor is in receipt of all crucial information and supporting documentation, you're ready to go! Within 24 hours of receipt of the report on title, we arrange the transfer of funds to your solicitor to then be released to your bank account.

Related: How to find the best bridging loan deals

 Heavy refurbishment loan case study, Clifton private finance

Why use a property finance broker?

Clifton Private Finance - refurbishment finance is our speciality

Our property finance broker team has expert knowledge of the short-term lending market, meaning we can meet a huge variety of needs for property investors and landlords.

  • In many cases, high street lenders will turn your application down. Our brokers know which lenders to approach to get you the necessary terms for goals.
  • If you're a first-time property investor or landlord, you may find getting the loan you need on attractive terms difficult. We know which lenders to approach.
  • From start to finish, your dedicated broker will guide you through the process, be readily available to answer any questions, and take the stress and hassle away from you.

Our strength is our ability to access a wide range of funding solutions from high street and private banks, specialist lenders, family offices and wealth managers. We also have connections with private investor fund groups.

Call us on 0203 900 4322 to discuss your requirements.
Or book a free and no-obligation telephone consultation at a time to suit you:

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FAQs

Do you need a valuation for a bridging loan?

Yes, a valuation is typically required for a bridging loan in the UK.  

Since bridging loans are often secured against a property or other valuable assets, lenders will want to assess the market value of the property being used as security. This helps the lender determine how much deposit they want you to provide based on the value and condition of the property. 

How much can you borrow with bridging finance?

You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. 

It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. 

Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. 

Do you need a deposit for a bridging loan?

Yes, you typically need a 20-40% deposit for a bridging loan. 

It can be possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply. 

Can I get 100% bridging finance?

Yes, it is possible to get a 100% bridging loan (also known as a 100% LTV bridging loan), but it is rare. This means that you won’t need to put down a deposit and can borrow the full value of your property.  

However, the criteria for these loans can be hard to meet, and you’ll need to provide additional assets as security for your loan. 

Interest rates and fees can also be higher to compensate. 

Does a bridging loan make you a cash buyer?

While using bridging finance doesn’t technically make you a cash-buyer, it can allow you to act like one.  

Mortgages take months to process, often leading to an ‘onward chain’ where all parties involved need to wait for funds to be transferred 

Bridging finance can usually be accessed a lot quicker than mortgages so you can bypass the onward chain, giving you an advantage over other buyers and being attractive to sellers.

What is the longest bridging loan term?

Bridging loans typically have a term of 12 months, but some lenders are willing to stretch their terms to 18 months, or even 2 –3 years depending on the case. 

Terms longer than 2 years will usually only be considered for specific cases.  

Can I use a bridging loan to pay stamp duty?

Yes, you can use a bridging loan to pay Stamp Duty.  

This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender.  

Are bridging loans safe?

Yes, bridging loans are safe when they’re used in the right circumstances with a solid repayment strategy. However, we recommend speaking to a qualified advisor, like our brokers at Clifton Private Finance, before you take out a product. 

The main factors to consider with bridging finance are that the full loan amount will usually need to be repaid within a year, and like a mortgage, it is secured against a property as collateral. 

This means that in the case that you aren’t able to repay your bridging loan, your property would be at risk of repossession.  

But with a watertight exit strategy, bridging finance can be an efficient way to secure property quickly. 

Can an 80 year old get a bridging loan?

Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. 

What is the monthly interest rate on a bridging loan?

Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate.

Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly.

This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for.

Do banks still do bridging loans?

Unfortunately, mainstream banks in the UK don’t offer bridging loans.

This means that if you’re looking for a bridging loan, you won’t be able to get one using a lender you’d find on the high street.

There are a variety of specialist lenders that offer bridging loans, but because these lenders are smaller and more niche, you may need a bridging broker to access them.

How much do banks charge for bridging loans?

Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest.

But there are other costs to consider such as valuation fees, broker fees and administration fees.

Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.)

Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage.

Can you turn a bridging loan into a mortgage?

Yes, you can convert a bridging loan to a mortgage through refinancing, and it is common among borrowers who use bridging finance to buy residential properties.

However, whether or not you’ll be able to refinance to a mortgage is dependent on your financial circumstances, the lender, and the property you’re planning to buy.

It’s important to be sure that refinancing is a viable repayment option before you take out a bridging loan on a residential property.

Is a bridging loan more expensive than a mortgage?

Yes, bridging loans are typically more expensive than mortgages.

Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage.

However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans).

There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available.

How are bridging loans paid?

The two most common ways to pay a bridging loan are to sell a property or refinance to a mortgage.

You may also need to ‘service’ the loan through the term, which means paying the interest monthly. However, you can opt to ‘roll up’ your bridging interest to be repaid at the end along with the capital.

There are also other ways to repay a bridging loan, such as selling a business or even using money from an inheritance.

The method in which you pay your bridging loan can be flexible, just as long as it is clear in your application that you have a surefire way to repay your loan when the terms are up.

What is the minimum deposit for a bridging loan?

In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself.

Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio.

In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security.

Do you pay monthly payments on a bridging loan?

No, typically, you’ll repay a bridging loan in one chunk at the end of the loan term. Bridging loans are a form of short-term finance and will usually need to be repaid within 12 months, but there can be room for flexibility.

In some cases, borrowers may be required to make monthly interest payments. This means that each month, you would pay the interest accrued on the loan amount while the principal amount remains outstanding until the end of the loan term.

But usually, the interest is "rolled up" or added to the loan balance and paid with the rest of the loan at the end of the term. This option can help protect your cashflow so you can spend it on moving costs or refurbishments, for example.

How long does it take for a bridging loan to come through?

Bridging loans can be arranged in as little as 7 working days.

However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible.

Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain.

What is the criteria for bridging finance?

The key factors lenders tend to consider are:

Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security.

Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage.

Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV.

Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.