Bridging For Renovation
- Access to competitive rates and some you can't get direct
- No need to spend hours researching the market
- Relax knowing you have the best advice
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
What's On This Page?
Get In Touch
Bridging For Renovation
Can you get a bridging loan for renovations? How does it work?
Yes, absolutely. In fact, there are a few lenders that have specific products just for this very thing. They help you buy a property and then refurbish it and improve it.
They’ll finance all of it. A bridging loan for renovations is often called a refurb bridge, and is specifically designed for this very thing.
How quickly could you get a bridging loan for renovations?
There are lenders we can go to that will do a bridging loan super quick, where things are as automated as possible.
They take a bit of a risk, but with that comes a higher rate. There’s not enough time to go through everything in much detail, so they charge for that risk. The quicker you need it, the more expensive it’s going to be.
It’s better, ideally, to go to someone that might take more time, do an evaluation and examine the details, because you’ll get a better rate. It depends how much of a rush you’re in. The lenders that take their time will turn a loan around in four to six weeks.
Generally, we’ll meet an auction deadline where required. There’s a popular misconception that bridging loans take three days or so, but it’s not always the case. It can be, but that’s not always best.
What are the eligibility criteria for a bridging loan for renovations?
With most bridging loans, it’s not so much about you and your income. Usually, we see people doing this through a company, anyway. We do factor in credit score and credit history, but it’s more about the deal as a whole.
Some lenders will look more at your assets and liabilities in the background. Is this the only thing you’re doing, or do you have a portfolio of properties in the background? Have you got lots of equity? It’s about how the deal stacks up and the property. What it is worth now, how much do you need for the refurb and what it’s going to be worth at the end?
The better those figures are, the more choice we’ve got and the lower the rate will be. But generally speaking, we can get a bridge for close to 75% of the purchase price, minus fees.
It tends to work out at 72% or 73% of the purchase price as a net loan.
You do tend to start it yourself. It’s generally funded in arrears – you do some work and then they give you money for it, and that repeats in stages. You need a starting pot of funds to make this happen.
You can fund up to 100% of the refurb costs, providing it will be worth as much in the end. The end value is called the GDV (Gross Development Value). Providing we’re at no more than 70% or 75% of GDV at completion, we can do it. It works really well for a lot of cases.
Are there restrictions in the type of renovations you can use a bridging loan for?
Rather than restrictions, there are certain criteria. If you might need planning permission, generally you will need that in place.
Perhaps you’re changing something from commercial to residential – that’s quite popular.
Again, if there’s planning for that conversion, we crack on as normal. If there’s no planning, we might need a bigger deposit, because lenders won’t lend as much on a commercial property as on a residential one.
We could bridge for the purchase, get the planning and that gives an instant uplift in value. Then we can release a bit more and fund the rest of the conversion. As long as what you’re doing is legal, it’s generally fundable in one way or another.
Can I get a bridging loan for renovations from a high street lender?
Generally, not those high street lenders like HSBC, Santander, NatWest, Nationwide… the big names. Bridging lenders won’t have a branch you can go into. But they are like high street type lenders in that they have really good rates and processes. There are no dodgy deals going on.
In residential terms, we would class the high street for nice, clean, normal cases and off the high street for people with adverse credit or quirky properties. The same applies here. You just won’t see the high street names doing this kind of finance.
Should I get a bridging loan or remortgage to do renovations? What are the differences and benefits here?
If you can remortgage, you should do that because it’s going to be cheaper. There’s no getting away from that. However, if you’re looking at a bridging loan, it’s probably because you can’t remortgage.
If it’s a rundown property and you’re going to turn it into an HMO (house in multiple occupation) you can’t get a normal mortgage on that. It’s not going to work in the same way.
It would have to be a bridge.
Perhaps you’ve got a normal property that’s rented out and you want to put an extension on, or it needs a new kitchen and bathroom. You might have the equity there to remortgage it – but it would need to be in a lettable condition. You could potentially remortgage, borrow more money and do the work.
But if it’s a shell of a property, you’re not going to get a standard investment mortgage on it. We’re specifically thinking about investments here, and that’s generally that’s why you need to be looking at bridging.
What type of exit strategy do I need for a bridging loan for renovations?
We always need an exit strategy for a bridging loan. There are two main ones here – sale and refinance.
