Residential Bridging Loans for the Completion of Property Refurbishment

Are you a property owner or investor who’s looking to upgrade your property? A refurbishment bridging loan may come in handy especially if you considering upgrading several homes.

Bridging loans for renovations are a common alternative for investors who want to take advantage of a good deal but don’t have the extra finances to complete the work. They are primarily used for property improvement projects like renovating property finishes. Further than this, however, they can also be used to cover the purchase price of a property plus the subsequent renovation expense.

The Basics of a Refurbishment Bridging Loan

Refurbishment finance, or residential bridging loans, are specialized loans used to cater to the costs of property renovations. They are categorized into 2:

  • Heavy refurbishment bridging loans
  • Light refurbishment bridging loans

To know which of the two is most appropriate for your needs, you must consider the nature and scope of your requirements. Renovation bridging loans are usually paid out in two stages, though this is not always the case. The first payment is computed based on the property’s purchase price, and the second payment is transferred once the renovations are completed. With a refurbishment bridging loan, the property’s worth corresponds to its predicted value after the renovations are completed.

To understand how a renovation bridging loan works, consider the following example:

  • Purchasing price of the property – £100,000
  • Cost of the refurbishment – £20,000
  • Estimated worth of the property after renovation – £150,000
  • Bridging loan for refurbishment: £105,000 (70% LTV)

The terms of loans and the requirements for eligibility differ greatly from one lender to the next. You should also expect comprehensive credit history checks as part of the bridging loan application procedure.

Light Refurbishment Bridging Loans

When a property only needs minor renovations, a light refurbishment bridging loan is a good option. The meaning of ‘light’ renovations varies per lender, although it often refers to projects that do not require planning clearance to complete.

The following are some instances of typical examples:

  • The majority of non-structural upgrades
  • Installation of a central heating system
  • Changing the use of one or more rooms
  • Rewiring of the property’s electrical system
  • Installation of new windows and doors
  • Decorating and aesthetic enhancements
  • Installation of a new bathroom
  • Renovations to the kitchen cabinetry

It’s also worth mentioning that the project can include any combination of these and other minor property upgrades. In this situation, the project is likely to be classified as a ‘light’ refurbishment because no major changes to the structure of the house or its surroundings are made.

Heavy Refurbishment Bridging Loans

Heavy refurbishment bridging loans are best suited to more difficult and advanced projects, such as those involving structural alterations. More so, whenever planning authorization is required, it is almost always considered a major renovation.

The term ‘heavy’ renovation is defined differently by different lenders, but it commonly refers to the following projects:

  • Any project that involves zoning approval
  • Building regulations
  • External and Internal structural work
  • Extensions and conversions of existing projects

Note that applying for development funding may be more appropriate depending on the size and type of the project. Development finance, for example, maybe more appropriate if you’re considering converting a building into a block of apartments.

How Much Can I Borrow?

The amount you can borrow will be determined in conjunction with your eligibility for a refurbishment bridging loan. That said, most lenders who give refurbishment bridging loans will lend up to 75% of the projected worth of the property’s post-refurbishment. Like all other loans, to qualify for a higher LTV, a larger deposit, as well as a good credit history and a strong financial track record, may be required.

Your lender’s choice will be heavily influenced by the property’s predicted future worth. You will also be required to submit proof of your financial situation, income, and ability to repay the loan on time. As such, there are technically no limits on how much you can borrow if you match the lender’s requirements. Remember that larger refurbishment and revamping projects may be more suited to development financing.

How Much Interest Do Refurbishment Bridging Loans Attract?

The overall borrowing fees will be determined by the kind of refurbishment bridging loan you apply for. Some loans, for example, are granted as short-term bridging loans that are intended to be returned within a few months. In such an instance, you could be looking at a monthly interest rate of less than 0.5%

On the other hand, longer loan terms loans have higher overall borrowing costs. Additionally, the size of your deposit will also affect your loan’s affordability. Larger deposits (and lower bridging loan LTVs) often lower borrowing costs on all types of bridging loans. Lastly, your credit history and financial situation at the time of application will also be considered.

Wind Up

You must pick the right lender when applying for a refurbishment bridging loan. The lender you choose will have a significant impact on the amount you pay for your refurbishing bridging loan. You will be provided a competitive deal to meet your needs if you engage with an independent specialist with a proven track record. More so, they have a better lending capacity and customer service!