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Bridging Loans For House Renovations

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ABC Finance » Bridging loans » Bridging Loans For House Renovations
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans

A bridging loan is a key financial product that can be used to fund a house renovation. Bridging loans are a type of short-term finance and are an excellent option for any sort of refurbishment, renovation or construction work.

In this guide, we break down how a bridging loan for house renovation works, what to expect when taking out a bridging loan for house renovation, the alternatives and some information about likely costs.

What is a bridging loan for house renovation?

A bridging loan for house renovation is a type of short-term loan that allows you to fund the renovation of a property. They are secured against a property (or multiple properties) and are designed to fund only the period of time required to renovate the property.

Once work on the property is complete, the loan will then be repaid, this is known as ‘exiting’ the bridge, or your exit strategy.

In most cases, the loan will be exited, or repaid through either a refinance to a longer-term loan, such as a residential mortgage or buy to let mortgage, or through the sale of the property. When a property is purchased, refurbished and sold, this is known as ‘property flipping’.

Property flipping is a common and very profitable form of property investment, which is often funded using a bridging loan.

Are there different types of bridging loan?

Yes, there are several different types of bridging loan. They can be split in different ways, firstly, there are residential bridging loans and commercial bridging loans.

Within residential products, there are other product types including regulated bridging loans, unregulated bridging finance, property refurbishment loans and even more specialist products such as development exit finance or bridging loans for property developers.

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What are the alternatives?

Of course, bridging finance isn’t the only option for those wanting to renovate a property. The following options should also be considered:

Remortgages

A remortgage allows you to switch your mortgage provider and potentially release further funds to renovate your property. Remortgages tend to come with lower interest rates than those available with bridging, so are a strong option.

That said, they are a longer-term form of debt, so may not be suitable for short-term needs.

Depending on the level of construction work to be undertaken, some mortgage lenders may not be willing to lend.

Secured loans

Secured loans, also known as homeowner loans or second charge mortgages allow you to take out further borrowing alongside your current mortgage. Secured loans are again, a longer term form of debt, so aren’t suitable for every refurbishment project.

Funding the project from savings

Of course, this option won’t be available to everyone, but if you have the funds required to complete your project in savings, consider using them. You can save a lot of interest, far higher than you’d earn by leaving your funds in a savings account.

Personal loans

Personal loans, also known as unsecured loans allow you to borrow funds and repay them over a term of 1-7 years. While a personal loan is a simple option, they’re usually only available for amounts up to £25,000, meaning they won’t be suitable for larger projects.

Another issue with funding a renovation using a personal loan is that the relatively short repayment period means that monthly payments tend to be higher than would be the case when using one of the other options.

How much does house renovation bridging finance cost?

A bridging loan for a house renovation will cost between £6,400-£13,400 per year for each £100,000 borrowed.

The cost is made up of interest, which is usually between 0.45-0.95% per month and an arrangement fee. Typical arrangement fees are between 1-2% of the loan amount, giving a cost of £1,000 to £2,000 for every £100,000 borrowed.

How much can I borrow?

Bridging finance is available from £10,000 with no maximum loan size. The limit for your project will usually be limited by your chosen lenders maximum loan to value (LTV). Some lenders even offer specialist large bridging loans.

In most cases, your maximum loan to value will be 70-75% of the current value of the property. In some cases, where there will be a significant uplift in property value, a select few lenders may consider a loan up to 85% LTV.

FAQs

Here are some of the questions that we often get asked by potential borrowers.

They can be used for any type of property refurbishment or renovation. This can include light refurbishment, heavy refurbishment, bridging loans for an extension, conversions or any other type of work on a property.

The term is usually available from 1 month to 18 months. If you’re taking out a regulated loan against your own home, your maximum term will be capped at 12 months.

We can offer these loans to almost anybody, including individuals, partnerships, LLPs and limited companies.

Although not every loan for home renovations are regulated, those that are against your own home (or a property that you have ever lived in, or plan to live in in the future) then it will be regulated. In these circumstances, the Financial Conduct Authority (FCA) are the regulator.

About the author

Gary Hemming Headshot

Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans

Gary is an experienced finance professional who holds CeMAP, CeFA, CeRGI and CSP qualifications. He has a well rounded background across financial services and has worked with commercial finance, bridging loans, financial advice, pensions and insurance throughout his career.

These days, Gary heads up a lot of the operations at ABC Finance, works closely with the team and leads our work to build and integrate new technology to the business.

He regularly appears in and writes for the press including local and national news, trade publications and specialist business news.