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A Full Guide To Financing Your Next Property Renovation: Refurbishment Bridging Loans
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:
Refurbishment finance (sometimes known as a refurbishment mortgage, refurbishment loan, or renovation mortgage) is a short-term loan used to fund a property purchase and any light or heavy development work that needs to be done.
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.
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 by: Sam O'Neill & Sam Hodgson
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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?
Refurbishment Finance Calculator
How Quickly Can I Get Refurbishment Finance?
How Do I Apply For Refurbishment Finance?
Why Use a Property Finance Broker?
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 andfirst-time property investors for house flipping, which involves purchasing and renovating 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.
Related: Read our guide on how to use a renovation bridging loan to buy and renovate a house for a profit
Fergus Allen
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.
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 generally 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
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 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 needed to complete the refurbishment costs.
See similar: Home Improvements That Add the Most Value
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 work, time schedules and costs, and the contractors you have in place to make the project successful.
- Your planned exit will also be assessed (sale of property or refinance through a mortgage).
Related: Home Improvement Loans - The 7 Best Options
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. Getting 100% LTV refurbishment is possible if you can provide extra security.
Refurbishment Finance Calculator
Use our refurbishment finance calculator below to get an indicative quote of what a refurbishment bridging loan might cost you.
Refurbishment Finance Rates
Flipping Property?
Buying, Renovating & Selling (or Letting)
Finance Rates from
0.55% pm
1 - 18 months
Rates up to 80% LTV net
As at 4th September 2024
Ground Up Development
New Builds
Finance Rates from
0.83% pm
Up to 24 months
Rates up to 70% of GDV
As at 4th September 2024
Existing Development?
Refinance & Exit Finance
Finance Rates from
0.55% pm
1 to 18 months
Rates up to 80% LTV net
As at 4th September 2024
Contact Us
Thank You for your interest - please complete the form below and a member of our team will be in contact.
How Quickly Can I Get Refurbishment Finance?
You can expect 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.
- Step 2: We'll strive to get you an offer in principle within 24 hours.
- Step 3: 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 receives all crucial information and supporting documentation, you're ready to go! Within 24 hours of receiving the report on title, we arrange the transfer of funds to your solicitor, who will then release them to your bank account.
Related: How to find the best bridging loan deals
Why Use a Property Finance Broker?
Our property finance broker team has expert knowledge of the short-term lending market, meaning we can meet the needs of a wide variety of property investors and landlords.
From start to finish, your dedicated broker will guide you through the process, be readily available to answer any questions and relieve your stress and hassle.
Our strength is our ability to access various 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 consultation below.
FAQs
What are net vs gross bridging loan calculations?
Understanding the difference between net and gross calculations is essential when comparing deals from bridging loan lenders.
The calculation determines the maximum LTV (Loan-to-Value), how much you can borrow, and how much you will eventually repay.
Here’s the difference:
When calculating the net loan amount for bridging loans, the borrower deducts the loan costs and additional fees (such as the arrangement fee) from the total loan amount - this is known as net loan calculation.
Contrary to that, gross loan calculation is based on the loan amount the borrower can receive without deducting any costs or fees.
In brief, the gross loan calculation represents the total amount available to the borrower, while the net loan represents what the borrower ultimately receives after deductions.
Which calculation do lenders use for bridging loans?
A common complication arises when it comes to comparing bridging lenders, as different lenders advertise their bridging loan products differently. The upshot of this, is that it can become difficult to determine if a higher LTV (loan-to-value) represents the actual amount you could receive.
Lenders typically use a gross loan calculation when advertising or promoting their bridging loan products.
This is because the gross loan amount represents the maximum loan amount the borrower is eligible to receive, and can be used as a marketing tool to attract potential borrowers.
Nevertheless, the net loan calculation is used when negotiating an agreement, which is the amount the borrower will receive after deducting fees and other costs.
Borrowers are responsible for repaying this amount, and lenders will use that amount to determine repayment schedules and other loan terms.
How a broker can help with bridging loan calculations
A broker can assist with bridging loan calculations by providing clarity, expertise, negotiation skills, and a comparison of loan options to help you make more informed decisions.
