Refurbishment Borrowing Against Property: Sizing the Works Money
Almost every enquiry starts with the wrong question. People ask how much they can borrow, as though a single number exists. It does not. A refurbishment loan is two sums bolted together, each with its own ceiling, and confusing them is the reason so many schemes are funded to a figure that turns out not to cover the job.
The first sum is the day one advance against the property as it stands. The second is the works tranche against the priced schedule. One is a valuation exercise, the other is a cost exercise, and a lender applies a third test across both: the total drawn against what the property will be worth when the refurbishment work is finished. Get all three right and refurbishment finance is dull and cheap, because bridging loans of this kind are among the most mechanical products in property lending. Get one wrong and you find out at second fix.
How much can you borrow on a refurbishment loan?
Up to 75 percent of the current value on day one, plus the cost of the refurbishment work on top, capped by the value on completion.
Work an example. A house you are buying for £280,000 with a valuer’s current figure of £285,000 supports a day one loan of up to £213,750 at 75 percent loan to value. Your schedule of work is £75,000. The valuer’s figure on completion is £430,000. Total borrowing of £288,750 against £430,000 is 67 percent, comfortably inside most refurbishment bridging loan lenders’ end value ceiling of 70 percent, so the refurbishment loan is fundable as described.
Change one input. If the completion figure comes back at £380,000, the same £288,750 is 76 percent of the end value and the refurbishment loan has to shrink. You either put in more cash on day one, cut the refurbishment schedule, or find a lender with a higher end value tolerance and pay more for it.
Two ceilings therefore operate at once, and the binding one moves depending on the refurbishment finance deal. On a cheap purchase with expensive work, the end value test binds. On an expensive purchase with light work, the day one loan to value test binds. Anybody who tells you they can borrow “75 percent” without asking which figure the 75 percent applies to has not sized a refurbishment loan before.
Commercial and mixed use property sits lower, at 65 to 70 percent loan to value on day one, because the current value of a part let or vacant commercial building is a less certain number.
What does a refurbishment loan calculator actually tell you?
The shape of the answer, and nothing that binds a lender.
A refurbishment loan calculator takes a purchase price, a works cost, an end value and a rate, then returns a headline loan, an interest figure and a total finance cost. That is genuinely useful for filtering deals quickly: if a scheme fails on a calculator, it will certainly fail in an underwriter’s hands.
What no calculator can tell you is the four things that actually decide the refurbishment finance case. Whether the valuer will support your end value, which is the number every calculation depends on and the one borrowers are most optimistic about. Whether the refurbishment work is light or heavy, which changes the rates, the lender and whether a monitoring surveyor is involved. Whether your credit history and experience put you in the mainstream camp or the expensive one. And whether the refurbishment finance exit is real.
Use the calculator to answer one question only: does the refurbishment finance deal survive its own finance costs with a sensible margin? If a scheme only works at 0.65 percent a month with no arrangement fee and a valuation exactly on your estimate, it does not work. Rerun it 10 percent worse on the end value and two months longer on the term, and see what is left. Refurbishment loans are sized on the second calculation, not the first.
How do refurbishment loans release the works money?
In one payment or in stages, and which one you get depends on the refurbishment work rather than the amount.
On light schedules, the works tranche is normally released as a single payment once the work is finished, evidenced by invoices, photographs and sometimes a brief re-inspection. Some bridging finance lenders split it in two on longer cosmetic programmes, and a few will advance part of it up front on light refurbishment work where the borrower has a track record.
On heavy schedules, the works money is released in stages against certificates from a monitoring surveyor who visits, measures what has been built and states its value. The lender pays against the certificate rather than against your invoice, which means you fund each stage first and the bridging loans reimburse you afterwards.
Three consequences follow, and they govern your cash flow far more than the interest rate does. You need working capital to cover the gap between paying trades and receiving a release, typically three to five weeks of build cost. Materials delivered but not installed are usually not certified. And most refurbishment bridging loan lenders hold a retention of around 5 percent until practical completion.
