Property investors and developers often face a common challenge when looking to buy properties in need of renovation.
Where can you borrow money to help with the purchase and the works?
This is where refurbishment bridging loans come in.
These specialist short-term loans are designed specifically for property renovation projects, allowing you to fund both the purchase and the improvement costs. Bridging finance can be arranged really quickly, giving you the ability to act almost like a cash buyer.
Let’s look at how these loans work, who they’re for, and how to make the most of this type of property finance.
Understanding refurbishment bridging loans
A refurbishment bridging loan is a short-term secured loan used where a property requires extending or updating before being habitable.
Unlike standard bridging loans, which mainly provide funds to ‘bridge’ a gap between transactions, refurbishment bridges include additional funds specifically for property improvements.
How they differ from other property finance
These loans are secured against the property being purchased or renovated, with the amount you can borrow based not just on the current value, but on the property’s potential value after improvements – often called the Gross Development Value (GDV).
Many property investors use refurbishment bridging loans because they allow them to buy properties that wouldn’t qualify for a standard mortgage,” explains Matthew Archer. “This includes everything from dated houses needing modernisation to properties with no kitchen or bathroom, or even commercial buildings being converted to residential use.
The key feature that separates these loans from standard mortgages is their focus on the property’s potential. While a traditional lender looks at the property in its current state, refurb bridging lenders will consider what it will be worth after your planned improvements.
Refurbishment bridges are generally used to improve and/or extend an existing structure.
Where the project is larger than this, or involves ground-up construction, a development finance facility would normally be a better fit.
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Types of refurbishment projects
When looking at refurbishment bridging finance, projects generally fall into two categories:
- light refurbishment
- heavy refurbishment
The distinction is important as it affects the loan structure, rates, and application process.
Light refurbishment loans
Light refurbishment loans covers cosmetic improvements that don’t involve structural changes or planning permission.
These projects might include:
- New kitchens and bathrooms
- Redecoration and new flooring
- Basic rewiring or plumbing updates
- Window replacements
- Central heating installation
- General modernisation
For example, a property investor might purchase a dated terraced house that hasn’t been updated since the 1980s. With a light refurbishment loan, they could fund both the purchase and the cost of installing a new kitchen and bathroom, redecorating throughout, and replacing the carpets.
All improvements that significantly increase the property’s value and rentability without changing its structure.
Light refurbishment loans often feature simpler application processes, lower interest rates, and single upfront drawdowns since the works are more straightforward. They’re accessible to investors with less experience, making them a good starting point for first-time developers.
light refurbishment loansHeavy refurbishment loans
From a lending perspective, heavy refurbishment involves significant structural alterations or changes to the use of a property. These projects commonly require planning permission and building regulations approval.
Examples include:
- Removing or adding internal walls
- Building extensions
- Loft or basement conversions
- Converting a house into flats (or vice versa)
- Changing from commercial to residential use
- Major structural repairs
A developer might use a heavy refurbishment bridge to buy a large Victorian house and convert it into a House in Multiple Occupation (HMO) by adding en-suite bathrooms, reconfiguring the layout, and upgrading fire safety systems.
Heavy refurb loans reflect the more complex nature of these projects.
They tend to involve staged drawdowns (where money is released in phases as work progresses), higher interest rates, and generally require proof of development experience or professional project management.
Lenders will want to see planning permission in place for any structural work or change of use, and will likely conduct site visits to monitor progress before releasing additional funds.
heavy refurbishment loansRead more:
Let’s talk bridging loans!
How refurbishment loans work
Refurbishment bridging loans have a unique structure designed to support property improvement projects. Understanding how they work will help you to choose the right type and better understand the costs of borrowing.
Loan amounts and LTV ratios
Most refurbishment bridges offer between 65-75% of the property’s value, though some lenders provide up to 85% for light refurbishment projects with strong cases. Loan amounts can range from £150,000 to £25 million or more for larger developments.
What makes these loans particularly useful is that many lenders will fund up to 100% of the renovation costs, provided the total loan remains within their maximum loan-to-value (LTV) limits.
This means you could potentially secure a property and have the refurbishment works fully funded by the loan.
For example, if you’re buying a property for £200,000 that needs £50,000 of renovations:
- A lender might advance 70% of the purchase price (£140,000)
- Plus up to 100% of the refurbishment costs (£50,000)
Total loan of £190,000
Your contribution would be the £60,000 deposit, but you wouldn’t need additional cash for the renovation work.
