The Ultimate Guide: How to Calculate the Cost of a Refurbishment Bridging Loan

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The Ultimate Guide: How to Calculate the Cost of a Refurbishment Bridging Loan

If you’re an aspiring property investor or developer looking to transform a property but don’t have the funds upfront, a refurbishment bridging loan might be your best bet. But how much will it actually cost you? In this guide, we’ll break down the costs involved in a refurbishment bridging loan in 2025 so you can plan your project with confidence.

What is a Refurbishment Bridging Loan?

A refurbishment bridging loan is a short-term loan designed to help property investors and developers finance renovations or refurbishments. Unlike traditional mortgages, these loans provide fast access to capital, allowing you to secure, refurbish, and either sell or refinance a property quickly. They are particularly useful if the property is not in a mortgageable condition.

Costs Involved in a Refurbishment Bridging Loan

Before you commit to a bridging loan, it’s crucial to understand the different costs that come with it. Here’s a breakdown:

1. Interest Rates

Bridging loans typically have higher interest rates than traditional mortgages because they are short-term loans. Interest is usually charged on a monthly basis rather than annually. Expect to pay anywhere between 0.5% to 1.5% per month, depending on factors such as your credit profile, loan-to-value (LTV) ratio, and lender policies.

  • Example: If you borrow £200,000 at an interest rate of 1% per month, you’ll be paying £2,000 per month in interest.

2. Arrangement Fees

Most lenders charge an arrangement fee for setting up the loan. This typically ranges from 1% to 2% of the loan amount.

  • Example: A £200,000 loan with a 2% arrangement fee would mean an upfront cost of £4,000.

3. Valuation Fees

Lenders require a property valuation before approving your loan. Valuation fees vary based on the property’s value but typically start at £300 to £1,500.

  • Example: A valuation on a property worth £500,000 might cost around £750.

4. Legal Fees

Legal costs cover your solicitor fees, expect legal fees to range between £1000 to £2,500. Additionally, you will be expected to pay for the lender’s legal costs, which can add another £1000 to £2,500 to your overall expenditure.

5. Exit Fees (if applicable)

Some lenders charge an exit fee when you repay the loan, typically 1% of the loan amount. However, not all lenders have this fee, so it’s worth checking before you commit.

  • Example: A £200,000 loan with a 1% exit fee means you’ll pay £2,000 when repaying.

6. Broker Fees

If you use a broker to find a bridging loan, they may charge a fee of around 0.5% to 2% of the loan amount.

7. Inspection Fees for Staged Drawdowns

If you are borrowing the build costs in stages, the lender will typically require an inspection of the works before releasing further funds. Each inspection incurs a fee, which can range from £100 to £500 per visit.

How to Calculate the Total Cost of Your Bridging Loan

To estimate your total refurbishment bridging loan cost, consider:

Example Calculation for a £200,000 Loan Over 6 Months:

  • Interest (1% per month): £2,000 × 6 = £12,000
  • Arrangement Fee (2%): £4,000
  • Valuation Fee: £750
  • Legal Fees: £1,500
  • Lender’s Legal Costs: £1,000
  • Exit Fee (1%): £2,000
  • Inspection Fees (3 inspections at £300 each): £900
  • Total Estimated Cost: £21,650

This means that in addition to repaying the £200,000 loan, you’ll need to budget around £21,650 in costs.

How to Minimise Your Bridging Loan Costs

  • Compare lenders to find the most competitive rates.
  • Opt for a lower LTV ratio if possible, as this can secure a better interest rate.
  • Plan your exit strategy carefully to avoid paying unnecessary interest for longer than needed.
  • Work with an experienced broker who can negotiate better terms on your behalf.
  • Minimise the number of inspections by ensuring works are completed efficiently before requesting a drawdown.

Final Thoughts

Refurbishment bridging loans can be a powerful tool for property investors looking to renovate and flip or refinance properties. However, understanding the costs involved is key to ensuring your project remains profitable. By using the information in this guide, you’ll be well-prepared to calculate and manage your bridging loan costs in 2025.

For expert advice or to find the best bridging loan rates, visit Sunrise Commercial today.

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