What is refinancing a bridging loan?

By Georgia Galloway | Tuesday 10th October 2023 | 4 minute read

Bridging Loans are short-term funding solutions that help bridge the gap between property purchases, sales, or unexpected costs, providing the fast cash flow needed until long-term financing arrangements are secured.

A sandtimer is on a desk in front of a man holding his hands together

However, property investment and development is often unpredictable and unexpected costs or delays might mean you're not ready to exit your bridging loan as the term is approaching its end. 

That's where refinancing a bridging loan comes in. 

Refinancing, or re-bridging, offers a strategic financial solution to give a borrower more time to finish the project or sell the property.

This strategy allows the borrower to manage finances and mitigate the impact of unforeseen circumstances effectively.

Refinancing scenarios

Bridging loan refinancing is a flexible solution designed to meet various financial needs. Its primary purpose is to repay an existing bridge when it's coming up on its end term.

Unexpected project delays

In property development projects or similar ventures where timing plays an essential role, unexpected delays can cause problems, impacting the planned budget and timeline. In such cases, optimistic assumptions about sale timelines may leave borrowers short on funds when repayment deadlines approach.

Whether you used a bridging loan to finance a property flip or buy-to-let investment, you may not always be able to anticipate potential issues that may arise.

For example, the UK Construction industry faces an increasing number of barriers, with a shortage of materials, labour shortage and increasing energy costs creating difficulties. According to the Office of National Statistics (ONS), construction material costs have increased by 42.7% compared to pre-pandemic levels.

The Home Builders Federation also reported a significant decline in planning permissions, with a 19% drop in approved homes during the first half of 2023.

Property requires longer time scale for sale

Borrowers using a bridging loan to fund their property flipping ventures may also face issues regarding their exit strategy; HMRC data revealed a 22% drop in property transactions compared to the same period in 2022 - meaning that borrowers may struggle to sell before the loan term ends.

A re-bridging loan offers additional time needed to raise funds, avoiding heavy fees and default interest charges from missed payment dates because the sale was not secured in time.

Repaying existing loans through refinancing

Borrowers often find that refinancing provides an effective method for repaying existing bridge loans early. By doing so, borrowers can benefit from reduced interest payments over time. The primary purpose is to secure more favourable terms or take advantage of better market conditions.

Our 2023 Bridging Report found that of the 914 respondents who used bridging finance on more than one occasion, 13% had 'refinanced an existing bridging facility', also known as re-bridging.

How long does it take to arrange a refinance bridge?

Generally, re-bridging loans are available quickly and could be arranged within 14 days for loans from £26,000 up to £250m.

Lenders need time for thorough checks and evaluations before they agree to lend any funds, especially in cases where refurbishment or development is involved. 

  1. Evaluating The Application: This includes reviewing credit history, financial circumstances, affordability, etc.
  2. Valuation: An independent surveyor will assess the property's value based on its current condition and projected worth after completing the proposed works. This generally happens within five working days from application.
  3. Legal Checks: The solicitor must confirm details such as ownership status and potential legal issues associated with the property (planning permissions).

Key advantages of using refinancing

Faster Access To Funds: Compared with conventional lending methods such as mortgages or business loans that typically require extensive checks and paperwork before approval can be granted, re-bridging offers much faster turnarounds.

Refurbishment Opportunities: The ability to refurbish properties without being constrained by long-term mortgage agreements makes this form of financing particularly appealing for property developers and investors. 

Whether it's a small renovation project or a large-scale redevelopment, the short-term nature of bridging finance allows borrowers to make significant improvements that can increase property value before refinancing onto longer-term financial solutions.

Raising Additional Funds: With a refinance bridge, borrowers might be able to raise more capital - based on their personal situation and how much equity they have in the property being used as security.

Increasing the size of the borrowing will depend on the lender, and some may be hesitant to do so. This is why you should always seek advice, and a bridging loan broker will help you to understand your options and package your request in the best light for lenders.

Will I pay more for a re-bridging loan?

No. The existing bridge could be for either a residential or commercial project - regardless of its type, securing an affordable rate on a re-bridging loan remains a viable option.

The key lies in having two essential components: a solid exit strategy and appropriate security property.

A strong exit strategy

Lenders are keen to see solid plans showing how they are repaid when the term ends. The proposed method may involve selling off some assets or securing longer-term financing options such as mortgages (residential or buy-to-let).

Suitable security property

The asset(s) offered as security will be scrutinised closely during underwriting. If the borrower defaults, lenders will appraise the value to ensure it can cover the loan amount.

If the property is in a good condition and situated in an area with great demand, creditors may likely offer more beneficial rates.

How we can assist you

Our primary focus is tailoring the perfect financing solutions for borrowers and property developers. We recognise the paramount importance of crafting a well-structured development finance strategy in a market characterised by constant fluctuations and escalating development costs. 

Whether your financing needs range from £26,000 to a substantial £250 million, we expedite the decision-making process with an immediate decision in principle. 

For those considering refinancing options, we offer the flexibility of up to 75% Loan to Value (LTV), which can even extend to 100% funding when accompanied by supplementary security. 

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