Turning a run-down property into your dream home – or a profitable investment – often means facing a common problem: mainstream lenders won’t provide funding for properties needing substantial work.
You might have found the perfect renovation project, but mortgage companies will shy away from properties that aren’t in a liveable condition.
This puts many buyers and renovators in a tricky position.
Without the right funding in place, you could miss out on opportunities, whether that’s an auction bargain or the chance to improve your current property. The costs of major renovations can be substantial, and finding the money to bridge the gap between purchase and completion isn’t always straightforward.
Let me help you understand how bridging finance could work for your renovation plans, what options are available, and how to decide if it’s the right choice for you.
What Can Bridging Finance be Used For?
Bridging finance is extremely flexible and versatile. You can use it to provide funds for almost any imaginable situation.
Here are a few of the more common uses.
Bridging loans can be used to break property chains.
If you’ve found your perfect new home but haven’t sold your current one yet, a bridging loan can help you move forward without losing your dream property. You can buy your new home, then repay the loan when your existing property sells.
Auction purchases are another common use.
When you buy at auction, you’ll usually need to complete within 28 days. That’s far too quick for a standard mortgage, but a bridging loan can provide the funds you need to meet the auction deadline.
Business owners often use these loans too. You might need quick access to cash for stock purchases, or perhaps you want to buy your business premises. Bridging finance can provide fast funding while you arrange longer-term finance or wait for other funds to come in.
Property developers use bridging loans in various ways.
Beyond simple renovations, they might need to finish a development project, convert commercial buildings into flats, or complete a part-built development. The speed and flexibility of bridging finance makes it ideal for these situations.
These loans can also help with inheritance tax bills. If you’ve inherited a property but face a large tax bill, a bridging loan secured against the inherited property can help you pay the tax while you decide whether to keep or sell the property.
Buy-to-let landlords use bridging finance to snap up properties that need work before they can be mortgaged. They might buy a property using a bridging loan, refurbish it to a rentable standard, then switch to a buy-to-let mortgage.
Even unmortgageable properties can be bought using bridging finance. Properties without kitchens or bathrooms, those with serious structural issues, or ones with unusual construction methods. Bridging loans can help you buy and improve these properties until they meet normal lending criteria.
Read more: What Can a Bridging Loan Be Used For?
Understanding Bridging Loans
A bridging loan works a bit like a mortgage, but with one key difference – it’s designed to be short-term.
These loans can last anywhere from a few months up to two years, giving you time to complete your renovation project and either sell the property or arrange longer-term finance, such as a buy to let mortgage.
You’ll find two main options when looking at renovation bridging loans.
Light refurbishment loans cover cosmetic improvements – think new kitchens, bathrooms, or general decorating work.
Heavy refurbishment loans, on the other hand, support major structural changes like extensions, loft conversions, or complete property overhauls.
Unlike standard mortgages, bridging lenders focus more on your property’s potential value after renovation rather than your personal affordability. This makes them particularly useful in today’s UK property market, where older properties in need of modernisation often sell for well below their potential value.
Let’s say you’ve found a Victorian terrace that needs updating.
While a mortgage lender might see an outdated property with issues, a bridging lender will look at what the house could be worth once you’ve restored its period features and added modern comforts.
The loan works differently too.
Instead of making monthly repayments, you’ll often have the choice to roll up the interest and pay everything back when you’ve completed the renovations. This can help with cash flow during your project, as you won’t need to make regular payments while managing renovation costs.
Two Ways to Use Bridging Finance for Renovations
Buying and Renovating a Property
You might have spotted the perfect renovation opportunity – perhaps an auction property or a ‘doer-upper’ that traditional lenders won’t touch.
Bridging finance can help you buy the property and fund the improvements in one go.
Take a three-bed semi in Manchester that’s selling for £200,000 but needs £50,000 of work. While most mortgage lenders would say no because the property lacks a working kitchen and bathroom, a bridging lender will look at its potential value of £300,000 after renovation.
They’ll consider both the purchase price and renovation costs when deciding how much to lend.
