As bridging loans are designed to be short-term and flexible, many developers find them ideal for financing property refurbishments.
Many properties only require light refurbishments to improve their value. These are repairs that do not need planning permission and include new bathrooms, kitchens, rewiring, and redecoration. Improvements can also be made to the energy efficiency of the home by installing insulation and a new energy efficient boiler.
Some bridging finance lenders define light refurbishments has improvements that cost 15% or less than the value of the property.
Many developers buy properties in order to resell them at a profit, since light refurbishments can add value to the property before selling. Landlords improve properties to make them a higher standard for which they can charge higher rents. Refurbishment work can add up to 20% to the value of property.
Sometimes, mortgage lenders will not release funds for properties that require refurbishments until the work has been completed. If the owner does not have the finance for this, a bridging loan can supply the necessary funds.
Some lenders will provide bridging loans to cover 100% of the refurbishment work.
Heavy refurbishments are defined by some lenders as work that costs more than 15% of the value of the property. As well as the work covered in light refurbishments, heavy refurbishments include loft conversions, extensions and conversion of large houses to multiple occupancy ones. Some heavy refurbishment work may require planning permission.
Lenders will provide loans worth up to around 75% of the value of the property for major refurbishment work.
Investors, landlords, and individual homeowners can apply for bridging loans for residential property. If a business wants to refurbish commercial property, lenders are available to provide bridging loans for the building work.
Interest rates and fees
Interest rates charged on bridging loans for refurbishment work are dependent on the risk assessment of the lender. Often lenders will charge extra interest for refurbishment work because of the higher risks. There can be cost overruns and construction delays in completing the work. If the borrower is reliant on selling the property to repay the loan, there could be delays in selling it.
Sometimes the whole of the loan will be available before construction work begins, but often on large projects, the lender will release funds in stages when defined phases of the refurbishments have been completed. Stage payments are preferred by some borrowers as interest is only charged on the amount currently borrowed.
Arrangement and valuation fees will be added to the loan, but many lenders do not charge exit fees for early loan repayments.
Applying for a refurbishment bridging loan
If you want a bridging loan for refurbishment work, contact Ascot Mortgages to discuss your application. Ascot has relationships with a wide range of lenders and can match your application to the best lender for your particular situation.
Even if you are self-employed or have a poor credit rating, Ascot will guide you through the whole process of applying for a loan and help you prepare the necessary documents to support your application.