How bridging finance can help property refurbishment?
Are you thinking of refurbishing a property before sale to increase its value? It is a good idea and will help you make healthy returns if done correctly. But if you do not have enough cash to refurbish a property, refurbishing bridging loans can help you get funds quickly.
Most bridging loan providers UK and p2p lending platforms offer loans that you can use to refurbish a property. These loans are also known as property value development finance. Here in this article, we are going to describe everything you need to know about refurbishment bridge finance, including the factors you should be aware of and how you can secure this loan.
What Is A Refurbishment Bridging Loan?
You may be wondering how this loan is different from other types of bridging loans. You may understand it from this simple definition:
A refurbishment bridging loan is a short-term finance that is used to cover the cost associated with property refurbishment. The loan amount depends on the expected amount of refurbishment.
There are two types of this bridging finance:
- Light refurbishment
- Heavy refurbishment
Property degradation occurs with age, and renovation is something you can not escape. No matter which type of refurbishment bridging finance you choose, you must keep in mind that you can take an amount more than the value of your property. Another important thing is that half of the loan amount is sent to you after the completion of the refurbishment.
How Much Can You Borrow?
Traditional lenders are typically in a position to offer loan amounts that can still fall in a range of securing debts. LTV is not only a factor that is concerned with the property value but how refurbishment increases its value.
Standard property loans also depend on borrowers’ credit history, the exit routes according to borrowers’ circumstances and if they can make healthy returns.
Credit history is always a factor that impacts the amount you can borrow from banks or traditional lenders. However, securing a refurbishment bridging loan is not always a barrier.
The amount you can borrow depends on different variables such as the value of security property, exit route and your equity in the property. You can easily get a large amount at a competitive interest rate if you have a valuable property and a strong exit route. You can also get a bridging loan from p2p lending platforms, which offer more flexibility and benefits.
What Is a Light Refurbishment Bridging Loan?
Not all refurbishments cost thousands of pounds, but you can also get bridging finance for minor refurbishments. These types of bridging loans are known as light refurbishment bridge loans. They are not usually overseen by high street bankers and are perhaps the easiest way of getting funds for the refurbishment of a property.
According to the Financial Conduct Authority (FCA), light refurbishment loans do not require planning permission. You can take out such loans for:
- Touch-ups or decoration of properties
- Bathroom or kitchen refurbishment
- Installation of ventilation or heating system
- Electrical modification
- Restructuring of doors and windows
- Improvements that do not change property structure
- Minor additions or remodelling of rooms
You must meet all the typical requirements if you want to take out a light refurbishment bridging loan. Lenders will assess your credit score and exit strategy and calculate the amount depending on the refurbishment requested.
For light refurbishment loans, the basic parameter is that there should be no structural changes in the property. Lending criteria vary from lender to lender, but if you meet basic criteria, it will help you in getting quick approval.
What Is a Heavy Refurbishment Bridging Loan?
Most property owners or developers need funds for major refurbishments of properties. It means they need large amounts to fulfil their need. Such loans are known as heavy refurbishment loans. According to the Financial Conduct Authority, this type of loan always requires planning permission. You can take out an amount of hundreds of thousands of pounds.
These loans are beneficial if you want to complete the high-end or labour-intensive type of property refurbishment.
You can take out a heavy refurbishment bridging loan for:
- Projects that are authorised according to building regulations.
- Extension or conversion of a property
- Large refurbishments needing planning permission
If you want to take out a heavy refurbishment loan, you must meet the eligibility criteria of the lender you choose. Usually, you can get this type of loan if the price of the property is expected to rise 15% after refurbishment.
Why Use Refurbishment Bridging Loan?
Refurbishment bridging finance is designed for short-term use. It can provide a significant amount of funds within a short amount of time and bridge the gap when you are waiting for loan term finance. These types of loans are becoming increasingly popular among property developers because of their features.
- Refurbishment bridging finance provides you with the substantial money required to complete your projects.
- These loans come with a flexible interest rate. You may pay interest monthly or at the end of loan terms.
- Loan terms are also flexible ranging between 3 to 24 months. Moreover, you can repay it early without any early repayment fee.
You must take time to calculate the exact amount you need for refurbishment. If you take out more than you need, you may end up paying more. Also, remember that the longer you take to re[ay the loan, the more you have to pay the interest rate. So, we suggest you repay the loan amount as early as you can.
A refurbishment bridging loan can be a perfect option for you for all types of renovations or refurbishments. No matter if you are looking for funds to change the windows or doors of your home or if you want to alter the property structure, this loan covers you. You can get it from specialised bridging lenders or p2p lending platforms. Always do research, shop around and make a price comparison to find the best deals that you can afford to repay.