Bridging finance to purchase and renovate unmortgageable property
Details at a glance
- Facilities from £65,000 to £10 million
- 1st Charge loans
- 2nd Charge loans
- No ERC
- No minimum income
- Roll up of interest
- Interest only available
- Buy to Let property
- Multi-tenant HMOs
- Mixed use
- Sitting tenant
- Part commercial
The Bridging Finance Solution
Bridging finance can be utilised to purchase, or refinance unmortgageable property. Property needing repairs and refurbishment before they can be considered habitable would normally not be acceptable security for mainstream mortgage lenders. Bridging enables property traders to buy property requiring renovation before reselling.
Bridging finance can be utilised to purchase, or refinance, uninhabitable property needing repairs or refurbishment. It is suitable for most residential property requiring renovation. Improvements to the property might be installing a new kitchen or bathroom and non-structural changes to the layout. Improvements may be necessary to make the property habitable for home buyers purchasing with a mortgage.
Reasons to use bridging finance
- Purchase property in poor condition
- No rental calculation on purchase
- Quick turnaround time
- Funds can be secured across several properties
- Remortgage within 6 months
- Refinance existing bridging loan
- Completions within 28-day deadline
About the 6-month remortgage rule
The 6-month is rule observed by virtually all residential and buy to let lenders protects against artificial house price inflation as we began to see in the property boom around 2003 – 2008.
In the boom, we saw property investors buying at one price on one day and remortgage days later on a drawdown facility. The refinance was based on a higher valuation with none or negligible improvements ever carried out that could justify the hike in valuation in such a short period.
While the majority of lenders enforce a 6-month period, some use a 12-month period in which the property cannot be refinanced at a higher value.
Bridging finance for property refurbishment
Property investors and developers can utilise bridging finance to fund the purchase and renovation costs of a property. The schedule of works may be simply to make the property mortgageable, for example, by replacing broken or inadequate kitchen and bathroom fixtures. Once the renovations have been completed the property can be rented out or sold to home buyers.
Renovation of a townhouse with no bathroom. The distressed property was purchased at auction using bridging finance for a fast sale.
Refurbishment of a one bedroom apartment with an open plan design to maximise light and space to appeal to a competitive rental market in central London
The Light Refurbishment mortgage can be used for many situations where the property needs some form of work to be carried out before it can be let to a tenant. Other renovations may be carried out to increase market appeal or rental value or to capitalise on uninhabitable property purchased at auction. In some instances, a home missing only a functional bath or WC would not be mortgageable with conventional Buy-to-let mortgage lending, a light refurbishment product offers a viable solution to avoid mortgage retentions or needing bridging finance.
Typically light refurbishment would limited to non-structural work and other work that would not need planning permission or other building work that needing to be regulated under building regulations. For renovation programs that would incorporate change of use or planning consent, such as converting a single dwelling to multiple dwellings, the medium or heavy refurbishment finance products could be used.
Bridging Finance Working Example
Working example House Refurb:
Purchase price: £229,950
Loan amount 80% LTV: £183,960
Cost of works: £34,000
Refurb term: 4 months
End value: £342,000
Mortgage amount 80% LTV: £273,600
After 6 months from date of purchase has elapsed the property could be re-mortgaged to a buy to let term mortgage product up to 85% LTV.