Interest is charged on what has actually been drawn, so on a staged property refurbishment loan the works tranche costs nothing until it is released. That is why the effective cost of a staged facility is meaningfully below its headline rate over the life of the loan.
Which rates apply to light and to heavy refurbishment finance?
Two bands, about 0.10 percent a month apart, and the fees around them matter as much as the gap. Both types of loan are priced monthly rather than annually, which is the first thing to understand about bridging finance of any description.
Light work, meaning light refurbishment schedules that leave structure, floor area and planning use untouched, starts from 0.65 percent a month across our lender panel. Heavy refurbishment, meaning heavy refurbishment alterations, extensions, conversions or change of use, starts from about 0.75 percent a month. Both are quoted as a margin over the Bank of England base rate of 3.75 percent, held since December 2025.
Inside each band the rates move on four things: leverage, borrower experience, how straightforward the property is, and how convincing the refurbishment finance exit looks. The gap between the best and worst quote we see on identical properties is routinely 0.20 percent a month, which on a £300,000 loan over 12 months is £7,200.
Then the fees. An arrangement fee of 1 to 2 percent, valuation, legal costs on both sides, an exit fee where the lender charges one, and on heavy refurbishment finance an initial monitoring appraisal plus a fee per site visit. On a £250,000 facility those fixed items can add up to more than the difference between the cheapest and dearest rate on offer, which is why comparing monthly rates alone is a poor way to choose.
Total cost worked through on a light scheme: £220,000 drawn for 8 months at 0.68 percent is about £11,970 of interest, plus £3,300 arrangement at 1.5 percent, £750 valuation and £2,200 of legal costs. Roughly £18,200 all in. Against a £70,000 uplift that is a scheme worth doing; against a £25,000 uplift it is not.
Can you borrow for a refurb with adverse credit?
Often yes, and the reason is that a refurbishment bridging loan is underwritten on the property and the refurbishment finance exit rather than on your income.
Short term lenders take a different view of credit from mainstream mortgage lenders. A refurbishment bridging loan is secured on an asset with equity in it, repaid from a sale or a refinance, and lasts months rather than decades. So historic defaults, a satisfied county court judgment, a discharged arrangement or a thin credit file do not automatically end the conversation the way they would on a buy to let application.
What does matter, in order. Anything unsatisfied and secured on property, because a lender cannot take a clean charge behind live enforcement. Missed payments on other refurbishment bridging loans, because it goes directly to whether you repay this type of loan. Bankruptcy or insolvency that is not discharged. And a credit picture that undermines the exit: adverse credit is survivable on the refurbishment loan itself and fatal if it means the buy to let mortgage you are relying on to repay it will decline you.
The price of adverse credit is leverage and rate rather than refusal. Expect the day one advance to fall from 75 percent to perhaps 65, and the refurbishment finance rate to move up by 0.15 to 0.30 percent a month. On a serious credit history the sale exit becomes the only viable one, because no term lender will refinance you.
The honest advice is to disclose everything at the enquiry. A credit issue found by the lender’s own search at week three costs you the valuation fee and the timetable; the same issue disclosed on day one simply changes which lenders see the refurbishment finance case.
What types of property can a refurbishment loan be secured on?
Almost anything with a title and a value, which is the point of the product. Bridging loans of this kind are secured lending first and everything else second.
Residential investment property, including houses that no mainstream lender will consider because there is no kitchen or no bathroom. Flats, including ex local authority and above commercial premises. Houses in multiple occupation, before or after licensing. Commercial units, offices, shops and small industrial buildings. Mixed use property with a shop below and flats above. Semi derelict and long empty buildings. Land with a building on it that is being altered rather than replaced.
What is harder: property with a live structural defect that the refurbishment schedule does not address, buildings with unresolved title problems, and anything where the planning position contradicts the intended use. None of those are refused because of the work; they are refused because the security or the exit is unsound.
