Refurbishment bridging loans

A refurbishment bridging loan is short-term finance used to buy or refinance a property and pay for works to improve it. It is common where a property cannot get a standard mortgage until it is renovated, for example because it has no working kitchen. Once the works are complete, the loan is repaid by a sale or a refinance.

Lenders look at the current value, the cost of works and the expected value after the works. Funds for the works may be released in one amount or in stages after a surveyor checks progress. Larger construction projects are usually funded differently, as explained on the page about bridging finance for property development.

Light refurbishment covers cosmetic and non-structural work, such as new kitchens, bathrooms, rewiring, plastering and decoration, usually without the need for planning permission. Heavy refurbishment covers structural work, extensions, loft conversions and changes of use that need planning permission or building regulations approval. Heavy works carry more risk, so lenders apply stricter criteria.

For heavy refurbishment bridges, lenders often want a detailed schedule of works, an experienced contractor, planning permission where needed and evidence of the borrower's track record. Some lenders only offer light refurbishment bridging loans, so the type of works narrows the field.

Purchase and refurb bridging pays for buying the property and, in many cases, the cost of the works. It is often used for auction purchases and for properties that standard lenders will not accept in their current condition. Heavy refurbishment auction bridges must complete on the auction timetable, so the loan is arranged before bidding wherever possible.

Lenders may lend a share of the purchase price on day one and release funds for works later, or set the loan against the value after the works are done. Interest is usually rolled up or retained so there are no monthly payments while the property is empty.

Bridge to let is a refurbishment bridging loan where the planned exit is a buy-to-let mortgage on the improved property. The bridge funds the purchase and works, and once the property is renovated and let, the borrower refinances onto a longer-term buy-to-let mortgage based on the new value. Some lenders offer both parts together.

The buy-to-let lender will assess the rent against the new mortgage, so the expected rent matters from the start. Converting a property into a house in multiple occupation follows a similar route, covered on the page about HMO bridging loans.

Costs include monthly interest, arrangement fees, valuation and monitoring fees, legal fees and sometimes exit fees. Heavy refurbishment bridges are usually priced higher than light ones. Some lenders consider borrowers with adverse credit for refurbishment bridging, because the decision rests mainly on the property and the exit, though terms may be less flexible.

Building a contingency into the budget for the works helps, because overruns are the most common reason refurbishment projects need an extension, and an extension adds fees and interest. Quotes for the works from more than one contractor also help a lender judge whether the budget is realistic. Pricing structures and dated market figures are on the bridging loan rates page.