What is a refurbishment bridging loan?

A refurbishment bridging loan is a short-term loan to fund the refurbishment or renovation of a property. Refurbishment bridging loans provide a short-term solution to finance a property refurbishment project until more permanent financing can be secured, or the property is sold to pay back the loan.

Refurbishment bridging loans can be a powerful tool for property developers and investors who need access to funds quickly to carry out renovation work. With the right support and guidance, you can turn your renovation project into a success and achieve your goals in the world of property investment.

In this brief guide to bridging loans, we will cover everything you need to know about refurbishment bridging loans.

By understanding the criteria for obtaining a bridging loan, the types of bridging loans available, and the benefits of working with a specialist bridging advisor, like those at Commercial Trust, you can secure the funds you need to refurbish your property.

Why should you go for a refurbishment bridging loan?

If you have a property refurbishment project, these are the reasons why you should consider a refurbishment bridging loan:

Gives you access to significant funds

Refurbishment bridging loans can provide access to significant borrowing, making it possible to carry out extensive renovation work on a property. This can be especially beneficial to property developers or investors who are looking to quickly increase the value of a property to make a profit (known as flipping property).

These loans can cover the cost of materials, labour, and any other expenses associated with the refurbishment or renovation project. The funds you can access will depend on the lender, the value of the property, and the estimated cost of the renovation work.

Flexible interest payment plans

With a refurbishment bridging loan, borrowers have access to flexible interest payment plans. This flexibility can make it easier to manage cash flow during the refurbishment project.

Borrowers can choose between these two interest repayment plans:

• Retained interest bridging loan: Retained interest is where the interest is calculated at the start and added to the loan amount (so will affect the loan to value) and repaid at the end of the term.
• Serviced bridging loan: is where interest is paid monthly, so is not added to the loan and as such means you can borrow more than if you retain the interest.

What are the criteria for obtaining a refurbishment bridging loan?

To obtain a refurbishment bridging loan, you will typically need to meet the following criteria:

• Age: Borrowers must be at least 18 years old.
• Bridging loan security: The refurbishment bridging loan will need to be secured against a property. This can be either your own property or the one you are purchasing with the loan.
• Property type: You can have a refurbishment bridging loan for residential, commercial, or mixed-use properties.
• Loan amount: You can borrow from £25,000 up to several million pounds with a refurbishment bridging loan.
• Loan term: Refurbishment bridging loans are short-term loans that are typically available for 3 to 18 months.
• Deposit size: The deposit size will depend on the lender. Typically, the range is between 25% and 40% but can be as high as 50% depending on the risk of the borrower or project or as low as 20% (although these deals are fewer in number).
• Interest rates: Interest rates will vary depending on the lender and the risk associated with the loan.
• Credit history: Lenders will typically perform a credit check on the borrower. You can still apply for a refurbishment bridging loan if you have poor credit.

What are the risks of a bridging loan?

Like any type of loan, there are risks associated with refurbishment bridging loans. Many bridging loans include additional fees, which can be added to the total borrowing.

Interest is calculated using a monthly interest rate not an annual one (as with a mortgage), and are typically more expensive than a mortgage. If you encounter financial difficulties for any reason that put you at risk of being unable to repay the loan, the lender could take possession of the property to cover your debt.

Should you get a light or heavy refurbishment bridging loan?

There are two main types of bridging loan to consider: light refurbishment bridging loans and heavy refurbishment bridging loans.

Here's what you need to know about each type:

Light refurbishment bridging loan

A light refurbishment bridging loan is for minor renovation work.

Due to these refurbishments being cosmetic improvements or minor repairs, light refurbishment loans have lower interest rates than their counterpart does, as they carry a reduced risk for the lender. Given the interest rates are lower, light refurbishment bridging loans are typically cheaper than heavy refurbishment bridging loans.

Heavy refurbishment bridging loan

A heavy refurbishment bridging loan is for more extensive renovation work. This includes structural alterations, extensions, or major repairs.

These loans are riskier for lenders, as there is a higher chance that the project will not be completed on time or within budget. This usually makes heavy refurbishment loan interest rates higher and therefore more expensive.

When deciding whether to go for a light or heavy refurbishment bridging loan, it's important to consider the scope of your refurbishment project and the funds you need. If you only need to carry out minor repairs or cosmetic improvements, a light refurbishment loan may be the best option. If you are planning major renovations, a heavy refurbishment loan may be necessary.

If you work with a broker and outline the work you are going to do, they will be able to guide you on the type of product you need.

Refurbishment buy to let mortgage

If you are renovating a residential property you intend to rent out, you may even be able to secure a refurbishment buy to let mortgage.

This is a less common opportunity, but saves you having to use two products. It tends to be cheaper as you are paying a term-loan interest rate whilst doing the renovation, not a bridging loan rate, which tend to be higher.

High street lenders don’t offer refurbishment bridging loans, but lots of specialist lenders do

While high street lenders may offer a wide range of financial products, they are generally unable to provide refurbishment bridging loans. Due to the nature of refurbishment loans, high street lenders often view these loans as too risky.

Whilst you won’t encounter names from the high street, there are a wide range of specialist bridging lenders with expertise in both refurbishment bridging loans and more extensive ground-up property development finance products.

The application process when using a broker

The average bridging loan can take 2 – 4 weeks from application to completion. This can process can be shortened to a few working days, if solicitors are instructed from the outset and a valuation can be promptly completed.

How can Commercial Trust help you get a refurbishment bridging loan?

Commercial Trust is a specialist bridging broker. We can help you find the right loan for your needs.

From residential to commercial refurbishment loans, our team of specialist advisors will make the process of securing the funds you need easy. We have access to a wide range of lenders and can ensure you get a competitive deal.

We will support and guide you throughout the entire application process, saving time, hassle, and stress.

What’s more, we can help you arrange a method of paying off the loan, to a lower rate longer term buy to let mortgage or commercial mortgage.

Get in touch to chat with an expert bridging advisor to get started with your refurbishment bridging loan.