How to Get Refurbishment Finance for a Buy to Let Property

09-August-2024
09-August-2024 11:25
in Bridging
by Jennifer Stevenson
How to Get Refurbishment Finance for a Buy to Let Property

Buy to let refurbishment finance can empower you to take advantage of investment opportunities by providing funding quickly.

You've spotted a fixer-upper that could generate handsome rental income with some TLC. Projects like this can offer huge ROI, but it can be difficult to get a mortgage for them.

If you're looking for a buy to let property to generate rental income, finding one that needs significant renovation could help you grab a bargain. But if you don't have the cash on hand to pay for renovations, you could end up missing out on your buy to let's full potential. This is where refurbishment finance comes in.

What is Refurbishment Finance for a Buy to Let?

Refurbishment finance is a short-term bridging loan that can fund up to 70% of your property refurbishment costs.

Once your development work is complete, you can refinance with a standard buy to let mortgage, or repay your refurbishment loan by selling other assets or via other cash windfalls.

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Skip to:

What Type of Rental Property Makes the Most Money?


What's the Difference Between Renovation and Refurbishment?


What's the Difference Between "Light" and "Heavy" Refurbishment?


Can I Use a Mortgage to Refurbish a Buy to Let Property?


How Does Bridging Finance Work for Refurbishments?


Refurbishment Finance Rates


Bridging Loan Calculator


Will I Qualify for Refurbishment Finance for My Buy to Let? 

renovation_works_in_progress

What Type of Rental Property Makes the Most Money?

When done well, the rental properties with some of the biggest potential for ROI are refurbished properties and buildings. If you're already a landlord, renovating your rental property could boost your value and make you more money.

However, landlords face a challenge in finding finance at the right price to make renovations cost-effective. In this blog post, we'll explain your options and offer examples of how the right funding could work for you. 

Related: Landlords Are Improving EPC on Rental Properties - Here's Why

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What's the Difference Between Renovations and Refurbishment?

In terms of property finance, the main distinction between renovation and refurbishment is the difference between works classed as "light refurbishments" and those classed as "heavy refurbishments".

But these two terms are largely interchangeable and can cover anything from decorating and recarpeting to replacing entire kitchens and bathrooms, knocking rooms through, or adding an extension.

Related: 6 Home Improvements That Add the Most Value

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What's the Difference Between "Light" and "Heavy" Refurbishment?

  • A light redevelopment/refurbishment involves non-structural, largely decorative work on a property. It usually doesn’t require planning permission or compliance with building regulations. A commonly used example would be upgrading bathrooms and kitchens and replacing floor coverings.

If you can keep to a tight timescale for the renovations, bridging finance can work well for your light refurbishment work.

  • A heavy refurbishment is any project whose total cost is more than 15% of the property value and involves major structural changes, such as altering internal supporting walls or building an extension.

To cover this more extensive work and allow time for the necessary planning approvals, you will need bridging finance running for longer than the standard maximum of 12 months. Most lenders can offer up to 18 months, and some will lend for up to 36 months.

See the latest market news below.

2025 Bridging Market Update

The bridging market has had quite a transformation in the past few years. With rates starting at 0.55% per month, the costs aren’t dissimilar from those of a mortgage, and the combination of flexibility, quick turnaround time and less stringent eligibility criteria has led to bridging finance growing in popularity.

It’s now seen as a product in its own right instead of an expensive alternative to long-term finance.

Our finance brokers are seeing more repeat clients, particularly investors who have turned their attention to property flipping considering the slim profit margins the buy to let market has been seeing. HMO conversions have also grown in popularity amid more rigid rental legislation.

According to our team of advisers, a high volume of first-time borrowers already have an understanding of bridging loans before approaching us, showing that bridging is becoming more recognised in the industry.

As bridging finance becomes more mainstream, lenders are reviewing and reducing rates more frequently, offering more flexibility around costs.

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Can I Use a Mortgage to Refurbish a Buy to Let Property?

  • If you own a rental property with a buy to let mortgage and want to improve or extend it, you could consider remortgaging (extending your mortgage) to fund the work. However, it is important to note that if your mortgage hasn't reached the end of its agreed term, there will be costs to change your mortgage deal early.
  • Extending your mortgage to fund your renovation may only be possible if you have a small mortgage on the property. However, the amount you can borrow will be based on the house’s current value and monthly rental income, so you may struggle to borrow enough for the work you want to carry out.
  • If you're planning on buying a property that needs renovating before it can be used as a rental, it's unlikely you'll be able to get a buy to let mortgage until the refurbishment work is complete. Instead, you'll need to find specialist funding - often known as a refurb-to-let loan.

While you're here, check out our property insurance services to ensure you're getting the right cover for your buy to let property.

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How Does Bridging Finance Work for Refurbishments? 

Most refurbishment finance, including refurb-to-let finance, is offered in the form of a bridging loan. This type of finance is short-term and allows you to borrow significant amounts of capital secured against a property for various purposes, including home improvements.

Bridging loans can be secured as a first or second charge on a property or more than one property. This can be the property you're buying or one you already own. And in some cases, you can use both. 

With a refurbishment bridging loan, you can normally borrow up to 70% of the project's Gross Development Value (GDV). The GDV is how much it will be worth once all work is completed. Loan terms are normally within 1-18 months, and interest is commonly "rolled up" to be paid at the end of the loan term when the capital is repaid.

Bridging loans can usually be arranged quickly, often in as little as 5-7 working days, making them ideal for moving quickly with a project. Securing bridge finance against more than one property can allow you to borrow more or get a more attractive interest rate.

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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 17th January 2025

Ground Up Development

New Builds

Finance Rates from

0.83% pm

Up to 24 months

Rates up to 70% of GDV

As at 17th January 2025

Existing Development?

Refinance & Exit Finance

Finance Rates from

0.55% pm

1 to 18 months

Rates up to 80% LTV net

As at 17th January 2025

Contact Us

Thank You for your interest - please complete the form below and a member of our team will be in contact.

Use Our Bridging Loan Calculator

Our bridging calculator can get an approximate idea of what a bridging loan might cost you. But keep in mind that a finance broker will be able to fine-tune your expected charges to your circumstances:

Bridging loan calculator image for blog post titled 'How to get refurbishment finance for a buy-to-let property'

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Will I Qualify for Refurbishment Finance for My Buy to Let?

  • It depends on whether you already own the property, whether you're looking for finance to purchase and renovate, and how extensive the necessary works are. 
  • This is a fairly complex set of variables, so it can be helpful to work with a specialist finance broker who can help you get the best terms for your circumstances.
  • Our experienced team of brokers has contacts with a range of private lenders, which means we can help you get deals that you wouldn't have access to on your own.
  • We can also arrange buy to let mortgages and other refinancing options for when your refurbishment work is complete.

How We Can Help

High-street banks no longer offer bridging loans in the UK. If you plan on taking out a refurbishment bridging loan, you'll need to source one from a specialist lender. 

Private and specialist lenders typically use finance brokers to find clients, but they are not as easy to find or access as high-street lenders. An experienced bridging loan broker will have in-depth market knowledge and can connect you with the most suitable lender for your circumstances. 

At Clifton Private Finance, we have an award-winning bridging team and can get the best rates on the market. If you have found a property you wish to purchase, develop, or sell, we can get the best finance to meet your needs.

We have relationships with lenders offering both light and heavy refurbishment bridging loans and will be able to secure the best financial solution for you. We can guide you through your options and source finance as quickly as possible.

To see what we can do for you, call us on 0203 900 4322 or book a free consultation below.

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Bridging Loan Award 2023

Bridging Loan Awards 2022

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.