Why Refurbishment Projects Need Bridging Finance
Properties requiring significant refurbishment rarely qualify for standard commercial mortgages. Lenders want to see habitable, income-producing assets — not buildings with leaking roofs, outdated electrics, or no current tenants.
**Bridging finance** fills this gap. It allows you to acquire and refurbish a commercial property, then refinance onto a long-term mortgage once the works are complete and the property meets standard lending criteria.
Refurbishment bridging **enables** investors to add substantial value to commercial property. A tired, vacant office block purchased for £400,000 and refurbished for £100,000 might be worth £650,000 post-works — a significant uplift that would be impossible without short-term finance.
Light vs Heavy Refurbishment
Bridging lenders categorise refurbishment projects into two tiers, each with different terms and requirements.
Light Refurbishment
Light refurbishment covers cosmetic and non-structural works that improve the property without changing its fundamental character. Examples include:
- Redecoration: Internal and external painting, new flooring, modern finishes
- New kitchen and bathroom fitouts: Replacing dated fixtures
- Electrical and plumbing upgrades: Rewiring, new boiler, updated radiators
- Roof repairs: Patching or replacing roofing materials (not structural changes)
- Window replacement: New double glazing
- Landscaping: External improvements to enhance kerb appeal
- EPC improvements: Insulation, lighting upgrades, heating efficiency improvements
**Key characteristics of light refurbishment bridging:**
- Typically no planning permission required
- Works cost up to 15% to 20% of the property value
- LTV up to 75% of current value
- Interest rates from 0.50% to 0.95% per month
- Term: 6 to 18 months
- Funds released in one tranche at completion
Heavy Refurbishment
Heavy refurbishment involves structural works, change of use, or major alterations. Examples include:
- Structural alterations: Removing or adding walls, extensions, loft conversions
- Change of use: Converting offices to residential, warehouse to retail, pub to flats
- Major mechanical and electrical work: Complete rewiring, new heating systems, fire safety upgrades
- Significant external works: New facades, structural roof replacement, underpinning
- Creating additional units: Subdividing a large unit into smaller ones
- Works requiring planning permission: Extensions, change of use applications
**Key characteristics of heavy refurbishment bridging:**
- Often requires planning permission or permitted development confirmation
- Works cost typically 20% to 50%+ of the property value
- LTV up to 70% of current value, or up to 65% of Gross Development Value (GDV)
- Interest rates from 0.65% to 1.25% per month
- Term: 12 to 24 months
- Funds may be released in stages (drawdowns) linked to project milestones
- Lender may require a monitoring surveyor to verify works at each stage
**Key Takeaway:** Understanding whether your project is light or heavy refurbishment determines which lenders are suitable, what rates you will pay, and how the funds are released. Your broker will help you classify the project correctly.
How Refurbishment Bridging Works
Step 1: Acquisition
You use the bridge to purchase the property. The lender advances funds based on the **current value** (not the projected post-works value), typically up to 70-75% LTV.
Step 2: Works Funding
Depending on the lender and project type:
- Light refurbishment: The full loan amount (including works) is released at completion. You fund the works from the loan proceeds or your own cash.
- Heavy refurbishment: The purchase funds are released first, then works funds are released in stages as the project progresses. A monitoring surveyor inspects and signs off each stage before the next tranche is released.
Step 3: Refurbishment
You carry out the works according to your schedule and budget. For heavy refurbishment, you submit drawdown requests at agreed milestones.
Step 4: Exit
Once works are complete, you exit the bridge through:
- Refinance to a commercial mortgage: The property now meets standard criteria and is valued at its improved worth
- Sale: You sell the refurbished property at its enhanced value
- Refinance to buy-to-let: If the property has been converted to residential
Costs of Refurbishment Bridging
Here is a detailed cost breakdown for a typical refurbishment project:
Example: Light Refurbishment
- Purchase price: £250,000
- Current value: £250,000
- Refurbishment budget: £40,000
- Post-works value: £350,000
- Bridge amount: £187,500 (75% of current value)
- Monthly rate: 0.75%
- Term: 9 months
- Arrangement fee: 2% = £3,750
- Interest: £187,500 x 0.75% x 9 = £12,656
- Valuation: £750
- Legal fees: £2,500
- Total bridging costs: £19,656
- Total investment: £250,000 + £40,000 + £19,656 = £309,656
- Post-works value: £350,000
- Equity created: £40,344
Refinancing at 75% of the new £350,000 value gives a mortgage of £262,500 — enough to repay the bridge and most of your cash investment.
Example: Heavy Refurbishment
- Purchase price: £300,000
- Current value: £300,000
- Refurbishment budget: £150,000
- Post-works value (GDV): £600,000
- Bridge amount: £292,500 (65% of GDV)
- Monthly rate: 0.95%
- Term: 15 months
- Arrangement fee: 2% = £5,850
- Interest: £292,500 x 0.95% x 15 = £41,681 (calculated on average balance as drawdowns increase)
- Monitoring surveyor: £3,000 (multiple visits)
- Valuation: £1,200
- Legal fees: £3,500
- Total bridging costs: Approximately £55,231
- Total investment: £300,000 + £150,000 + £55,231 = £505,231
- Post-works value: £600,000
- Equity created: £94,769
Choosing the Right Refurbishment Lender
The bridging market has dozens of active lenders, but not all are suited to refurbishment projects. Key factors to consider:
Experience With Your Property Type
Some lenders specialise in commercial refurbishment, others focus on residential conversions. Match the lender to your project. Lenders like **Shawbrook**, **Aldermore**, and **LenInvest** have established track records in refurbishment bridging.