What is the difference between first-charge and second-charge bridging loans?
A first charge bridging loan refers to a bridging loan that is the only charge against the property, i.e., there is no existing mortgage on that property.
A second charge bridging loan is when there is already a mortgage on the property that the bridging loan is being secured against.
In the event of repossession, the 'first charge' has the legal right to be repaid first, before the second charge, which is why second charge loans can be slightly more expensive as they're a greater risk to lenders.
It is still entirely possible to secure a second-charge bridging loan and they are common within the industry.
Can you get a bridging loan with bad credit?
Yes, you can get a bridging loan with bad credit.
While lenders will look at your credit score and factor it into your application, there is no requirement for regular loan servicing with a bridging loan, and so your income is not analysed and your credit score is significantly less important than with a mortgage.
How short-term are bridging loans?
Almost all regulated bridging loans are short-term, and have a duration of 12 months.
Bridging loans are short-term by nature. However, there can be some flexibility on term length, particularly for unregulated bridging. For example, bridging for development projects, flipping properties, buy to let bridging loans and commercial bridging loans can all have longer terms up to 36 months.
Some bridging loan lenders allow you to extend your term if at the end of 12 months your property hasn't sold or your alternative funding hasn't come through yet - however, this is down to the lender's discretion and there are no guarantees. It's important to be aware of the risks of bridging loans, and your property can be seized and sold to compensate for failure to repay.
What are bridging loan exit strategies?
A bridging loan exit strategy is simply the way in which you plan to repay your bridging loan.
The most common exit strategies are selling an existing property, selling the property you're purchasing, refinancing with a mortgage, or a combination.
Other more unique exit strategies can include selling a business, receiving a pending inheritance, or receiving a large tax rebate.
What are some alternatives to bridging loans?
Here are some of the most common alternatives to bridging loans:
- Second-charge mortgages
- Remortgaging
- Equity Release
- Personal Loan
- Savings or Family Support
- Development Finance
- Commercial Mortgages
- Refurbishment Loans
We break down each of these other financing tools in our full guide to alternatives to bridging loans.
While none of these options provide the flexibility, loan size and low interest rates that bridging loans do for property transactions, you may find they are more appropriate finance options for your specific situation.
Is there an age limit on bridging loans?
No, there is no strict age limit for securing a bridging loan.
Bridging loans are typically 12 months in duration, which means that there aren't age limits in place like there are for mortgages that can last for 25+ years.
The main example where age may be an issue is if you plan to refinance your bridging loan with a standard mortgage. In which case, you'll need to be eligible for a standard mortgage to qualify for your bridging loan - and if you are approaching retirement age, this could be an issue and you may be rejected for a bridging loan.
However, we work with specialist equity release and lifetime mortgage lenders that can provide a Decision in Principle for later-life lending (if it's feasible) so that your bridging loan can be approved if it makes sense with your broader strategy.
Are bridging loans regulated?
There are two types of bridging finance: regulated bridging loans and unregulated bridging loans.
It simply depends on the intended use of the property you're purchasing.
When you or a family member intend to live in the property you’re purchasing with your bridging loan, you’ll need a regulated bridging loan.
If you're getting bridging finance on property that you or a family member will not be living in, or if it’s a commercial property, then you’ll need an unregulated bridging loan (commercial bridge loan).
And if you intend to sell the property to repay your bridging loan (flipping the property) instead of refinancing or selling another property, you’ll get an unregulated bridge loan.
Regulated bridging loans are authorised and regulated by the FCA and are usually locked to a 12-month maximum term. Unregulated bridging loans, meanwhile, can have extended periods of up to 36 months and are generally more flexible.
If you’re unsure, it’s best to speak to a qualified adviser to go over exactly what you need and find the best bridging loan for you.
Do you need a valuation for a bridging loan?
Yes, your bridging loan lender will require a new valuation to be carried out for all properties in your bridging loan transaction.
In some cases, we can work with lenders that can facilitate a 'desk valuation', which is a valuation carried out online based on the local property market, images of the property and the specifications of the home - this can save a considerable amount in fees and speed up your application, but it's not always possible, especially for higher value properties.
