Bridging Loan For Renovation | How To Fund A Renovation

Have you found a prime-location property at a bargain price, but it’s missing a kitchen or even a roof? A bridging loan for renovation could be your solution.

Understanding Bridging Loans for Renovations: A Comprehensive Guide

Have you found a prime-location property at a bargain price, but it’s missing a kitchen or even a roof? A bridging loan for renovation could be your solution.

Buying a below-market-value property and carrying out renovations before selling or renting can generate healthy profits when done right. At the core of every successful project is finance - a bridging loan for renovation can help fund the purchase and renovation costs of a rundown property.

As well as covering the bridging loan basics, this article explains how a bridging loan for renovation works, their pros and cons and how to secure the best deal.

At any time, you can use Brickflow’s bridging loan calculator to instantly model your deals against live refurbishment bridging loans.

What is a bridging loan for renovation?

Bridging finance is short-term funding, typically between 1 and 24 months, that can be arranged quickly and is asset-secured (either the property being purchased or additional property). In some cases, high-value items like artwork or cars can be used as security, but this is less common and requires specialist valuations.

Using a bridging loan for house renovations is a way of funding a property purchase plus the costs of renovation work, or it can be used solely to fund the work. They are arranged on the basis of your exit strategy — typically selling the renovated property or refinancing it.

You can secure a bridging loan for renovations of commercial or residential properties.

They are commonly referred to as refurbishment bridging loans. You can find more details on our dedicated refurbishment bridging loans page.

Benefits and drawbacks of bridging loans for renovations

Benefits of bridging loans for renovations

Property renovation opportunities often come with high competition, time-pressured sale deadlines or are found at auction. Bridging finance can facilitate these transactions while other finance options can’t.

Here are some of the key benefits of using a bridging loan for renovation:

• Quick access to funding: Can be arranged quickly, enabling you to buy at auction, meet tight sales deadlines or act as a cash buyer in contested purchases.

• Flexible: Bridging loans can fund commercial and residential projects, and can be open-ended, meaning there’s no fixed repayment date (only a maximum term) and multiple viable exit strategies can be accepted.

• Accessible: They are primarily assessed on the viability of the project rather than the borrower's financial circumstances, though lenders will consider your assets and liabilities and can require a Personal Guarantee.

• Rolled-up interest: Interest is typically paid on loan redemption, so there are no monthly repayments.

• Can fund unmortgageable properties: Unlike traditional mortgages, bridging loan lenders can accept uninhabitable properties with no kitchen or bathroom or with structural issues.

• 100% of build costs can be funded: Lenders typically offer up to 100% of the build costs and up to 75% LTV on the property.

Drawbacks of bridging loans for renovations

With upsides there are downsides. Understanding the potential drawbacks of bridging loans for renovation can help with your decision-making.

• Higher rates and fees: Bridging finance is perceived to carry more risk to lenders than, for example, a homeowner mortgage, hence fees and interest rates tend to be higher. 

• Short-term: Make sure your project plans are accurate and realistic so you can achieve your exit within the term. It’s down to lender discretion whether they extend your loan or not, and any extensions will come at a price that chips into your profit.

• Secured: As a secured finance, the lender can repossess your assets if you cannot repay the loan.

Benefits and drawbacks of regulated vs unregulated bridging loans

Regulated bridging finance is secured against property that is or will be the borrower’s or their family’s home. It’s regulated by the Financial Conduct Authority (FCA) and offers borrowers the same level of protection as a residential mortgage. 

However, this means approval is slower due to the additional layers of bureaucracy, but upgrading your existing home or future home is possible by using a bridging loan for house renovation.

Unregulated bridging loans can be used on any commercial or residential property investment. There’s no FCA borrower protection, but lenders can process applications quickly and it can be accessed by borrowers with poor credit history, or cashflow issues.

Read more about regulated vs unregulated bridging finance.

How bridging loans work for renovation projects

The best way to understand how a bridging loan works for a renovation project is by looking at an actual funding example.

The scenario:

• £500,000 purchase price + purchase costs
• £50,000 refurbishment costs + contingency
• £690,000 gross development value (GDV)

An example loan for this renovation project shows the lender covers 100% of the build costs and offers over 68% loan to cost (LTC) on a gross loan basis. The deal has the potential to achieve a profit outcome of £61,000, with lender cost at just over £50,000.