Drawdown Structure
For heavy refurbishment, understand how the lender releases funds:
- Number of drawdowns: Some allow only 2-3 tranches, others allow monthly draws
- Inspection requirements: Who arranges and pays for the monitoring surveyor?
- Drawdown timing: How quickly are funds released after inspection sign-off?
- Contingency retention: Many lenders hold back 5-10% until all works are certified complete
Interest Calculation
How interest is charged on drawdowns matters:
- Interest on the full facility from day one: More expensive, as you pay interest on money not yet drawn
- Interest on drawn funds only: More cost-effective, as you only pay interest on money actually advanced
Post-Works Valuation
The exit strategy for most refurbishment bridges is a refinance based on the post-works value. Ensure the lender's valuer provides a realistic GDV estimate, as this determines your refinance options.
Planning Your Refurbishment Project
Successful refurbishment bridging requires thorough planning before you apply.
Schedule of Works
Prepare a detailed schedule listing:
- Every work item, from demolition to finishing
- Costs for each item (supported by contractor quotes)
- Timeline for each phase
- Contingency budget (typically 10-15% of the total works cost)
Contractor Selection
Lenders prefer borrowers who use experienced, reputable contractors. For heavy refurbishment:
- Obtain at least two competitive quotes
- Check references and previous commercial projects
- Ensure the contractor has appropriate insurance
- Agree a fixed-price contract where possible to control costs
Planning Permission
If your project requires planning permission or a change-of-use application:
- Confirm planning status before committing to the purchase
- Some lenders will fund the acquisition while you apply for planning, but rates will be higher
- Permitted development rights can speed up the process significantly for certain conversions
Building Regulations
All refurbishment work must comply with current **Building Regulations**. Factor in:
- Building control fees
- Any upgrades required to meet current standards (fire safety, accessibility, energy efficiency)
- Sign-off timeline — your refinance lender will want Building Regulations completion certificates
**Key Takeaway:** Lenders fund projects, not ideas. The more detailed and evidenced your refurbishment plan, the better your chances of approval and the more competitive your terms.
The Refurbish-Refinance Strategy
The most profitable use of refurbishment bridging is the **refurbish-refinance** (or BRRR: Buy, Refurbish, Refinance, Rent) strategy:
- Buy below market value using a bridging loan
- Refurbish to add significant value
- Refinance onto a long-term commercial mortgage based on the new, higher value
- Rent the improved property for income
When executed well, the refinance can return most or all of your original cash investment, allowing you to recycle capital into the next project. This is how experienced commercial property investors build portfolios efficiently.
Common Mistakes in Refurbishment Bridging
- Underestimating costs: Always include a 10-15% contingency on your works budget
- Underestimating time: Refurbishment projects almost always take longer than planned. Choose a bridge term with buffer
- Ignoring the exit: If your exit is a refinance, get a DIP from the refinance lender before you start
- Poor contractor management: Delays and cost overruns are the biggest risk. Choose contractors carefully and manage the project actively
- Forgetting holding costs: While you are refurbishing, you are paying bridging interest, insurance, council tax or business rates, and security costs. Budget for these
- Not getting professional valuations: An overoptimistic GDV can leave you unable to refinance at the level you expected
Working With Commercial Mortgages Broker
Refurbishment bridging is one of our core specialisms at Commercial Mortgages Broker. We help clients:
- Source the right lender for their specific project type and scale
- Structure the finance to minimise costs and maximise flexibility
- Plan the exit with a refinance DIP arranged alongside the bridge
- Navigate complications that arise during the works
[Contact us](/contact) to discuss your refurbishment project. We will provide honest advice on whether the numbers work and help you secure the best available terms.
Use our [bridging calculator](/calculators/bridging) to estimate costs for your project.
Frequently Asked Questions
Can I include refurbishment costs in the bridging loan?
Yes. Most bridging lenders will advance funds for both the property purchase and the refurbishment works. For light refurbishment, the total is usually released at completion. For heavy refurbishment, the works element is released in staged drawdowns as the project progresses.
Do I need planning permission before applying for bridging finance?
Not always. For light refurbishment that does not change the property's use or structure, planning permission is unlikely to be needed. For heavy refurbishment or change of use, some lenders will fund the purchase while you apply for planning, but having planning in place secures better terms.
What Gross Development Value (GDV) will the lender use?
The lender instructs a RICS-qualified surveyor to assess the GDV based on your schedule of works and comparable evidence. This independent valuation — not your estimate — determines the maximum loan available.
How long does a typical refurbishment bridge last?
Light refurbishment bridges typically run for 6 to 12 months. Heavy refurbishment bridges run for 12 to 24 months. Choose a term that gives you enough time to complete the works and arrange your exit, with contingency built in.
Can I do the refurbishment work myself?
For light refurbishment, many lenders accept DIY or self-managed works. For heavy refurbishment, lenders generally require professional contractors, particularly for structural, electrical, and plumbing work. The lender's monitoring surveyor needs to be satisfied that works are being completed to an acceptable standard.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*