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.
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.
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.
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:
With upsides there are downsides. Understanding the potential drawbacks of bridging loans for renovation can help with your decision-making.
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.
The best way to understand how a bridging loan works for a renovation project is by looking at an actual funding example.
The scenario:
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:
|
Eligibility |
|
|
Loan Term |
Typically 1–24 months* |
|
Loan Amount |
From £25,000-£100 million |
|
Loan to Value |
Up to 75% gross Loan to Value (LTV) |
|
Loan completion |
Typically between 1 and 6 weeks, but in some circumstances, unregulated bridging finance can be completed in a few days. |
|
Interest |
Rolled up or serviced |
|
Exit |
Sale or refinance |
*Brickflow has lenders who can arrange loans for up to 30 and 60 months.
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 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:
Additional fees to be aware of:
Your exit strategy is key to securing a bridging loan for renovation.
As mentioned, the debt is typically repaid by:
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.
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.
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.
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.
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.
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:
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.
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.
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.