If you are looking to refurbish a home to sell, or if you just need to renovate your current home to bring up its property value, then refurbishment bridging loans are a great idea. But how do these bridging loans differ from other types of bridging finance?
Refurbishment bridging loans are a type of short-term finance that is used to cover associated costs with property refurbishments. There are both light and heavy refurbishment bridging loans depending on the expected amount of refurbishment needed.
These types of loans are also sometimes referred to as property value development finance, or just simply as refurbishment finance.
In this guide, we are going to tell you all that you need to know about these types of bridging loans. There are some important factors to be aware of, but don’t worry because we have you covered. Read on to find out more about refurbishment bridge loans and how we can help you secure this type of bridging finance.
What is a refurbishment bridging loan?
There are easy ways to secure finance if all you are seeking to do is refurbish a home. Property degradation comes with age, and renovations are sometimes an inescapable fact of owning a home.
A refurbishment bridging loan is a type of debt secured short-term loan that can bridge the gap for finance needed to begin a refurbishment.
The two types of bridging loan are :
- Light refurbishment
- Heavy refurbishment
We will go into each in more detail below, but no matter which of these types you choose from, you can expect a refurbishment bridge loan to be paid out in one of two stages.
Stage one would be the finance you receive that is calculated from the value of your property.
Stage two would be the second half of the loan, sent to you after refurbishments are complete.
Bridging finance in this category refers to the overall value of the property after the refurbishments have been completed. All of this is calculated during the decision stage of your requested loan.
How is a refurbishment bridging calculated?
An example of how a refurbishment bridging loan is calculated can be completed with a bridging loan calculator.
A traditional lender will look at the best deals available to you while also ensuring that the refurbished home will become an attractive prospect to potential buyers – this is especially true for a rundown property undergoing a renovation.
Using a bridging loan calculator, let’s say your property is valued at £125,000. The estimated cost of the refurbishment will be around £25,000.
With the original value calculated with the refurbishments, your property will value at around £175,000 when adding in valuation fee estimates and the equity release.
Let’s say you get the maximum loan-to-value (LTV) bridging loan rate of 80%; this would now situate your property with a value of around £140,000.
This loan amount can go up if there are multiple properties or go down if mortgage lenders or other property developers already have a stake in the home.
A property refurbishment is often a great idea, and a refurbishment loan through bridging is a great way to accept low-risk, short-term loans.
How much can I borrow?
As mentioned above, traditional lenders are typically in a financial position to offer loan amounts that can still fall within a range for securing debts.
The LTV is not just solely concerned with the value of the property and how the refurbishments will increase its value.
Traditional lenders offer loan amounts that also factor in credit history, the most common exit routes according to individual circumstances, and if they can turn a healthy profit.
Credit history often plays a large part in how much you can borrow, but adverse credit or other debts are not always a barrier to securing a refurbishment bridging loan.
Ultimately, the amount you can borrow for this type of development finance will depend on a mixture of these different variables.
What is a light refurbishment bridging loan?
Not all refurbishments tip the scale at thousands of pounds, but you can certainly get a bridging loan if you only need a minor refurbishment.
These types of bridging loans are known as light refurbishment bridging loans. These loans are typically not overseen by high street banks and represent perhaps the easiest style of refurbishment bridging loan types.
Under UK regulatory regime monitored by the Financial Conduct Authority, light bridging loans for refurbishments typically do not require planning permission allowances regulated by the Financial Conduct Authority.
Light bridging loans for refurbishment are typically granted for:
- Kitchen or bathroom refurbishments
- Decorating and property touch-ups
- Heating Systems or ventilation installations
- Improvements that do not alter property structure
- Electrical rewiring or modifications
- Window and door restructurings
- Remodelling rooms or minor additions
What are the criteria?
To qualify for short-term bridging loans in this sphere, all the typical requirements for bridge loans must be met.
Your credit will be checked, your exit plan must be iron-clad, and the specialist lenders will properly calculate the amount based on the light refurbishments requested.
For a light bridging loan for refurbishment, this must meet the parameters of no major structural changes occurring to the property in question.
For property refurbishment to be considered light, the modifications being made to the property development must be minor and not need permission.
If all of these details are in place, the light property finance loan should be approved.
What is a heavy refurbishment bridging loan?
Not all property refurbishment loans can be considered light, and in fact, most are not. This is where the light or heavy refurbishment loan differences meet.
A heavy refurbishment bridging loan will almost always require planning permission regulated by the Financial Authority, and the refurbishment costs usually stretch into the high thousands or hundreds of thousands of pounds.
These types of loans are advisable for only the most high-end or labor-intensive of property refurbishment types.
With that in mind, the potential property finance loan amount will typically fall along the lines of what a property developer typically needs.
A heavy property refurbishment loan can include:
- Large and complex refurbishments needing planning permission
- Projects that are authorised and regulated according to building regulations
- Various extensions and conversions
Building regulations are not typically authorised and regulated for a light refurbishment, so that shows how this loan type is much more expensive.
What are the criteria?
To qualify for loans pertaining to this financial situation, all the regular criteria for securing a bridge loan must be met in addition to many different regulations for a large property refurbishment.
You can typically expect to receive this type of refurbishment finance if the purchase price of the home is expected to increase above 15% of its value. Therefore, the loan to value of refurbishment loans for heavier renovations will be higher.
Heavy refurbishment finance can also best be understood as necessary for virtually any type of structural modification that will change the original dynamic of the home.
An appointed representative must also make sure debts secured against the property from any residential mortgages are also in compliance.
Are refurbishment bridging loans short-term or long-term?
This type of property finance still follows the usual patterns and expectations as you would see with a bridge loan for any style.
That is to say that the amount of the loan will be due either within a few months to upward of 24 months. Only a handful of lenders would likely offer loan terms of the longest variety on a light refurbishment project.
So you could expect to only qualify for a longer-term if you are undergoing a heavy refurbishment.
But this is still a better deal in many respects over the terms you could expect to see with private banks when it comes to property finance.
Above all else, it is up to you to choose the right finance that you are absolutely sure can be secured and returned within the time frame granted to you.
Here at Bridging Options, this is our specialty since we strive to offer bespoke advice pertaining to your unique circumstances.
Why choose Bridging Options for your refurbishment bridging loans?
At Bridging Options, we dedicate ourselves to offering a wide range of financial advice and connections to ensure our clients receive the right help required for their own particular and unique financial circumstances.
Our team has years of experience across the board in bridge finance and more, which allows us to answer all of your questions above and beyond every step of the way.