Many savvy investors and homebuyers know that dated, worn-out properties can be transformed into high-value assets with the right improvements.
One challenge is finding the money to fund these renovations quickly enough to make the opportunity worthwhile.
Refurbishment bridging loans offer a practical solution by providing short-term finance specifically designed to fund both property purchase and improvements before selling or refinancing. With the right approach, this strategy can help you transform a tired property into a valuable asset.
In this article, we’ll look at how bridging loans work for property refurbishment projects, who they’re suitable for, which renovations add the most value, and how to plan your exit strategy for the best results.
What Are Bridging Loans for Property Improvements?
Bridging loans are short-term secured loans designed to cover a temporary financial gap.
Common uses are for buying properties at auction or to help prevent the collapse of a property chain.
When used for property refurbishments, they provide quick access to funds that can be used to renovate, update or develop a property before it’s sold or refinanced onto a longer-term mortgage.
Refurbishment bridging loans can be arranged quickly and they’re secured against the property itself and sometimes against other assets too.
These bridging loans are available for both residential and commercial properties.
They can be regulated (for owner-occupied homes) or unregulated (for investment properties).
You can borrow for the initial purchase and for the improvements, with most lenders allowing the interest to ‘roll up’ so there’s no need for any monthly repayments.
The main advantage of bridging loans is speed and flexibility – they focus primarily on the property’s value and your exit strategy rather than the detailed affordability assessments associated with standard mortgages.
How Refurbishment Bridging Loans Work
The bridging application process focuses heavily on the property’s current value, its potential value after improvements, and your plan for repaying the loan.
To apply, you’ll need to provide details about the property, your planned improvements, and your exit strategy. Lenders will arrange a valuation to assess both the current value and the expected value after improvements (sometimes called the “after repair value” or ARV).
Once approved, funds might be released in one go or in stages as improvements progress. This depends on the scale of works and the lender’s requirements.
Some lenders offer a retained interest option, where the interest is included in the loan amount, meaning you don’t make monthly payments.
Costs include arrangement fees (2% of the loan amount), valuation fees, legal fees, and of course, the interest on the loan. Interest rates are higher than standard mortgages due to the short-term, higher-risk nature of bridging finance.
When the loan term ends, the lender will expect you to repay the original amount borrowed, plus accrued interest and fees.
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What Percentage of the Refurbishment Costs Can You Borrow?
Most bridging lenders will fund between 75-80% of the property’s purchase price, but what about the renovation costs themselves?
For light refurbishments, many lenders will finance 100% of the renovation costs, provided the overall loan doesn’t exceed 75% of the property’s final expected value after improvements.
This means if your property will be worth £400,000 after refurbishment, you could potentially borrow up to £280,000-£300,000 in total for both purchase and renovation.
For heavier refurbishments or developments, lenders may release funds in stages as work progresses.
In these cases, you might receive 75-80% of the purchase price initially, with the renovation funds released in agreed phases after inspections confirm the work has been completed to standard.
Some specialist lenders offer higher percentages for experienced developers with strong track records, potentially funding up to 80-85% of the total costs. These higher LTV loans typically come with higher interest rates to offset the increased risk.
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Common Exit Strategies
An exit strategy is your planned method of repaying the bridging loan at the end of its term.
It’s essentially how you’ll “exit” from the short-term bridging finance arrangement, and lenders will want to see a clear, viable plan before approving your application.
Having a well-thought-out exit strategy is arguably the most important part of any bridging loan application, as it demonstrates to lenders that you’ve considered how you’ll manage the repayment.
There are two main exit strategies when using bridging finance:
Selling the property (often called “flipping“) is the most straightforward exit. You improve the property, increase its value, sell it, repay the bridging loan, and hopefully walk away with a profit.
This works well in active markets where renovated properties sell quickly.
Refinancing onto a standard mortgage involves improving the property to increase its value, then securing a new mortgage based on the higher valuation. This can allow you to repay the bridging loan while keeping the property as a rental investment or your own home.
To make sure your exit strategy succeeds, it helps to talk with estate agents early on to confirm your valuation expectations. For refinancing exits, speak with mortgage brokers before taking the bridging loan to check what improvements will add the most value from a lender’s perspective.
Always build in extra time and budget for unexpected issues.
Construction projects almost always take longer and cost more than initially planned, so adding a 10-15% contingency to both your budget and timeline is sensible.
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When Are They Useful?
Bridging loans for property improvements can work well for several groups of people, but they’re not right for everyone.
For Property Investors
Property investors looking to “flip” houses often use bridging loans to fund quick renovations before selling for a profit. The short-term nature of bridging finance aligns perfectly with their business model of buying, improving, and selling quickly.
