A buy-to-let mortgage lender wants a finished, lettable property. A house with no working kitchen, a failed damp survey or a layout mid-demolition will not pass its valuation, however good the deal is. That gap between "unmortgageable now" and "mortgageable when finished" is exactly where refurbishment bridging sits, and it is the finance behind most BRRR deals and flips. Here is how it works, what it really costs, and a worked example with the finance included.
What a refurbishment bridging loan is
A refurbishment bridging loan is short-term secured lending, usually six to eighteen months, that funds both the purchase of a property and the works needed to bring it up to standard. There are no monthly capital repayments; the whole loan is repaid in one go at the end, either by refinancing onto a term mortgage or by selling. The lender is not really lending against the house as it stands. It is lending against your plan: the works schedule, the end value and, above all, a credible exit.
One point worth being clear on before you sign anything. Bridging secured on an investment property you will never live in is normally an unregulated loan. FCA regulation applies to lending secured on a home the borrower or their family occupies; the FCA Handbook's guidance on what counts as a regulated mortgage contract, and the exclusions for investment property loans, is in PERG 4.4. Unregulated does not mean lawless, but it does mean fewer consumer protections, so read the facility letter properly and use a solicitor who does bridging work regularly.
Light refurb vs heavy refurb
Lenders split refurbishment into two tiers, and the label decides your rate, your leverage and how the money is released.
Light refurbishment
Light refurb is cosmetic and internal: a new kitchen and bathroom, rewiring, replumbing, redecoration, flooring, a new boiler. No structural work, no extensions, no planning permission, no change of use. Because the risk is lower, rates sit at the cheaper end and many lenders will release the works money in one or two simple tranches. Most BRRR deals on tired terraces and ex-rentals are light refurbs.
Heavy refurbishment
Heavy refurb involves the structure or the planning system: extensions, loft and basement conversions, removing structural walls, converting a house to flats or an HMO where consent is needed. If the project needs planning permission, check the position early via the government's guidance on planning permission; a scheme that assumes consent it has not got is a scheme without an exit. Heavy refurb pricing is higher, day-one leverage is usually lower, and the works money is released in staged drawdowns, with the lender's surveyor signing off each stage before the next tranche is paid.
How lenders size the loan
Three numbers control how much you can borrow.
- Day-one LTV. A percentage of the purchase price (or valuation, if lower), commonly up to around 70-75% on light refurb, advanced on completion. Your deposit covers the rest.
- Works funding. Many lenders fund up to 100% of the works cost, but in arrears: you pay for a stage, the surveyor verifies it, the lender reimburses. You still need working capital to front each stage.
- LTGDV. The overall cap. Loan to gross development value measures the whole facility, rolled-up interest and fees included, against the end value of the finished property. Caps of roughly 65-75% LTGDV are typical, and on heavy refurb this is usually the binding constraint.
What it actually costs
Bridging is priced monthly, not annually, and the headline rate is only part of the bill.
- Monthly interest, usually somewhere between 0.75% and 1.5% a month depending on the lender, the leverage and the project. You can service it (pay monthly), retain it (the term's interest is held back from the advance) or roll it up (added to the balance and repaid at the end). Rolled-up is the default on refurb deals because the property earns nothing during the works.
- Arrangement fee, often around 2% of the gross loan, usually added to the facility.
- Exit fee on some products, often around 1% of the loan; many lenders charge none, so compare like with like.
- Valuation and legal fees. Expect a valuation covering both current value and GDV, plus your own legal costs and, typically, the lender's as well.
The gap between the gross loan and what actually lands in your account matters, so run any quote through the bridging loan calculator before you compare deals.
The exit: refinance or sell
Every bridge is underwritten against its exit, and there are only two.
Refinance onto a buy-to-let mortgage at the new, higher value, repay the bridge and keep the property as a rental. That is the BRRR play, worked end to end in our BRRR method guide, and the BRRR calculator will tell you whether the refinance actually releases your cash. Remember the six-month rule: many term lenders will not remortgage against the new value until you have owned the property for six months, so size the bridge term accordingly.
Sell the finished property, repay the bridge and bank the difference. That is the flip play, and the flip profit calculator shows what survives after finance and selling costs.
A worked example
A three-bed terrace with no functioning kitchen, on at £120,000. Works budget £30,000 (kitchen, bathroom, rewire, redecoration: a light refurb), expected end value £190,000, nine-month term to clear the six-month rule with margin.
| The facility | Amount |
|---|---|
| Purchase price | £120,000 |
| Day-one advance (75% of purchase) | £90,000 |
| Works funded in stages | £30,000 |
| Gross loan | £120,000 |
| Interest rolled up (1% a month x 9 months, simple) | £10,800 |
| Arrangement fee (2%, added) | £2,400 |
| Total to repay | £133,200 |
The whole facility of £133,200 is 70.1% of the £190,000 GDV, so it sits inside a typical LTGDV cap. Staged drawdowns mean the real interest bill is slightly lower than the full-term figure, but budget on the full amount.
| Your cash in | Amount |
|---|---|
| Deposit | £30,000 |
| SDLT (5% additional-property surcharge) | £6,000 |
| Purchase legals, broker, bridging valuation and legals | £4,500 |
| Total cash in | £40,500 |
At exit, a buy-to-let remortgage at 75% of £190,000 raises £142,500. Repay the bridge (£133,200) and refinance costs (£2,000) and £7,300 comes back, leaving £33,200 in the deal. Compare that with buying the same project in cash: purchase, works, SDLT and legals would need around £158,500 up front instead of £40,500. The bridge costs you £13,200 in interest and fees for the privilege, and that is the trade in one line: bridging swaps margin for reach.
The risks
- Down-valuation at refinance. The exit lender's surveyor decides your GDV, not you. If the finished house values at £175,000 rather than £190,000, the remortgage falls to £131,250, which does not even cover the £133,200 owed, and you make up the shortfall in cash. Be conservative and lead with real comparable sales.
- Works overrun. Every extra month is another month of rolled-up interest, and running past the term means extension fees or a higher default rate. Build a contingency into both the budget and the term.
- Interest roll-up eating margin. Rolled-up interest compounds the pressure quietly: the longer the project runs, the bigger the repayment and the thinner the equity left at exit. On heavy refurbs, roll-up plus the LTGDV cap can also limit what the lender releases for the works.
Refurbishment bridging is a sharp tool: it lets you buy what mortgage lenders cannot touch and control a project with a fraction of the cash. But the finance costs are real, the clock is always running, and the exit valuation is the judge. Price all three before you offer.
This is general information, not financial advice. Bridging terms, rates and criteria vary by lender; speak to a qualified broker or adviser before committing.