The borrowed money often comes in stages. You’ll get the funds for the purchase first, followed by additional payments as renovation work progresses.
This helps manage the project costs effectively and means you’re not paying interest on all the money from day one.
Raising Capital for Renovations
Already own a property that needs work?
You can use a bridging loan to release equity for renovations, with or without an existing mortgage.
Let’s say you own a house worth £400,000 with a £200,000 mortgage. You want to add an extension and update the kitchen, costing £100,000. Rather than remortgage and risk losing your good rate, you could use a second charge bridging loan secured against your property’s equity.
This approach works well when you’re planning significant improvements that will boost your property’s value.
The amount you can borrow will depend on your property’s current value and the expected value after improvements.
You might choose this route if you’re converting a loft, adding an extension, or doing a complete property refurbishment. Once the work’s finished, you can either sell the property to repay the loan or remortgage based on the higher property value.
Who Can Apply?
You’ll find bridging finance is more flexible than traditional lending when it comes to who can apply.
Whether you’re a homeowner planning improvements to your own property or a seasoned developer with multiple projects, there’s likely an option for you.
As a homeowner, you can use bridging options even if you’re not experienced in property development. Lenders will focus on your property’s potential and your plans for paying back the loan, rather than demanding a track record of successful projects.
Property developers and landlords often use these loans to fund their renovation projects.
You can apply as an individual or through an SPV limited company – many landlords prefer the company route for tax reasons. The key is having a clear plan for the renovations and how you’ll repay the loan.
Small property companies and construction firms can apply too.
If you’re running a limited company, you’ll need to show your business has the experience to handle the planned renovations. However, don’t worry if you’re new to property development – some lenders will consider first-time developers if you can show you’ve got experienced contractors on board.
The main things lenders look for are:
- A viable property (either one you own or want to buy)
- A sensible renovation plan
- A clear strategy for repaying the loan
- The relevant experience for your planned project
Read more: Understanding Bridging Loan Criteria & Eligibility
What You Need to Know Before Applying
Before you apply for renovation bridging finance, there are several key areas to consider.
Getting these right will make your application much smoother and increase your chances of success.
Lenders in this market are well known for accepting a wide range of properties as security, from residential homes to commercial buildings.
The property doesn’t need to be in perfect condition – after all, that’s why you’re looking for renovation finance. However, you’ll need to show it has real potential and that your planned improvements make financial sense.
Security for the loan comes in the form of a legal charge over your property.
This means the lender has a claim on the property if things go wrong. Some lenders might ask for additional security if the requested loan amount is high compared to the property’s current value.
Perhaps the most important element is your exit strategy – how you plan to pay back the loan.
This could be through selling the renovated property, refinancing to a standard mortgage, or using funds from another source. You’ll need to show this is realistic and achievable within the loan term.
Read more: How Do You Pay Back a Bridging Loan?
Costs and Considerations
When you’re planning your project, you’ll need to factor in various costs beyond just the loan amount.
Bridging finance costs more than standard mortgages, which makes sense when you consider its short-term nature and the quick access to funds it provides.
The main costs include the monthly interest and an arrangement fee.
You can often choose how to handle the interest payments – either pay them monthly or add them to the loan and pay everything off at the end. While rolling up the interest can help with cash flow during your renovation, it does mean you’ll pay interest on the interest.
Don’t forget about the other fees involved in setting up the loan. You’ll need to pay for a property valuation, and there are legal fees to consider – both your solicitor’s costs and the lender’s legal fees.
Most lenders will want to see you have appropriate buildings insurance in place.
Keep in mind that property refurb projects often run over budget. Build a contingency fund into your calculations to cover unexpected costs like replacing rotten joists or updating old wiring that only becomes apparent once work begins.
The Application Process
Bridging lenders are set up to work within tight deadlines. You can often go from initial enquiry to receiving funds within a couple of weeks.
Your first step is pulling together the basic information about your project.
