At a glance
- Light refurb: cosmetic works, usually no planning needed
- Heavy refurb: structural work, extensions or change of use
- Works money is often released in stages after inspections
- Some lenders base the loan on the value after works
What is a refurbishment bridging loan?
A refurbishment bridging loan funds the purchase of a property and, in many cases, the cost of improving it. When the works are finished, you repay the loan by selling the property or by refinancing onto a mortgage at its new, higher value.
It is widely used by landlords and developers, and by homeowners buying a property that is not mortgageable in its current condition.
Light vs heavy refurbishment
| Light refurbishment | Heavy refurbishment |
|---|
| Typical works | New kitchen or bathroom, rewiring, replastering, decoration, windows | Structural changes, extensions, loft conversions, conversions to flats, change of use |
| Planning or building regs | Usually not needing planning permission | Often needs planning permission and building regulations sign-off |
| Lender scrutiny | Schedule of works and costs | Detailed costings, drawings, professional team and your experience |
| Cost of finance | Closer to standard bridging | Usually higher, reflecting the extra risk |
Exact definitions differ between lenders, so a broker will check how your project is classed before you apply.
How the works money is released
Lenders rarely hand over the full works budget on day one. A common approach is to advance the purchase funds at completion, then release works funds in stages, or drawdowns, after a surveyor confirms each stage is done. Some lenders fund works in arrears, so you pay for a stage and are reimbursed. You need enough cash to keep the project moving between drawdowns.
Lending on the improved value
For straightforward projects, lenders lend against the current value. For bigger projects some lend against the gross development value (GDV), the expected value once the works are finished, which can increase what you can borrow. The surveyor's view of the GDV is what counts, not the figure in your plan.
Costs and contingency
Alongside interest and the usual fees, budget for monitoring surveyor fees on staged projects. Build a contingency into your costings; overruns are common, and a lender will not necessarily increase the facility mid-project. Interest is usually rolled up or retained, so it is added to what you owe at the end.
Exit strategies
The exit is either a sale or a refinance onto a buy-to-let or residential mortgage once the property is finished. If you plan to refinance, check that the post-works value and rent will support the mortgage you need. For larger multi-unit schemes, see development exit finance.
Frequently asked questions
Can a bridging loan pay for building works?
Yes. Refurbishment bridging loans can include funds for works, usually released in stages after inspections.
What counts as heavy refurbishment?
Work that changes the structure or use of a property, such as extensions, conversions into flats or change of use, often needing planning permission. Definitions vary between lenders.
Do I need experience to get refurbishment finance?
Not for light works. For heavy refurbishment, lenders usually want to see relevant experience or a professional team in place.
Can I borrow against the value after works?
Some lenders will lend against the gross development value on larger projects, based on their surveyor's assessment.
How do I repay a refurbishment bridging loan?
By selling the property or refinancing onto a mortgage once the works are complete.
Important: Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Think carefully before securing other debts against your home.
This page is general information, not financial advice. Bridging Finance Comparison is a free to use lead generation service run by The Lead Advisory Company Limited. We are not a lender and do not give advice. We introduce enquiries to Curzon Financial, who are authorised by the Financial Conduct Authority (FCA), who may provide advice and arrange finance where appropriate. Rates, fees and criteria depend on your circumstances and the lender.