Best Mortgage Rates

Outside the box Mortgage Solutions

No upfront fees banner

No Upfront Fees!
16 years in business Helping thousands of clients.

BRRR 85% LTV bridging loan for property refurbishment

by

85% LTV bridging loan

BRRR Finance Refurb Projects to 85% LTV bridging on day 1

May be excitement and refurb finance don’t naturally gel together but this 85% Loan to Value bridging Loan product could be the one to shake this up and id Ideal for those of you looking at ways to do the BRRR strategy which is buying, refurbing, renting, and refinancing a property and repeating the process.

The daily stream of refurb finance enquiries nearly all centre on loan-to-value and: “what’s the maximum I can get?” The customers know how to flip bargain properties for a tidy gain they just need the initial funds to get going.

GET A FREE BRIDGING LOAN QUOTE

Why is refurb finance used?

Light refurbishment finance is normally faster to agree as the underwriting focuses more on the development experience of the borrower and the underlying asset. Therefore lends itself to platforms such as “auctions” to get the real property bargains. Mortgages on the other hand are much more inflexible and require more status checks on the applicants; the legals are done at back end, and the property needs to be habitable.

What is special about the 85% LTV refurb finance product?

Well the light refurbishment market generally sits at 75% of the purchase price. There are hybrid models that advance a lower initial loan-to-value and with further tranches after set refurb  stages have been completed which is not very cash-flow friendly. The 85% LTV bridging loan product however rips this industry way of working up with 75%LTV towards the purchase (based on the open market value) and 10%LTV for the works advanced on Day 1.

How does the BRRR 85% LTV bridging loan product work?

  • You need to demonstrate you have a well thought out plan and are not a novice. This is typically achieved by a detailed written “schedule of works”. This should: itemise the home improvements that are to be carried out and the date they are expected to be completed by in ration to the whole project. The list should include realistic costs and a contingency plan.
  • The schedule of refurb works is then assessed by the Bank for plausibility.
  • All being well 85% LTV bridging loan is advanced on day 1.
  • The 85% is assessed against the open market value.
  • No waiting for elements of the work to be completed.
  • No need for further valuation inspections.
  • 75% LTV is expected to go towards the initial purchase.
  • 10% LTV towards the reburb works. This could be up to 100% of the costs.
  • The Bank will also reference the end value GDV (gross development value) of the finished project, which cannot be greater than 75% LTV.

Is the 85% LTV bridging loan refurb finance product expensive?

Light refurb products normally work on a monthly interest rate rather an annual one which is customary for mortgages. This is because with light refurb the projects are typically completed in 3 to 6 months of the purchase.

The rate on the 85% LTV bridging loan refurb product is priced at 0.85% per month for loans up to £1m, 0.75% per month above.

To put this in perspective the cheapest rate the Lender offers is 0.5% for loans up to 50% LTV to £1m. So there is obviously a premium for the 85% LTV refurb finance product for the extra risk to the Bank.

There is Lender arrangement fee of 1.95% of the loan amount. This drops to 1.70% for returning customers. Guidance on the valuation and legal costs will be provided at application stage.

Rates current as at 2/4/22.

Frequently asked questions on the 85% LTV refurb finance BRRR product

Q) Who funds the 85% LTV refurb finance?
A) You might think with this level of lending and entrepreneurship it might be sitting with private investors or peer-to-peer crowd funding but rest assured it’s a fully licenced UK Bank with over 300,000 active and engaged customers.
Q) What investment property experience do I need to access the 85% LTV refurb finance product?
A) In theory none, however your plan will need to be very well thought out and constructed.
Q) Can I live in the property after its refurbished?
A) That’s not the intention. This finance works on the basis that the property will be sold or kept and let. If you change your mind in the future then this may be possible but if it is to remain on finance then you would need to remortgage to a “residential mortgage”.
Q) What does the term light refurbishment mean?
A) Light refurbishment is generally not: structural work; work that requires planning permission; or a change of use to the property.
It is typically putting in a new windows, kitchen, bathroom, general decoration, changing non-weight bearing walls etc.
As a further guide anything that takes 180 days or more to complete would probably fall outside of the “light refurb” definition.
The 85% LTV refurb product is available for “light refurbishment only” so if want to carry any home improvements and are unsure their validity within this definition you should get this agreed ahead of any applications.
Q) How long can the 85% LTV Refurb product last?
A) The is term is agreed at outset. This ranges between 1 and 24 months. It is always sensible to overstate this in relation to the expected project finish, by a few months, to allow for slippage.
Q) What happens when the 85% LTV refurb finance term ends?
A) You can sell the property to pay the finance back. The Bank may seek reassurance that the property has been listed on the market during the process.
You can remortgage the property on to a mortgage otherwise known as a “term loan”. This could either be with the same Bank or with a different Lender.
Alternatively, if you have funds or other assets these may be used to clear the debt.
Q) Can I use a limited company to make the purchase under?
A) Yes, absolutely. It can be either a SPV limited company for property or a Trading company with other business interests. Trading companies should be agreed upfront with your Finance Advisor ahead of application. You should also seek professional Tax Advice.
Q) What are the interest repayment options?
A) You can choose to roll-up the interest onto the finance balance. This means the expected monthly payment is added onto the amount you’ve borrowed as you go. Although more expensive overall it does have the cash-flow advantage and your status is less important so the finance is more certain to be agreed.
You can “service” the monthly interest by paying them in monthly instalments. The Lender will look closely at your income to assess the plausibility of repayment. This will slow the process.
Alternatively, the Bank allows a hybrid mixture of the two methods.
You should seek professional guidance from your Finance Advisor on what is the most appropriate method for you.
Q) Can I pay back the 85% LTV refurb finance early?
A) The minimum term is 1 month after this there is no main early repayment charges.
Q) What is the minimum loan on 85% LTV refurb finance product?
A) £40,000.
Q) How can the deposit be funded?
A) As well as personal savings there are a variety of acceptable reasons including: gifts, directors’ loans, builders’ incentives to 5%, additional borrowing on other properties, and even bounce-back loans with a good rationale.
Q) How good does my credit record have to be to access 85% LTV refurb finance product?
A) Typically CCJs and Defaults need to be 2 years old. Mortgage arrears, bankruptcy and IVAs at least a year old. There is greater tolerance to recent unsecured arrears.

If you’re looking at BRRR and need to talk about the 85% LTV refurb please complete the form below and we will be in touch.

GET A FREE BRIDGING LOAN QUOTE

Author: Payam Azadi

Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
Twitter Facebook Linkedin