If you’re buying a property that needs a lot of work, we fund the purchase and the refurb and then it’s worth much more and you sell it. That’s what we’d call a flip. You buy it, do it up, sell it – we can bridge that process.
I’m seeing a lot of buy, refurbish and rent out projects these days. The client is going to rent the property out once it’s refurbished. It might be an HMO or just a normal Buy to Let. Either way, we can refinance that up to about 75% of its new value.
There’s a good reason why lenders won’t lend more than a certain amount of the finished value – it’s to make sure that you can exit. There’s plenty of room if you need to sell, even if you need to take a bit of a hit on the sale.
Or, if we need to refinance, there’s enough equity there to get out of the bridging loan.
It’s no good to anyone if we can’t exit, because you end up handing the property to the lender to sort out.
Speak To an Expert
How do I apply for a bridging loan for renovations?
Just come and speak to me. That’s all you need to do. There are various lenders that do this and some are set up better than others in how they structure their interest payments. It means you get a larger net loan on day one.
We always talk about gross and net loans, with the way interest is deducted. To minimise the initial deposit there are some decent lenders to go to, with some decent rates.
A broker knows all the details and can go to all the lenders, so we will take you wherever is best. If you’ve got any more questions, please get in touch.
SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Can I get a mortgage as someone who is self-employed and a First Time Buyer?
Yes, absolutely. We love self-employed mortgages. There are so many different options when you’re self-employed that it can be quite a scary prospect, I suppose.
When you’re self-employed, you know about your business but you don’t necessarily know the intricacies of how your accounts and your income works – that’s why you have an accountant.
So it can seem a little bit daunting going to a lender and asking how much you can borrow when you don’t necessarily know exactly how your income is made up. But that’s where we come in.
You can definitely get a mortgage if you’re a self-employed First Time Buyer and there are many lenders to go to depending on what you do and how you are self-employed. We’ll talk about limited companies and sole traders shortly.
How does getting a mortgage work for someone who is self-employed and a First Time Buyer work? Is it difficult to get a mortgage when you are a self-employed First Time Buyer?
The main thing is your income. We’re going to ask for different income evidence depending on the lenders. Their rates and affordability criteria are mostly the same.
There’s a bit of a hangup from Covid times where some lenders are a bit less generous for self-employed people, because they were the worst affected during the pandemic. But most of that’s gone now.
Whether you’re employed or self-employed, the amount you can borrow and the value of property you can buy will be the same. We’re just going to ask for different information.
If you’re a sole trader we will ask for your last couple of years’ net profit figures and for documents you get from HMRC that break down your income. Those will help us work out how much you can borrow.
Usually you need two years’ records, but a few lenders might look at just your first year. If you’ve only got one year’s accounts, we’ve done a podcast on that you can enjoy at your leisure.
It’s not difficult. It’s just different. We’re just going to ask for certain figures that you may know and your accountant will certainly know. Once we’ve got those we’re all good.
How many years do you have to be self-employed to get a mortgage?
Mostly it’s two years’ figures and lenders will average the last two years’ profits. We’re always going to use the latest year’s figures if your income has gone down. If performance has gone up, most lenders are going to average the past two years.
If you’ve only got one year’s figures, there are lenders we can go to. It depends a bit on what you’ve done before. If you’re an employed electrician, for example, and you become a self-employed electrician doing the same thing – you might even subcontract for the same company – that’s going to be fairly easy as long as your credit score is OK.
But if I suddenly decided to be a self-employed electrician I might struggle – lenders might think I don’t know what I’m doing, and they’d be right. But you can potentially get a mortgage with one year’s figures. People often think you need three years’ accounts, but that only applies with one or two lenders. Most are happy with two.
How much can I borrow for a mortgage if I’m self-employed and a First Time Buyer?
A couple of lenders do ask if you’re self-employed or not and they’re not as generous if you self-employed. There are good years and bad years when you’re self-employed, compared with someone that’s employed and just earns a set amount of money.
It’s no safer being employed, but that’s a different story. How much you can borrow is basically the same. Very broadly we say you can borrow four and a half times your income, but it will depend on other factors like other debt, loans, credit cards or other income you might have.
If you’ve got a limited company it might be slightly different as well. Some lenders might use your profit instead of your dividends. Again we’ve got a section on the site about limited companies where you can find more details.
Useful Links
Why Vantage?
- Always the perfect mortgage for you
- No need to spend hours researching the market
- Relax knowing you always have the best deal
