Refurbishment Bridging Loan.
Leading UK Broker For Bridging Loans Since 2004
At Tiger Financial Ltd, we are one of the top brokers for Refurbishment bridging loan in the UK. As such, we take great pride in the reputation we hold for the excellence of our services.
When done properly, purchasing a degraded property and renovating or refurbishing it for sale can generate substantial profits.
Many real estate developers choose to take out a refurbishment loan to renovate, refurbish or reposition a property because the mortgage lenders are unable to process such complexity or handle the loan with the required flexibility i.e when changing the use or splitting the title.
So, if you’ve identified a suitable property asset that is suitable for refurbishment, conversion, change of use or enhancement, then a refurbishment bridge is what you are looking for.
But what is a refurbishment bridging loan and how do you take one out? Let’s find out. But first, why can’t a high street bank lend you the money?
Why Traditional Lenders Can’t Help.
When you need quick access to large sums of money to secure an investment property, you might think turning to the high street banks to obtain funding is the answer.
But more often than not, they can’t help because most traditional lenders:
- Offer rigid financial products that aren’t suitable for short term finance requirements.
- Have a lengthy application process that can cause significant delays to your development timelines, with application times hitting 3-4 months in some cases.
- Require applicants to have good credit history, to be residents in the UK, and have prior experience renovating rundown properties.
- Deem rundown properties unmortgageable because they’re a high risk, and therefore refuse to finance them. Traditional lenders classify unmortgageable properties as buildings that have:
> A low value – under £50,000
> Have structural issues
> Don’t have a functioning bathroom or kitchen
> Are derelict
> If you plan to change the use or split the title i.e converting an office to flats or a care home back to a residential property.
Which is why you’ll need a refurbishment bridging loan.
What is a refurbishment bridging loan?
If you’re a property investor looking at renovating or improving a rundown or derelict property, a refurbishment loan can be the answer.
A refurbishment bridge loan is bridging finance that gives you access to significant funds, quickly, helping you purchase a renovation project and refurbish it before selling it on, or refinancing it with a longer term financial solution.
This type of finance allows you to move quickly and buy a rundown property while also having the funds to ensure there are no delays during the works.
There are two types of refurbishment bridging loans:
- Light refurbishment bridging loans
- Heavy refurbishment bridging loans
The different types of refurbishment bridging loans.
As mentioned before, refurbishment finance is a funding which provides special support to cover the costs associated with renovations.
A refurbishment bridge loan can fall under two main categories: light bridging loans and heavy bridging loans. The type of refurbishment you’ll need will determine which type of bridging loan you should apply for.
If your commercial property requires extensive renovation or any structural work, it will fall under the heavy refurbishment category.
Heavy refurbishment bridge loan options are typically the loan of choice for property developers with complex, expensive and complicated projects, usually when structural change is required.
A heavy refurbishment bridging loan will typically require planning permission or permitted development from the local council.
Examples of the type of work that heavy property refurbishment loans are granted for include:
- Large or complex renovations that require planning permission
- Projects that need to be authorised and regulated by building regulations
- Anything requiring structural changes e.g. an extension, loft conversion or new build element i.e annexe.
Not every property development will require significant refurbishments. Some will only need a light refurbishment. A light refurbishment bridge loan, therefore, is ideal for properties requiring just relatively minor renovations or a cosmetic decoration.
The definition of light restorations will vary from lender to lender. However, under the UK regulatory regime monitored by the Financial Conduct Authority, as a general rule, light bridging loans for refurbishment projects do not require planning permission allowances.
Examples of the type of work that light property refurbishment loans are granted for include:
- Kitchen refurbishment
- Bathroom refurbishment
- Heating and ventilation installations
- Any property improvement that doesn’t require altering the structure of the property
- Electrical works
- Window or door replacements
- Remodelling individual rooms
Criteria of refurbishment finance.
To qualify for refurbishment bridging finance, you’ll need to have met the standard criteria for securing a bridging loan, i.e. have a asset to use as security against the loan, as well as show the value of the property is likely to be 15% higher than its current value, following the renovation work. This figure can vary from lender to lender, and can also depend on your future plans for the property i.e if you plan to keep and operate the property once the work is completed, such as the case with an HMO or with a hotel.
You will also need to demonstrate to your lender that you have a solid exit strategy plan in place i.e. you intend to refinance or sell the property.
It’s worth noting that although not always, refurbishment loan bridging is usually given on two levels:
- The initial day one loan that is based on the current value of the property before the works commence.
- The refurbishment tranche, which is typically released in stages and in arrears as you progress through the project. Note, this will often require the property investor to forward fund the first stage of work.