For Homeowners
Homeowners wanting to maximise their property’s sale value can use bridging loans to quickly fund improvements that might otherwise be unaffordable due to the monthly repayments. This is especially useful if your property needs updating to meet current buyer expectations or to stand out in a competitive market.
For Unmortgageable Property Purchases
Buyers of properties considered “unmortgageable” by conventional lenders can use bridging finance to purchase and renovate them to a mortgageable standard. This includes properties without working kitchens or bathrooms, those with structural issues, or properties without proper heating systems.
For Time-Sensitive Opportunities
When a bargain property appears on the market requiring quick action, bridging loans offer the speed that conventional mortgages can’t match. This speed can be essential when sellers are looking for quick completion or when competing against cash buyers.
For Landlords and Auction Buyers
Buy-to-let landlords often use bridging loans to fund renovations that will increase rental income and property value before refinancing onto a better buy-to-let mortgage.
Better properties can attract higher-quality tenants and command higher rents. They can also be used to convert a house in to a HMO.
Auction buyers frequently need bridging finance because properties bought at auction often require work before they can be mortgaged or sold on. Auction purchases need to be completed within 28 days, making bridging loans an ideal solution.
You don’t necessarily need property development experience to use bridging finance, but you should have a clear plan, realistic budget, and proper professional support.
When Bridging Finance Might Not Be Suitable
Despite their usefulness, refurbishment bridging loans aren’t always the right choice.
They won’t suit properties needing very extensive or long-term development work, as the high interest rates make them expensive for lengthy projects.
If the projected value increase doesn’t significantly outweigh the combined costs of the loan and the improvements, other financing options might be more suitable.
Always do your sums carefully before proceeding.
Those without a clear or realistic exit strategy should avoid bridging finance. If you can’t confidently explain how you’ll repay the loan, it’s a sign that the strategy may be too risky.
In uncertain or falling property markets, the added risk may not be worth taking. Bridging loans work best when property values are stable or rising and when there’s good demand from buyers or mortgage lenders.
Which Property Improvements Add the Most Value?
Not all improvements add equal value, and some can even reduce your property’s appeal.
Understanding which changes give the best return on investment is key to a successful strategy.
High-Impact Renovations
In the UK, high-quality kitchen and bathroom upgrades consistently deliver strong returns. Modern, well-designed kitchens can add up to 10% to a property’s value, while new bathrooms might add 5%.
These rooms are focal points for buyers and mortgage valuers alike.
Energy efficiency improvements have become increasingly valuable as energy costs rise and EPC requirements tighten. Better insulation, modern heating systems, and double glazing not only add value but can also make properties easier to mortgage.
Space and Light Improvements
Adding space through extensions or converting existing space (lofts, garages, basements) can significantly increase value, especially in areas where property is priced by square footage.
However, these more substantial works require careful planning and often planning permission.
Creating open-plan living spaces can transform older properties and appeal to modern buyers, often at relatively modest cost. Similarly, maximising natural light through larger windows or skylights can dramatically improve a property’s feel without huge expense.
First Impressions Matter
First impressions always matter. Exterior improvements like fresh paintwork, a new front door, or landscaped gardens can significantly boost kerb appeal and help achieve a quicker sale or better valuation.
For refinancing strategies, focus on improvements that mortgage lenders value. This often means addressing structural issues, ensuring the property meets current building regulations, and having proper documentation for all works carried out.
Calculating Potential Return on Investment
To work out whether improvements will be worth the cost of a bridging loan, you’ll need to estimate the post-improvement value accurately.
Research comparable properties in your area that have already been improved to the standard you’re aiming for. Estate agents can provide valuable insight here, as can property listing sites showing recent sold prices.
Then factor in all the costs, including the loan interest and fees, improvement costs, and selling costs if that’s your exit strategy. Be realistic about timeframes, delays increase your loan costs and can erode profit margins quickly.
Always get multiple quotes from contractors and check their references and previous work. The cheapest quote isn’t always the best value if the work is substandard or takes longer than promised.
Build in a contingency of at least 15% of your improvement budget for unexpected issues. Almost every renovation project uncovers surprises once work begins, particularly in older properties.
Alternatives
While bridging loans can be effective, they’re not the only option for funding property improvements.
Remortgaging Options
If you have enough equity in your current property (or another you own), remortgaging with additional borrowing might offer lower interest rates. However, this option takes longer to arrange and may not be possible if your property needs substantial work.
Further Advance
If you already own the property then your current lender may be willing to lend you more money for the improvements. This will be based on your affordability.
Other Financing Approaches
Personal loans or credit cards can work for smaller improvements, especially if you can access competitive interest rates and repay them quickly. They don’t secure against your property but usually have lower loan limits than bridging finance.
Development finance is designed specifically for larger property development projects. It’s similar to bridging but offers staged drawdowns aligned with construction phases and may offer better rates for bigger projects.