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Interest options and fees
For interest payments, there are a few different options, although what you are offered will depend on the lender.
Most borrowers choose “retained” or “rolled-up” interest, where the expected interest for the loan term is calculated upfront and added to the loan. This means you make no monthly payments, which is helpful when the property isn’t generating income during renovations.
Alternatively, you can “service” the interest with monthly payments if you prefer.
Fees include an arrangement fee (usually 2% of the loan amount), valuation costs, and legal fees for both your solicitor and the lender’s. For heavy refurbishment, there may also be monitoring surveyor fees for site visits.
Read more: How Bridging Loan Interest is Calculated and Charged
Term length and exit strategies
The loan term will be matched to your project timeline, with most ranging from 6-12 months for light refurbishments and up to 18 months for heavy projects. Most bridging loans have no early repayment charges, so you can exit as soon as your project is complete and save on interest.
Your exit strategy – how you’ll repay the loan – is a key part of the application.
This is usually either:
- Selling the improved property
- Refinancing to a long-term mortgage (buy-to-let/holiday-let)
Lenders will assess the viability of your exit, looking at comparable property sales or your ability to qualify for refinancing based on the improved property value.
Read more: How Do You Pay Back a Bridging Loan?
Who can get a refurbishment bridging loan?
Loans are available to a wide range of borrowers and situations, but there are still basic eligibility criteria to meet.
Borrower types and residency
You can apply as an individual, partnership, or through a limited company or special purpose vehicle (SPV).
Many property investors now use company structures for tax efficiency, and most bridging lenders are comfortable with this approach.
Being a UK resident will give you the most options, but lenders will consider foreign nationals and expats, although they may offer lower LTV ratios or higher rates.
The property itself must be in the UK, with most lenders focusing on England and Wales, though some cover Scotland and Northern Ireland too.
Eligible property types
Almost any property with renovation potential can be considered, including:
- Residential houses and flats
- Mixed-use buildings
- Commercial properties being converted to residential
- HMOs (Houses in Multiple Occupation)
- Semi-commercial properties
Experience and credit requirements
For heavy refurbishment projects, lenders will want to see previous relevant experience.
If you’re a first-time developer, you might face slightly stricter criteria or be asked to work with experienced contractors or project managers. However, many lenders will still support first-time investors, mainly for light refurbishment projects where the risks are lower.
Exit strategy importance
What’s most important is having a clear, viable exit strategy.
You’ll need to demonstrate to the lender how you’ll repay the loan, whether through sale (with evidence of market demand) or refinancing (showing you’d meet the criteria for a long-term mortgage on the improved property).
The property must have the potential to increase in value through the planned improvements, and the numbers need to make sense – the end value should comfortably exceed the purchase price plus renovation costs and all finance charges.
Benefits
Refurbishment loans offer several advantages that make them particularly attractive to property investors and developers.
Speed and flexibility
Speed (and simplicity) is perhaps the most notable benefit.
You can often go from application to funding in 2-3 weeks, allowing you to move quickly when opportunities arise. This can be invaluable when purchasing at auction or when securing a property below market value because it needs work.
Flexibility and utility is built into these loans. They can be adapted to various project types, and most come with no early repayment charges, so you can exit as soon as your project is complete and save on interest costs.
Access to unmortgageable properties
Another major advantage is the ability to buy properties that long-term mortgage lenders won’t touch.
Unmortgageable properties missing basic facilities like kitchens or bathrooms, those with structural issues, or buildings needing conversion are all possible with refurbishment bridging.
Combined funding and cash flow advantages
The funding structure is particularly helpful, covering both purchase and improvement costs in one loan.
This reduces the need for large amounts of personal capital, allowing you to take on larger projects or multiple ventures simultaneously.
For cash flow management, the option to roll up interest means no monthly payments during the project – particularly helpful when the property isn’t generating income while being renovated.
Value creation opportunities
Perhaps most importantly, they enable a value-adding strategy. By financing improvements that significantly increase a property’s worth, you can create equity in a relatively short timeframe.
For buy-to-let investors, refurbishment bridges can help upgrade properties to meet energy efficiency standards or enhance rental potential, securing better yields and long-term returns.
