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Bridging loans and bridging finance tends to confuse many people, however it’s a lot less complicated than people think. Bridging finance is usually used for the purchase and renovation of a property as it’s a form of property development finance.
Bridging loans are essentially short-term loan. It’s best to look at bridging loans as a temporary loan that enables you to buy or renovate a property until you can clear the loan in full, potentially through the sale of a property, or securing a different type of finance.
What is a refurbishment bridge loan?
If you’re a property developer, investor, or landlord, there are several options for short-term finance and a refurbishment bridge loan is one of them.
This type of loan can help you pay for building and development costs. The terms ‘bridging finance’ and ‘development finance’ are very similar in nature however, there are significant differences between the two. The size of the project usually determines which type of finance is suitable.
Why choose a refurbishment loan?
A refurbishment bridge loan is a good product for renovations and refurbishments as this type of loan can give you access to funds really quickly, so that you can start the works as soon as possible.
Bridging loans are often used to convert properties into a state where a lender can then provide a mortgage. As not all properties are eligible for certain types of mortgages. Bridging finance enables you to get the work done and get the property into a state where you can either sell the property, or get a longer-term finance arrangement.
Use a refurbishment bridge loan for light and heavy refurbishments – You can use a refurbishment bridge loan to cover light to heavy refurbishments. This type of loan can fund 3-24 months of building costs and sometimes comes with the option to convert into a mortgage later on.
Light refurbishment – this is the most straightforward type of project, changes are usually aesthetic with work on floors, walls, ceilings, fixtures and fittings.
Heavy refurbishment or renovation – this refers to more structural changes, such as extensions, demolitions, plumbing and electrics, as well as the aesthetic changes that will usually come alongside.
How is a refurbishment bridge loan different to regular term loans?
You may think that term loans provided by traditional lenders are more accessible than bridging loans, however you’d be surprised to hear that traditional lenders such as high street banks do not offer the fastest or easiest way to obtain the finance you need in order to fund the refurbishments you want to make.
Typically, traditional lenders offer a set number of financial products that are geared towards only a handful of circumstances. Also, their financial products are better-suited to long term projects such as residential mortgages. Therefore, traditional lenders may not be able to get the adequate finance for your development.
On top of that you’ll find that some high street lenders will deem some properties unmortgageable, especially if they fit any of the following:
- Valued under £50,000
- Have structural issues
- Without a functioning bathroom or kitchen
- That are derelict
If you intend to buy a property that fits into the above criteria, it is likely that a traditional lender will not provide the finance you need.
On the flip side, refurbishment loans are becoming an increasingly popular option with developers, investors and landlords as they have many attractive features. The main ones being a fast application process that gives you access to the funds you need quicker, the ability to borrow larger amounts of money and it allows for flexible borrowing.
Find out more about bridging loans
As you are aware, bridging loans are a complex area. However, the best place to begin is to establish how extensive the project is, how long it will take and how much it is likely to cost.
All successful property developers plan things out beforehand and getting the right finance in place is crucial in development success.
If you’d like to find out more about bridging loans and finance, we are here to help. All you need to do is get in touch.
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