Refurbishment bridging loans are a short-term finance solution. As is clear from the name, bridging loans “bridge” a gap in funding. They provide prospective buyers with the finance they need in a short space of time.

Refurbishment bridging loans typically have two components.

• First, a first charge bridging loan funds the property purchase.
• Second, a refurbishment bridging loan facility that covers entire cost of refurbishing the property.

The lender charges interest on the loan, although the rate varies depending on a range of factors. One important factor is whether the project involves light refurbishment or heavy refurbishment.

Light Refurbishment Mortgage

A light refurbishment mortgage is for home owners or property investors to use a loan to complete any refurbishment works. The would be developer takes on a project to modernise a house. The project scope is only for cosmetics works such as the replacing of a kitchen, bathroom and decoration.

Heavy Refurbishment Finance

Whilst a heavy refurbishment is a loft extension or extension to the property. Typically anything structural This requires heavy refurbishment finance.

Refurbishment bridging loans are a short-term finance solution. As is clear from the name, bridging loans “bridge” a gap in funding. They provide prospective buyers with the finance they need in a short space of time.

Refurbishment bridging loans typically have two components.

• First, a first charge bridging loan funds the property purchase.
• Second, a refurbishment bridging loan facility that covers entire cost of refurbishing the property.

The lender charges interest on the loan, although the rate varies depending on a range of factors. One important factor is whether the project involves light refurbishment or heavy refurbishment.

Typically, high street lenders can’t provide you with the speedy funding you need for property development projects.

Many prospective property investors believe that traditional lenders represent the best option to finance their project. However, that is rarely the case. There are a number of potential issues that can arise when approaching traditional lenders in such situations.  They include:

• Limited financial products. Traditional lenders’ loans rarely suit short-term projects, only a narrow set of circumstances which can be severely limiting on your developments.
• Limited types of properties. Usually, property development projects involve purchasing rundown properties at low prices. Developers then upgrade them to a high standard before selling or renting out at a profit. Frequently, they purchase these properties at auctions to save money and maximise ROI. Often, those properties are in such poor condition traditional lenders deem them to be unmortgageable.
• Limited numbers of properties. Traditional lenders have caps on how many properties a developer can own when making a loan application. As a result, developers with several properties have restricted borrowing options.
• Rigorous portfolio reviews. Traditional lenders will usually carry out in-depth property portfolio reviews on applicants. For newcomers to property development, this may be an issue. Lenders may reject applications from inexperienced developers.
• Long application processes. Applying for finance from a high street lender may take several weeks. Such a long delay will probably have a major impact on the development timeline. Worse, it could lead to losing out on a chosen property to a different buyer.

More developers are now opting for bridging finance since it often comes with features that appeal to property developers.

Bridging loans offer the benefit of flexible interest payments. Typically, they offer developers the option of rolling up their interest and paying it when the loan term ends. This is a distinct benefit over monthly interest payments since it frees up more capital for the development project.

A bridging loan also offers flexible terms to suit the needs of the project. Since the loan is only short-term, developers aren’t locked into a long-term agreement. High street lenders typically charge an early repayment penalty for repaying a loan in full before the deadline.

Refurbishment bridging loan providers, on the other hand, rarely charge an early repayment penalty. If developers finish their project earlier than anticipated, there is no penalty for repaying their loan before the term’s end.

For landlords, refurbishment works are becoming increasingly essential. Upcoming EPC legislation is causing landlords to make eco-friendly improvements to their properties.

Furthermore buy-to-let landlords are facing ever-stricter rules about keeping properties in good condition. Failure to comply can result in costly penalties. 

A refurbishment bridging loan can make it easier for landlords to address these issues in a timely manner.

There are two types of refurbishment bridging loans. One is the light refurbishment bridging loan and the other is the heavy refurbishment bridging loan. It’s important to understand the differences between the two so you can determine which type you require for your project.

A light refurbishment bridging loan is applicable to projects costing less than 15% of a property’s value. Light refurbishments include aesthetic improvements like replastering, painting, fitting a new heating system or installing a new bathroom.

A heavy refurbishment bridging loan is applicable to projects costing over 15% of a property’s value. Heavy refurbishment projects include structural work that often requires planning permission and adherence to specific building regulations. 

Some examples of heavy refurbishment projects include loft conversions and extensions.

Bridging loans for refurbishment projects are suitable for conversions, refurbishments, and renovations.

Conversion projects change a room or building’s specific function or use. Some popular conversion projects include loft, garage, basement, and bedroom conversions.

Refurbishment projects enhance a property’s overall quality and value. Usually, they relate to actions like fitting new kitchens or bathrooms, or redecorating.

Renovation projects involve modernising or improving a damaged or old building. Flipping properties usually involves renovation.

Refurbishment bridging loans are also suitable for upgrading properties to meet regulations like the EPC rules for property energy efficiency. Landlords can also use them to finance repairs to properties suffering from wear-and-tear and damage by tenants.

A refurbishment bridging loan is suitable to finance work on a variety of property types including semi-commercial, commercial, and residential. It’s an ideal solution for refurbishing and renovating properties purchased at auction – or simply a component for a bridging loan when purchasing a property to add value.

Don’t forget to take other aspects like arrangement and exit fees, and surveyor and solicitors’ costs of bridging loans into account too. You can use our online bridging loan calculator to get an idea of your costs.

Complete our online form and receive a quote for your finance costs. One of our representatives will contact you soon with your next steps as well as your quote.

Alternatively, give our friendly team a call today on 020 7431 7606. We’re looking forward to helping you secure the finance that you need to complete your property refurbishment project.

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