A refurbishment bridging loan is a short-term financing solution designed to assist property owners or developers in funding renovation projects. Much like other bridging loans, this type of loan provides quick access to capital, allowing borrowers to undertake necessary refurbishments and improve the value or change the usage of a property. Typically used when traditional financing options are unavailable or too slow, refurbishment bridging loans bridge the financial gap until longer-term funding can be secured or the property is sold.
The scope of work and the amount of financing needed to complete the renovations typically dictate whether a light refurbishment or heavy refurbishment bridging loan is required. A light refurbishment bridging loan is usually intended for minor property renovations that don’t require structural changes or planning permisison. Examples of this include cosmetic updates or small repairs.
In contrast, a heavy refurbishment bridging loan is designed for more extensive renovations that involve significant structural work. Examples of this include adding extensions, altering a property’s layout, or major restorations. Heavy refurbishment bridging loans generally offer larger amounts and possibly longer terms to accommodate the more complex and time-consuming nature of the work.
The amount that you can expect to borrow in a refurbishment bridging loan varies based on several factors, including the property’s value, the extent of the refurbishment, and the lender’s criteria. Typically, lenders can offer loans up to 85% of the property’s current value. The specific amount will depend on the detailed refurbishment plans, the borrower’s financial situation, and the anticipated increase in property value post-renovation.
Property developers and/or homeowners should consider whether a refurbishment bridging loan is right for them, particularly in relation to the total cost they are looking to fund. For example, if the amount needed to borrow is less than £26,000, a personal loan may be sufficient. Similarly, if the amount exceeds £500,000 then development finance would likely be a more suitable route.
Refurbishment bridging loans generally come with higher interest rates compared to traditional mortgages, typically priced between 0.7-1% per month. Additionally, borrowers may incur various fees, including arrangement fees, valuation fees, and exit fees, which can add to the overall cost of the loan.
Typically, a borrower will need to have a clear plan for the refurbishment project, sufficient equity in the property, and a viable exit strategy to repay the loan e.g. selling the property or transferring to a residential or commercial mortgage. Lenders also assess the borrower’s creditworthiness, financial stability, and experience in property development or renovation.
Refurbishment bridging loans are tailored for improvements to existing structures. By comparison, development finance is used for ground-up construction projects or major property redevelopments, providing longer-term funding to cover the entire build process from start to finish.
Contact the Coreco Commercial brokers for expert advice on using bridging loans for refurbishing properties.
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Having an exit strategy for a refurbishment bridging loan is crucial because it ensures that the loan can be repaid promptly, avoiding costly penalties and financial strain.
One common exit strategy is selling the property after renovation to capitalise on its increased value, providing a lump sum to repay the loan.
Another option is letting out the property, generating steady rental income to cover the loan payments.
Alternatively, obtaining a commercial or residential mortgage allows the borrower to refinance the bridging loan into a more stable, long-term financing solution, with lower interest rates and manageable repayment terms.
It is possible to maximise your refurbishment bridging loan by making the most of available grants. Combining bridging finance with these grants can reduce your overall borrowing needs, lower interest costs, and enhance the property’s value more cost-effectively. Typical grants include:
Energy efficiency,
Historical preservation
Property improvement
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