Refurbishment Bridging Loan
If you are a property investor considering upgrades or renovations for one or more properties, you may find a refurbishment bridging loan useful.
Refurbishment bridging loans are popular options for investors looking to capitalise on a great deal, who lack the additional funds required to cover the renovations. Refurbishment bridging loans can be used solely to fund renovation and improvement projects, or to cover the costs of a property outright and the subsequent renovation bill.
What is a Refurbishment Bridging Loan?
Refurbishment bridging loans, also referred to as refurbishment finance, are specialist loans issued to cover the costs of property refurbishments. There are two primary types of refurbishment bridging loans available, known as ‘light’ refurbishment bridging loans and ‘heavy’ refurbishment bridging loans. The nature and scale of your requirements will determine which of the two is most appropriate for your needs.
Though not always the case, refurbishment bridging loans are paid out in two stages. The first payment is calculated based on the purchase price of the property, after which the second payment is transferred upon completion of the refurbishments. The value of the property with a refurbishment bridging loan relates to its projected value when the refurbishments have been carried out.
An example to illustrate how a refurbishment bridging loan works:
- Property purchase price: £100,000
- Refurbishment cost: £20,000
- Projected property value: £150,000
- Refurbishment bridging loan: £105,000 (70% LTV)
Loan terms and eligibility criteria vary significantly from one lender to the next. As with all bridging loan applications, you can expect extensive credit history checks to be carried out as part of the process.
What Are Light Refurbishment Bridging Loans?
A light refurbishment bridging loan is suitable when a property requires relatively minor upgrades. The definition of ‘light’ refurbishments differs from one lender to the next, though typically applies where no planning permission is necessary to complete the project.
Typical examples of which include the following:
- Central heating system installation
- Rewiring the property’s electrics
- Installation of new windows and doors
- Everyday decorating and cosmetic improvements
- Installation of a new bathroom
- Kitchen remodeling projects
- Repurposing one or more rooms
- Most non-structural improvements
It is also worth noting that the project can incorporate any combination of these and other moderate property improvements. As no major alterations are being made to the structure of the property or its surroundings, the project is likely to be considered a ‘light’ refurbishment.
What is a Heavy Refurbishment Bridging Loan?
Heavy refurbishment bridging loans are suitable for more challenging and advanced projects, typically where structural changes are involved. If it is necessary to obtain planning permission, it is almost always considered a heavy refurbishment.
The definition of ‘heavy’ refurbishments varies between lenders, though usually applies to renovations such as the following:
- Any project that requires planning permission
- Internal and external structural works
- Property extensions and conversion projects
- Building regulations
Depending on the size and nature of the project, applying for development finance could be more suitable. For example, if you were considering the conversion of a building into a block of apartments, development finance may be more appropriate.
How Much Can I Borrow?
The amount you can borrow will be determined alongside your eligibility for a refurbishment bridging loan. Most lenders who offer refurbishment bridging loans will provide loans of up to 75% of the post-refurbishment value of the property. It is sometimes possible to qualify for a higher LTV, though a sizeable deposit may be needed alongside a good credit history and a strong financial track-record.
Your lender will base much of their decision on the projected future value of the property. You will also be expected to provide verification of your financial position, your income and your capacity to repay the loan as agreed.
If you meet the criteria set out by the lender, there are technically no limitations to how much you can borrow. Development finance may be more suitable for larger renovation and redevelopment projects – Call UK Property Finance anytime to discuss the available options.
How Much Do Refurbishment Bridging Loans Cost?
The type of refurbishment bridging loan you apply for will determine the overall borrowing costs you can expect. For example, some refurbishment bridging loans are issued as short-term bridging loans, which are designed to be repaid within a matter of months. In which case, you could be looking at a monthly rate of interest as low as 0.5% or less.
Longer bridging loan repayment periods mean higher overall borrowing costs. The size of the deposit you provide will also influence the affordability of your loan – bigger deposits (and lower bridging loan LTVs) typically reducing borrowing costs on all types of bridging loans. Your credit history and financial status at the time of your application will also play a role.
Your choice of lender will make a big difference to how much you can expect to pay for your refurbishment bridging loan. If you work with an independent specialist with an established track-record, you will be offered a competitive deal to suit your requirements.
At UK Property Finance, we provide a whole-of-market brokerage service for refurbishment bridging loan applicants. We will compare the best deals and the lowest rates from dozens of specialist lenders across the UK.
For more information or to discuss your eligibility for a refurbishment bridging loan in more detail, contact a member of the team at UK Property Finance today.