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The benefits of a refurbishment loan:
A refurbishment bridging loan is a type of property development finance that gives developers access to substantial funding – from £100,000+.
Interest rates can range depending on the type of project: typically from 0.7% – 0.95% for small renovation works, and 0.55% – 0.75% for larger renovations.
Heavy refurbishments usually command a slightly lower rate than light refurbishment: 0.55% – 0.85% is realistic.
Having a larger deposit and extra security means you might be able to save money in terms of interest, with lower rates typically available at 50% LTV and above.
When repaying a bridging loan, the monthly interest is usually rolled up and repaid at the end of the loan term, rather than as a monthly outlay. However, in certain circumstances, the interest for the facility can be added to the loan, thereby allowing an increased day 1 net loan.
Refurbishment bridging loans are designed as a short term loan with repayment plans from 1 month up to 36 months (most loans are 12-18 months). Short term finance allows property investors to access finance with flexibility on when to repay the loan with no additional charges, unlike a mortgage.
Why property investors use property refurbishment loans?
A refurbishment bridging loan is a type of short term flexible funding that allows investors to buy a property and fund the refurbishment costs at the same time, thereby making their capital go further.
The loan term of a refurbishment loan is usually 12-18 months, during which time you can renovate or restore the property without having to worry about paying off any capital costs associated with it.
The main benefit of this type of funding is that it allows investors to complete development projects quickly and efficiently making the best use of their cash resources.
While there are several types of loans available, one thing remains the same across all of them: they are the most flexible and quickest way for property investors to access finance to allow them to execute their property strategy across multiple asset classes.
How much does a refurbishment bridging loan cost?
As well as the interest due, you should expect to pay additional fees on top of your bridging loan, such as lender arrangements fees.
These fees are charged by your chosen lending and typically range from 1% to 2% of the loan sum.
You can also expect to pay broker fees too. Most brokers charge between 1% – 2.5 % of the loan.
In all cases, you will have to pay a valuation fee for the valuation report. This fee will be charged at the beginning of the process and won’t be added into the loan.
You will also be liable for your own and the lender’s legal fees.
Many lenders may also charge an admin fee, especially if using multiple properties as additional security to raise additional capital.
Repaying a refurbishment bridging loan
Refurbishment bridging loans are repaid in the same way as other bridging loans, either by selling the property, taking out a new loan or using savings to pay off their loan.
When you make your monthly payment, you pay down the principal first, then any interest due.
As with all loans, the shorter you have the loan, the less interest you pay. the lender will calculate exactly how long you have had the loan, including when you started drawing the stage payments, to give you an exact figure of interest that is owed.
Key features of a refurbishment bridging loan
There are several key features of a refurbishment bridging loan:
It is a short-term loan that is used to finance the purchase, refurbishment or repositioning of a property.
You can borrow from £100,000+ for up to three years.
The interest rate will be dependent on the asset, location, loan to value, your financial position, and credit profile
Some lenders can offer a facility where the loan interest is added to the loan, thereby increasing the day 1 net loan, and allowing your cash to go further.
Who is eligible for refurbishment loans?
Renovation bridging loans are widely available for all types of investors. From first timers with no prior experience, to those with a bad credit history, to those who simply want to invest in a property, but don’t have the money to cover renovation expenses.
Why apply for refurbishment finance through Tiger Financial?
Refurbishment bridging loans provide a great solution for people who are looking to undertake refurbishment work and who wish to maximise the use of their capital.
At Tiger Financial we have been helping clients secure bridging finance since 2004.
As a leading UK specialist finance broker, we offer property developers bespoke funding such as bridging loans and development finance.
But with a range of lenders available offering these types of loans, finding the right one can be difficult because the bridging loan market is fragmented and frequently changes.
So if you aren’t a specialist broker yourself, or you don’t use one, you could be missing out the on the best and most appropriate deal for your financial needs.
Access to more lenders.
With access to over 500 bridging loan lenders and 150 property developer finance lenders via our database, you’ll be in expert hands as we guide you through the process.
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Let Tiger Financial help secure you development finance.
If you need a refurbishment loan to purchase, refurbish or renovate a rundown or derelict property, speak to Tiger Financial today, and let us help you broker the right finance for your refurbishment project.
Tiger Financial Ltd is a financial services company registered in England and Wales no: 10225910.
Tiger Financial Ltd is directly authorised and regulated by the Financial Conduct Authority (FCA) no 915106.
The FCA does not regulate all mortgage, commercial mortgages or bridging loan and development products. Think carefully when you buy a property before securing debts or credit against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
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