What is a Refurbishment Bridging Loan?
A Refurbishment bridging loan is short-term finance for property developers and landlords to purchase and refurbish a property to increase the capital and rental value before selling it at a profit or refinancing onto a fixed term buy-to- let mortgage.
Why property landlords and developers use bridging finance to refurbish property?
Despite the higher cost, refurbishment bridging loans are structured specifically to borrow against a property in need of modernizing and is faster to arrange than a traditional mortgage – ideal for rapid finance for acquisitions and auctions.
What is the difference between a light refurbishment and heavy refurbishment?
Light refurbishment – A light refurbishment bridging loan is mainly cosmetic and decorative work such as painting, decorating, installation of replacement windows, rewiring, new floor, kitchen and bathrooms.
Heavy refurbishment – A heavy refurbishment bridging loan requires more substantial development work that can involve extensions, renovations, conversions and change of use. They are structural in nature, requires building control sign off and planning permission.
Refurbishment bridging lenders would normally class a project as ‘light refurbishment’ if the cost of works is up to 25% of the property value on day one. Above 25% is generally considered a ‘heavy refurbishment’. Development finance is likely to be more suitable for ground up or larger schemes.
Advantages of refurbishment bridging finance?
- Maximises property investment returns.
- Faster to arrange than a long term buy-to-let mortgage.
- Purchase a properties in poor condition or unmortageable.
- 100% of the refurbishment costs can be funded.
- Ideal if you plan to sell immediately after refurbishment without penalty.
- Tied up equity or profit can be released before the refinance or sale.
- Available to borrowers with low income and adverse credit.
Refurbishment bridging loan costs and criteria
Borrower: Individuals, limited companies, SPVs, sole traders and partnerships.
Loan amount: £100k – £25m.
Interest rates: From 0.54% per month.
Average Term: 3-18 months depending on the nature and scale of the building work.
Day 1 Loan to Value (LTV): 75% – lower of purchase price or market value.
Max Loan to Gross Development Value (LTGDV): 70%
Max Loan to Cost (LTC): 85%. 100% possible with additional security.
Security: First and second legal charge accepted.
Refurbishment costs: 100% finance on cost of the works possible with stage payment in arrears.
Lenders arrangement fee: Up to 2%.
Exit fees and early repayment charges: None in most cases.
Interest payments: Rolled, retained or serviced.
Project monitoring: From £180 plus vat depending on the size and nature of the project.
Exit strategy: Typically, from sale of property or on to a long term buy-to-let mortgage.
The amount you can borrow and the terms you receive is based on the following key factors: size and complexity of the project; developer experience; security value; expected return, location and exit strategy. The criteria and costs can vary considerably between lenders.
If you would like to learn more about how refurbishment bridging finance can help you, contact us today to discuss your options.
Information to apply for a Refurbishment Bridging Loan
- Borrower details and experience.
- Property details.
- Current value and gross development value.
- Source of borrower contribution/deposit.
- Funding requirement.
- Security offered.
- Planning permission details (if applicable).
- Schedule of works, timescales and costings.
- Planned exit strategy.
- Contractors and professional team.
Quest Commercial Finance is a commercial mortgage broker. Contact us if you need a refurbishment bridging loan for an existing property you already own or one that you plan to purchase. We are happy to help.