Owner occupied property is a different matter. A loan secured on a home that you or an immediate family member occupies is a regulated activity and can only be arranged by a firm holding the relevant permissions. Construction Capital is a commercial finance broker and introducer, not a lender, and we are not authorised by the FCA. Where a case is a regulated activity we introduce to FCA authorised firms who hold the relevant permissions.
Can you borrow the deposit too, or does the cash have to be yours?
The day one gap has to come from somewhere real, and there are only four honest sources.
Your own cash. The default, and what every lender assumes until told otherwise. On a 75 percent loan to value advance the remaining 25 percent plus fees is yours to find, which on a £280,000 purchase is around £80,000 once costs are counted.
Equity in another property. The most common alternative. A second charge behind an existing mortgage on a property you already own releases the deposit, and the refurbishment loan on the new purchase is written as normal. Two facilities, two sets of costs, and both need an exit. Where the equity is substantial, some refurbishment bridging loan lenders will instead take a first charge across both properties in one facility, which is cheaper than running two.
Cross charging inside one loan. Charging two or more properties together to support a single advance is the cleanest version of the above, and it regularly produces refurbishment loans that neither property would carry alone. It also means both properties are at risk if the scheme fails, which is a real decision rather than a technicality.
A vendor or third party contribution. Gifted deposits, delayed completion arrangements and vendor loans exist, but almost all bridging finance lenders will either disallow them or deduct them from the loan advance. Disclose any of it. Undisclosed third party money discovered by a solicitor stops a completion dead.
What you cannot do is borrow 100 percent of purchase and works unsecured against nothing. Facilities advertised on that basis are either secured on other property you own, or they are not what they appear. Refurbishment finance is asset backed lending, and the asset test does not bend because the deal is attractive.
How do refurbishment loans work for a limited company or a portfolio?
Corporate borrowing is the norm rather than the exception, and it changes four things.
The borrower. Most investment property is held in a limited company or a special purpose vehicle, and refurbishment finance is written to the company with a charge over the property and a debenture over the company. This is unregulated commercial lending, which is why the process is faster than a consumer mortgage.
Personal guarantees. Expect them. On light refurbishment work the guarantee is often for the full amount; on larger refurbishment finance facilities it is frequently capped at a proportion, and the cap is negotiable where you have a track record. Directors’ personal credit is still searched even though the refurbishment loan sits in the company.
Portfolio treatment. Where you own several properties, some bridging finance lenders will look at the portfolio as a whole: total debt, total value, rental coverage across the book, and how many schemes you have open at once. A borrower with four live refurbishment loans is a different proposition from one with a single project, and the fourth facility is priced accordingly.
Recycling equity. The reason portfolios use bridging loans at all is speed of reuse. Finish one scheme, refinance onto a term mortgage, release the original cash, and put it into the next purchase. That cycle is the engine behind most growing property businesses, and it only works if each refurbishment loan has a genuine refinance exit rather than a hopeful one.
Two practical points. Keep the company’s filings up to date, because a lender’s first search is at Companies House and overdue accounts stall a case for weeks. And do not open a new special purpose vehicle for every purchase if you can avoid it; a company with two years of filed accounts and a completed scheme behind it borrows more cheaply than a shell incorporated last Tuesday.
How long should the term be, and what happens if you run over?
Longer than the programme, and running over is expensive in a predictable way.
Refurbishment loans run 6 to 18 months. The temptation is to take the shortest term that covers the build, because retained interest is deducted from the loan advance and a shorter term leaves more cash in the deal. That is a false economy. The work is only half the timetable; the exit is the other half, and a buy to let remortgage takes six to ten weeks from application in a normal market.
The arithmetic is straightforward. Unused months on a retained interest loan are usually refunded or never charged where the lender prices on a daily basis. An extension, by contrast, carries a fee, often 1 percent, plus the interest itself, and it is granted at the lender’s discretion at exactly the moment you have no alternative. Take 12 months on a four month job and repay early.