Family loans can be an option if you have relatives willing and able to lend money. These can offer flexibility and potentially lower costs, but it’s wise to formalise the arrangement to avoid misunderstandings.
How a Specialist Broker Adds Value
The bridging loan market can be challenging without expert help. A specialist broker can add significant value throughout the process.
Access to Exclusive Lenders
Specialist brokers have access to lenders who don’t deal directly with the public.
This includes private banks, family offices, and wealthy individuals who lend their own money. These lenders often offer better terms for the right projects.
Expert Application Support
An experienced broker can help structure your application to maximise chances of approval and secure the best rates. They understand what different lenders look for and how to present your exit strategy convincingly.
Our relationships with lenders mean we can often secure terms that wouldn’t be available directly,” explains Matthew Archer. “We know which lenders are comfortable with which types of projects and can match your needs to the right funding source.
Planning and Market Knowledge
Brokers also help with realistic planning, drawing on experience from hundreds of similar projects to help you avoid common pitfalls. They can advise on which improvements will add the most value in your specific market and property type.
For refinancing exits, a good broker will already be planning your long-term mortgage options while arranging your bridging loan, ensuring a smooth transition when the time comes.
Next Steps
If you’re considering using a bridging loan to add value before selling or refinancing, here are the key steps to take:
Start with a thorough assessment of your property’s current value and its potential value after improvements. Research similar properties in your area that have been improved to get realistic figures.
Create a detailed improvement plan with cost estimates for each element. Get written quotes from reputable contractors and add a 15% contingency for unexpected issues.
Work out a realistic timeframe for the improvements and add extra time for delays, especially if building materials or contractors are in short supply.
Speak with estate agents or mortgage brokers to confirm your post-improvement valuation expectations. For refinancing exits, check what loan-to-value and interest rates you might qualify for after the works are complete.
Contact a specialist bridging finance broker who can help you find the right lender for your specific needs. They’ll explain the costs, risks, and process in detail before you commit.
Prepare your documentation, including ID, proof of address, details of the property, your improvement plans, and your exit strategy. Having this ready will speed up the application process.
Consider your backup plans in case your primary exit strategy doesn’t work out as expected. This might include renting the property out temporarily, seeking alternative financing, or adjusting your selling price.
With careful planning, realistic expectations, and the right professional support, bridging loans can be an effective way to unlock the hidden value in your property. Whether you’re looking to sell for a profit or improve your long-term financing options, this strategy could help you achieve better results than selling or refinancing your property in its current condition.
FAQ
A bridging loan for property improvements is a short-term secured loan that provides funds for renovating or refurbishing a property before selling it or refinancing to a standard mortgage. It ‘bridges’ the gap between your current situation and your goal of a higher-value property.
Read more: What is a Refurbishment Bridging Loan?
In the UK, bridging loans can often be arranged within 7-10 days, though complex cases may take longer. With the right documentation and a straightforward application, some specialist lenders can complete in as little as 3-5 days if required.
Converting a large property into an HMO is popular amongst landlords and property investors. The yields are higher than typical single lets such as BTL.
Financing is available for these conversions, but what you need will depend on the size and duration of the conversion.
Read more: How to Finance Your House to HMO Conversion
Our bridging lenders offer loans from £150,000 with no upper limit. The amount you can borrow is typically limited to 75-80% of your property’s current value, though some lenders may consider the projected post-improvement value when determining the loan amount.
Related: Bridging Loan Surveys and Valuations: What You Need to Know
While a good credit score helps, bridging lenders focus more on the property’s value and your exit strategy than your personal credit history. Even those with adverse credit can often secure bridging finance if they have sufficient equity in the property and a solid plan for repayment.
Read more: Do You Need a Good Credit Score for a Bridging Loan?
You can use bridging loans for both your own home and investment properties. When used for your primary residence, the loan will be regulated by the Financial Conduct Authority (FCA), offering additional consumer protections. Bridging loans for investment properties are typically unregulated.
Read more: Regulated vs Unregulated Bridging Loans
Bridging loans are typically used for lighter property improvements and shorter timeframes (usually under 12 months). Development finance is designed for more substantial projects like complete renovations or new builds, offers staged drawdowns as work progresses, and may have longer terms but can be more complex to arrange.
Read more: Are Property Development Finance and Bridging Loans the Same?
Yes, many UK bridging lenders accept applications from foreign nationals and UK expats looking to improve UK properties. These loans may require additional documentation and sometimes come with slightly higher interest rates, but are readily available through specialist brokers.
Working with a specialist bridging finance broker is the most effective way to find the right lender. Brokers have access to a wide range of lenders, including those not available directly to the public, and can match your specific circumstances to the most appropriate options. They can also negotiate better terms and manage the application process for you.
Read more: Why Use a Bridging Loan Broker?