Risks and considerations
While refurbishment bridging loans provide valuable solutions for property investors, they come with several important risks to consider.
The cost of borrowing is significantly higher than standard mortgages, with monthly interest rates of 0.5-1.5% plus arrangement fees of 2%. These costs must be carefully factored into your project calculations to ensure profitability.
The short-term nature creates time pressure and delays could require loan extensions, incurring additional fees. In worst cases, failing to repay on time might trigger default rates or even property repossession.
Refurbishment projects frequently exceed budgets. Once agreed, lenders rarely increase the loan amount, so you’ll need to find additional funds yourself if costs rise. Always include a contingency fund of 10-15% of your renovation budget.
Market conditions can change during your project timeline; property values might fall or buyer demand could weaken, making it difficult to achieve your planned sale price. Mortgage criteria could also tighten, affecting refinance options.
For heavy refurbishment projects, planning permission delays can extend timelines and increase interest costs. Having necessary permissions in place before taking the loan is highly recommended.
The biggest risk is an unrealistic exit strategy,” warns Matthew Archer. “Always have a Plan B. If selling isn’t viable, could you refinance to a buy-to-let or commercial mortgage instead?
Conclusion and next steps
Refurbishment bridging loans offer a practical solution for property investors and developers looking to purchase and renovate properties. They provide the speed and flexibility needed to take advantage of opportunities that might otherwise be out of reach.
Planning your refurbishment finance
By understanding the different types of refurbishment loans, their structure, and the application process, you can approach your property project with confidence.
While these loans come with higher costs, the potential to add significant value in a short timeframe can make them a worthwhile investment.
If you’re considering a refurbishment project, start by carefully assessing whether it falls into the light or heavy category, as this will affect your financing options. (Not all lenders offer both types)
Calculate your costs thoroughly, including purchase price, renovation expenses, and all finance charges. Be realistic about your timelines and build in contingencies.
Focusing on your exit strategy
Most importantly, have a clear, viable exit strategy from the outset. Whether you plan to sell or refinance, understand what you need to achieve to make this possible.
Speaking with a specialist broker is the best next step. They can provide personalised advice based on your specific project, circumstances, and goals. With access to the whole market, they’ll help you find the most suitable lender and loan structure for your needs.
With the right finance in place, your refurbishment project has every chance of success, helping you build your property portfolio and achieve your investment goals.
To speak with a specialist broker, please call us on 020 3951 2828.
FAQ
A refurbishment bridging loan is a short-term secured loan designed specifically to fund both the purchase and renovation of a property. Unlike standard mortgages, these loans consider the property’s potential value after improvements (the Gross Development Value) and can be arranged quickly, typically lasting 3-18 months.
Light refurbishment loans fund cosmetic improvements without structural changes (like new kitchens, bathrooms, decoration) that typically don’t require planning permission. Heavy refurbishment loans cover significant structural alterations, extensions, or change of use projects that usually require planning permission and involve staged fund releases as work progresses.
Read more: Light and Heavy Refurbishment Loans Compared
Not always. Most borrowers choose “retained” or “rolled-up” interest, where the expected interest for the loan term is calculated upfront and added to the loan. This means you make no monthly payments during the project. Alternatively, you can “service” the interest with monthly payments if you prefer.
Minor credit issues are often acceptable if they can be explained. However, very severe or recent credit problems may lead to higher rates or lower loan-to-value offers.
Related: Do You Need a Good Credit Score for a Bridging Loan?
Almost any property with renovation potential can be considered, including residential houses and flats, mixed-use buildings, commercial properties being converted to residential, HMOs (Houses in Multiple Occupation), and semi-commercial properties.
Related:
- Bridging Finance for Unmortgageable Properties
- Bridging Loans for Property Flipping
- Understanding Bridging Finance for Buy-to-Let Properties
- Change of Use & Bridging Finance: A Guide to Property Conversion
- How to Use Bridging Finance for Mixed-Use Properties
- Student Accommodation: Using Bridging Finance for Development Opportunities
This will depend on your project.
For light refurbishment projects, planning permission is typically not required. For heavy refurbishment involving structural changes or change of use, many lenders prefer that planning permission is already in place before lending, though some will lend “subject to planning” with certain conditions. Having permissions in place generally secures better terms and faster approval.