The process:

• Shop around:To find the best bridging loan for your project, you have to search the market. Brickflow’s bridging loan calculator is the fastest way to compare like-for-like loans from 50+ bridging lenders.

• Prepare your application: As well as your ID, proof of address and financial documentation, lenders need details on your project and market evidence to show your GDV is realistic.

• Apply with your intermediary: Using a specialist bridging loan broker is the best way to submit your application to lenders. At Brickflow, you can apply with your intermediary to multiple lenders using our digital application.

• Loan approval: Depending on the complexity of your property and project, a bridging loan for renovation is typically completed within 1–6 weeks. Where the lender uses an automated valuation model and indemnity insurance rather than legal searches, completion can be within a few days — but it’s quite rare. Regulated bridging loans can take up to 8 weeks.

• Loan drawdown: Once your loan is approved, you will be able to draw down the funds and get started on your project.

• Exiting the loan: On completion of your project, the loan is repaid in full with interest and charges by either selling or refinancing the property, or sale of another asset.

Key considerations when applying for a renovation bridging loan

*Brickflow has lenders who can arrange loans for up to 30 and 60 months.

Loan amount and value

Most lenders offer a maximum LTV of 75% on a gross loan basis. They then deduct the interest (unless you’re servicing the loan) and their arrangement fee. The amount leftover is available to the borrower, i.e. the net loan. 

Lenders can offer a 100% bridging loan when additional security is used; this can be a first or second charge against another property. However, there are more criteria to meet and it only applies in certain circumstances. 

If you’re purchasing a distressed or below-market-value property, some lenders might consider higher than 75% gross LTV of the purchase price, and offer instead 75% of market value. 

Lenders carry out a professional property valuation of all assets, which determines their lending parameters and your loan size. 

Interest rates and fees

Interest rates can be either rolled up or serviced.

Rolled up: Interest is calculated up front, rolled up, and deducted from the gross loan. It’s compounded (interest is paid on the interest), so you’ll pay more than paying monthly. 

Serviced: Interest is paid monthly. This is less popular with lenders as properties financed with a bridging loan for renovation are not immediately income-producing, and lenders want the security of having the interest paid upfront. With a serviced loan, the lender needs to be very comfortable that the loan is affordable.

Some factors that affect interest rates: 

• Lender risk: Heavy refurbishment projects have more chance of going wrong so typically have higher rates than lighter refurbs. Meanwhile, prime-located, desirable properties pose less risk to lenders, as resalability is easier in the event of a forced sale.

• The borrower: Your previous experience and your creditworthiness.

• LTV: A lower LTV can help you secure lower rates, but usually, you need a minimum of 40% deposit (60% gross LTV) to see any reduction. 

• Profit margins: Naturally, lenders are more comfortable arranging a bridging loan with wide profit margins.

• Your exit strategy: Lenders like to see a mortgage in principle for refinance exits, or a post-development marketing strategy.  

Additional fees to be aware of:

• Valuation or survey fees
• Legal fees (the lender’s legal fees as well as your own)
• Broker fees (normally paid by the lender)
• Arrangement fees (up to 2% of the net or gross loan)
• Exit fees — not that common for bridging finance, but loans usually carry a minimum term, typically between 1 and 6 months.

Exit strategy

Your exit strategy is key to securing a bridging loan for renovation. 

As mentioned, the debt is typically repaid by:

• Selling the property after the value-add work
• Refinancing
• Selling other assets

Present lenders with a realistic post-work value and an achievable exit. For example, if you plan to refinance but can’t get a mortgage due to bad credit, it will be problematic for the bridging loan lender too.

Tips for securing the best terms and conditions for a renovation bridging loan

Research and compare lenders

To find the best refurbishment bridging loan, you have to examine your options. There are hundreds of lenders, all offering different products with different rates and T&Cs.

Bridging loan lenders include banks, challenger banks, non-banks and specialist lenders. Generally, high street banks have more restrictive lending policies than specialist lenders, making it difficult to secure higher LTVs.

