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 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 loans and ‘heavy’ refurbishment 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 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.
Let’s look at a simple example of how a refurbishment loan would look like in reality:
- A property is bought for £100,000
- The cost to refurbish the property is £20,000
- The estimated value of the property after refurbishment is £150,000
- Therefore you will be able to apply for a refurbishment loan for £105,000 (70% LTV)
Each lender will have their own set of terms and criteria for eligibility for applicants of refurbishment finance. 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?
Light refurbishment refers to upgrades made to a property that does not require any major structural changes or planning permissions. It is, however, important to check with the lender what they consider ‘light’ as this may vary from one lender to another.
Examples of light refurbishment:
- Installing a new bathroom
- Installing a new kitchen
- Electrical re-wiring
- Replacing old windows and doors with new
- New central heating system
- General decorating and cosmetic upgrades
- Repurposing rooms
- Any upgrade that is non-structural
Even if the upgrade involves all of the above alterations it will still be considered ‘light’ refurbishment due to the fact that no major changes are being undertaken and no permissions are required.
What is a Heavy Refurbishment Bridging Loan?
Refurbishment that involves structural changes and planning permission are typically referred to as ‘heavy’ refurbishment. This type of loan is used for more challenging, and often more costly, upgrades to a property.
The term ‘heavy’ may be interpreted differently from one lender to the other but usually covers all changes that involve some kind of structural change to the building.
- Any project that requires planning permission
- Any refurbishment that requires you to apply for planning permission
- Internal and external structural changes
- Loft conversions, garage conversions and extensions
- Building regulations
Whilst a bridging loan may be a great finance option for ‘heavy’ refurbishment, it may be more beneficial to look at applying for a development loan instead. Development finance will often the better choice when your project is of a sizeable nature, for example if you were converting a commercial building into a block of flats.
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 sizable 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 finance is 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 finance. 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.