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?
You don't necessarily need a deposit for a bridging loan in the traditional sense of cash reserves, but you do need security for your loan in the form of another property or asset to keep the loan-to-value below 80% at a maximum.
For example, if you're buying a £300k property with a £300k bridging loan, you'd need another property to secure the loan against along with the property you're buying, or else your loan to value would be 100%.
Can I get 100% bridging finance?
You can effectively secure a loan for 100% of a property value, but only if you have other property as security to keep your overall loan-to-value below 80%.
So, if you're getting a loan for 100% of a property value, you'll need another property in the background to secure it against.
The easiest way to see if you're eligible is either to give us a call or use our bridging loan calculator that automatically calculates your LTV.
Does a bridging loan make you a cash buyer?
Using funds from a bridging loan to purchase a property puts you in a strong position as a buyer - similar to that of a cash buyer.
Being a cash buyer is attractive to sellers because there is no onward chain requirement, and the funds are ready to go for the purchase.
Using a bridging loan also eliminates the need for the chain to complete, and puts you in a position where funds can be available in a matter of weeks for completion; effectively rendering you a cash buyer to prospective sellers.
What is the longest bridging loan term?
Regulated bridging loans (for residential properties) are typically 12 months, however, some non-regulated bridging loans for buy to lets and commercial properties can be up to 36 months.
Some lenders are more flexible on term durations than others, and it can be a case-by-case basis as to whether you'll get approval for a longer loan term.
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 generally considered safe provided they are used for suitable property transactions. Speaking to a bridging loan adviser is recommended if you're unsure about the risks and suitability of a bridging loan for your situation.
Generally speaking, the main risk of a bridging loan is that if you cannot repay the loan, your property can be repossessed and sold to clear your debt.
For example, if you take out a bridging loan to buy a new property but your existing property fails to sell and you cannot recoup the funds, this could become a risk. However, bridging lenders always require their own valuations for any property involved in a bridging transaction to combat this.
Another example could be that you're unable to secure a mortgage to refinance your bridging loan. At Clifton, we make sure your remortgage plans are sound if this is your bridging loan exit strategy, and can even arrange your mortgage for you through our dedicated mortgage advice service on the other side to smooth the process.
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?
No high street banks currently offer bridging loans. Instead, bridging loans are provided by specialist short-term finance lenders.
At Clifton Private Finance, we are a whole of market brokerage that deals with multiple bridging loan lenders, and we act as an intermediary between clients and the lender ensuring the process is smooth and hassle-free, and making sure our clients are getting a good deal.
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?
You cannot turn a bridging loan into a mortgage, but you can repay a bridging loan with a mortgage and effectively refinance it into a long-term arrangement.
This is common when buying an unmortgageable property with a bridging loan, carrying out refurbishments, and then mortgaging it once it is wind and water-tight and a new valuation has been carried out.
This is also common for properties bought at auction where a mortgage would be too slow to arrange, and so a bridging loan is used which is then replaced with a mortgage later.
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?
If there is a purchase involved, bridging loans are paid from the lender to the lender’s solicitor, then to the client’s solicitor, and then to the seller’s solicitor - so, you as a client will not see the funds in your own account - similar to a mortgage.
If there is no purchase involved (for example, for a bridging loan for home improvements before selling), the funds go from the lender to the lender's solicitor, to the client’s solicitor, and then to the client's bank account.
In terms of how bridging loans are repaid by you, they are repaid as a lump sum, either at the end of your term or during it. You can choose to either 'service' the interest, so pay the interest back monthly, or roll it up into the value of the loan to also pay this off as a lump sum along with the capital.
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?
You do not pay monthly instalments towards the capital loan of your bridging loan. Some bridging loans require you to repay the interest accrued each month, but most lenders will actually give you the option to roll this up into the loan value, meaning you repay it with your lump sum at the end and have absolutely no monthly commitments.
It's worth noting that as soon as you pay off most bridging loans, you stop accruing interest - so, the quicker you pay it off, the less expensive it will be, and there are typically no ERCs (early repayment charges).
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.