You can search the breadth of the bridging market with Brickflow and compare rates, fees, and gross and net loans.

Improve your creditworthiness

If you have a low credit score, previous CCJ or bankruptcy, it isn’t an instant block to securing a bridging loan for house renovation. Applications are assessed on the property, the project, the valuation and how you will repay the loan rather than your credit file.

However, poor credit history can prevent you from securing the best rates or can limit the number of lenders you can access. 

Our blog, 'Can You Get A Bridging Loan With Bad Credit?', covers this in more detail.

Seek expert advice

Bridging loan brokers are constantly plugged into the market, fostering relationships with lenders and gaining insights into new funding lines and products. They also learn the tricks of the trade to successfully get applications approved.

Leverage their knowledge and network to your advantage. Brickflow’s award-winning tech combined with the expertise of a broker is the most efficient way to secure the best refurbishment bridging loan.

We’re happy to connect you with any of our broker partners, or you can introduce your own broker to Brickflow.

Alternatives to a Bridging Loan for Renovation

Depending on your project, there are alternative finance solutions that might be more suitable than a refurbishment bridging loan:

Development Finance: Tailored finance for ground-up construction and large-scale property developments, with funding released in stages to align with the build schedule. It can be used for commercial or residential properties. 

You can potentially secure larger loans with development finance (at Brickflow, development finance is available up to £300 million), but the application process is more complex and completion time frames are longer.

Commercial Mortgages: If you have a commercial property with built-up equity, you could release capital by refinancing onto a commercial mortgage.

How Brickflow Can Help

Before committing to any renovation project, you need to know how much you can borrow and how much it will cost. 

It’s common to underestimate finance costs, overestimate profits and consequently overpay for the property, which can make the project a failure.

The easiest way to avoid this pitfall is by modelling your deals on Brickflow’s bridging loan calculator.

Here’s how it works:

1. ENTER your project criteria and model your deals

• • It takes seconds to enter your property details and search loans from banks, challenger banks, non-banks and specialist bridging lenders.
  • Instantly find out how much you can borrow and how much it will cost.

2. COMPARE loans from 50+ bridging lenders

• • Compare LTVs, rates, fees, deposit input and more.
  • Filter and sort your results, then shortlist your preferred loans.
  • Adjust your figures if needed, save your search and log back in later.

3. APPLY with your intermediary

• • Get multiple DIPs (decision in principle) back within minutes
  • Apply using Brickflow’s Smart Appraisal™, the only online tool that directly connects with lenders.
  • Send the same application to multiple lenders and avoid repetitive form-filling.

Lenders love applications from Brickflow because they cover everything needed to make quick, reliable credit decisions. And if one lender says no, you can apply to the next on your shortlist with one click.

Get started with a bridging loan for renovation 

From a rundown house that’s ripe for an HMO conversion to a dilapidated commercial premises that’s ideal for your business, a bridging loan for renovation can help you capitalise on opportunities.

With flexible terms and fast arrangement times, they can facilitate many property transactions, including auction purchases and unmortgageable buildings. 

We’ve covered the essentials of bridging loans for renovation, discussing the downsides and benefits. But the key to every successful project is knowing your finances upfront. 

Use Brickflow’s bridging comparison tool for financial due diligence in under 60 seconds — so you’ll never waste time pursuing an unprofitable project.

FAQs

Can you use a bridging loan for renovation?

Yes, refurbishment bridging loans were created to enable property investors to purchase and/or renovate rundown properties.

What is a refurbishment loan?

A refurbishment loan is a type of bridging loan that can be used to finance the purchase and renovation of residential and commercial properties. They can also fund only the refurbishment work in a property.

They are short-term, typically between 1 and 24 months (though some bridging lenders on Brickflow will arrange a loan term of up to 60 months), and repaid in full at the end of the loan term.

When it comes to upgrading your own home, using a bridging loan for your house renovation is possible, as long as you are in a position to refinance the property post-work, or have liquidity from elsewhere.

How to fund a renovation?

Depending on the scale of the work involved, a bridging loan for renovation can offer a funding solution for your project.

You can use a bridging loan to either renovate an existing asset or to purchase and renovate a property before selling or refinancing it onto a long-term mortgage.