You’ll need:
- Details of the property you want to renovate
- A clear outline of your planned improvements
- Estimates from builders or contractors
- Your proposed timelines
- How you plan to repay the loan (in detail)
Once you’ve submitted these details, your broker will give you an initial decision.
If it’s positive, they’ll ask for supporting documents like ID, proof of address, and bank statements. For renovation projects, they’ll also want to see detailed costings and plans.
A surveyor will then value the property, looking at both its current worth and potential value after improvements. This helps the lender decide how much they can offer you.
The legal work comes next.
Your solicitor will handle the paperwork and work with the lender’s legal team to arrange the security for the loan. They’ll check the property’s title and make sure everything’s in order.
During this process, lenders will look closely at your exit strategy. They want to see that you’ve thought through how you’ll repay the loan, whether that’s through selling the property or refinancing once the work is complete.
If everything checks out, you’ll receive a formal loan offer. Once you’ve accepted and the legal work is finished, the funds will be released according to your agreed schedule.
How a Broker Can Help
Working with a bridging finance broker can make all the difference when you’re seeking renovation finance. They’ll know which lenders are most likely to support your specific project, saving you time and potentially a lot of money.
Many short-term finance lenders only work through brokers.
These specialist lenders offer more flexible terms and better understanding of renovation projects than mainstream lenders. Each one has different preferences – some prefer light refurbishments, others specialise in major renovations.
A good broker will help shape your application to give it the best chance of success.
They’ll review your exit strategy, making sure it’s realistic and appealing to lenders. If there are potential issues, they can often suggest ways to overcome them before approaching lenders.
They’ll also manage the whole process for you, handling paperwork and liaising with lenders, valuers and solicitors. This lets you focus on planning your renovation while they take care of the finance side.
Alternative Options to Consider
While short term bridging loans work well for many refurbishment projects, they’re not your only option.
If your property is already mortgageable, you might be able to remortgage to release equity for improvements. This could give you a lower interest rate, though it will take longer to arrange.
Development finance could be better if you’re planning a major project lasting more than a year. These loans are specifically designed for longer-term developments and include staged payments matched to your build schedule.
For smaller renovation works, a second charge loan (secured loan) might work. These let you borrow against your property’s equity while keeping your existing mortgage in place.
Personal loans might cover minor improvements, though they usually have lower borrowing limits.
In Summary
Bridging loans can be an excellent way to fund your property renovation, whether you’re buying a project property or improving one you already own.
They offer speed and flexibility that other lending types can’t match.
Before you move forward, make sure you’ve got:
- A solid renovation plan with realistic costings
- A clear strategy for repaying the loan
- Professional advice about the best finance option for your situation
Ready to explore your renovation finance options? Speaking with a specialist broker can help you understand which route best suits your plans.
FAQ
You can often receive funds within 2-3 weeks. The process moves faster than traditional mortgages because bridging lenders focus mainly on the property’s potential value and your exit strategy rather than lengthy income assessments.
Our bridging lenders offer loans starting from £150,000. For smaller renovation projects, you might want to consider alternatives like personal loans or second charge mortgages.
Not always. For light renovations that don’t involve structural changes, you won’t need planning permission. For major works, having permission in place can help your application, but some lenders will consider applications while permission is pending.
Yes, bridging loans can fund commercial-to-residential conversions. You’ll need detailed plans and relevant planning permissions. These projects often suit heavy refurbishment bridging loans.
Yes, you’ll usually need to contribute some funds. The amount varies by lender and project type, but expect to need at least 25% of the total project costs.
Alternatively, you could use equity in another property via a cross charge bridging loan.
Read more: Do You Need a Deposit for a Bridging Loan?
Light refurbishment covers cosmetic improvements like new kitchens, bathrooms, or decorating. Heavy refurbishment involves structural changes, extensions, or major building work requiring planning permission.
Some lenders also look at the cost of works, against the current valuation figure.
Yes, bridging loans are perfect for auction purchases needing work. You can often arrange finance in principle before the auction.
Yes, many people use bridging loans to renovate properties for letting. To do this you will need to refinance onto a buy-to-let mortgage as your exit strategy.