How to Get Refurbishment Finance for a Buy to Let Property

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.

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. 

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. 

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. 

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.

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.

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. 

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.

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. 

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.