The specific trap on heavy refurbishment work is building control. New units cannot be mortgaged without sign off, an EPC and often a completion certificate, and those documents arrive weeks after the builder leaves. Count them in the term, not after it.
Does a mortgage always follow, and what if it does not?
Usually, and where it does not the answer is a sale rather than a second loan. Most refurbishment loans are written on the assumption that a mortgage follows, and bridging finance priced monthly is not somewhere to sit while you work out whether one will.
The standard sequence is refurbishment loan, then term mortgage. A buy to let mortgage on residential stock, or one of the commercial mortgages products at up to 75 percent loan to value with rent covering 125 to 150 percent of the payment on commercial security, repays the refurbishment bridging loans and leaves you holding an improved asset.
Three things break that sequence. A completed valuation below your estimate, which reduces the mortgage advance below the refurbishment loan balance. A rental cover test that fails at prevailing rates, which is a live problem whenever pricing moves against a borrower mid build. And a property type the term lender will not touch, most often flats above certain commercial uses, small studio units, or houses in multiple occupation without the right licence.
Test all three before you draw. A decision in principle from the exit lender, based on the finished specification rather than the current state, costs nothing and removes the largest single risk in the whole transaction. Where the answer is that no mortgage will follow, the refurbishment scheme is a trading project and should be priced and financed as one, with a sale as the exit and a term long enough to achieve it.
What does the whole arithmetic look like on a real deal?
Take a three bedroom terrace bought for £192,000 with a current value of £195,000, needing a rewire, a new kitchen, two bathrooms, replastering, a new boiler and full redecoration, priced at £58,000, with a value on completion of £298,000.
The day one advance is £146,250 at 75 percent loan to value. The works tranche is £58,000, released in two payments. Total borrowing is £204,250, which is 69 percent of the £298,000 completion figure, so the property refurbishment loan sits inside both ceilings.
Costs over a 9 month term at 0.68 percent a month on an average drawn balance near £175,000 come to about £10,700 of interest, £3,060 of arrangement fee at 1.5 percent, £700 valuation and £2,400 of legal costs, so £16,860 of finance cost. The borrower contributes £45,750 of cash on the purchase plus working capital between the two works releases.
At the exit, a buy to let mortgage at 70 percent of £298,000 releases £208,600, which clears the £204,250 balance. The borrower ends up holding a property worth £298,000, with total cash in of about £62,600 and roughly £89,000 of equity, having recycled almost nothing of their own money out. That last point is the honest bit: on a scheme this size the numbers work, but they do not return your deposit, and anybody planning to repeat the exercise needs to know that before the second purchase.
What do you need before asking a lender for terms?
Five things, and none of them require a broker to obtain. Assemble them once and they will serve every subsequent enquiry you make for bridging finance.
The priced schedule of work from the builder who will do it. Two or three comparable sales supporting your value on completion. The planning position, in writing, if anything structural is proposed. Your credit position, disclosed rather than discovered. And the exit, named, with a rough rental figure or an asking price behind it.
With those, terms on a refurbishment bridging loan can be issued the same day and the money can be with your solicitor inside three weeks on light work. Without them, the first fortnight goes on assembling what could have been sent at the start, which on an auction purchase is the entire timetable.
If you have a schedule and a deadline, we arrange a refurbishment loan across a panel of over 100 lenders and will size the day one advance and the works tranche separately before anybody instructs a valuation. Where the exit is a held and let property, that is commercial mortgages or buy to let. Where no work is involved and the need is simply speed, that is bridging loans.
Construction Capital is a trading name of Lenzie Consulting Ltd, registered in England and Wales, company number 08174104. We are a commercial finance broker and introducer, not a lender, and we are not authorised by the FCA. Where a case is a regulated activity we arrange it through lenders who hold the relevant FCA permissions. Rates, fees and terms are indicative, vary by lender and deal, and are never an offer of finance. Written by Matt Lenzie.