The Client
The clients were new landlords who wanted to specialise in the holiday let market. They had a good background income and had already identified key areas to invest in to begin the holiday let business. Their credit report was clean, and the plan was to build a portfolio of properties in order to become self-employed and focus on running the holiday let business full time.
The Scenario
An opportunity arose to purchase a cottage-style building in Oxfordshire, in an area with strong tourist demand. The client knew the property would need a full internal refurbishment and therefore needed flexible funding that would allow the works to be carried out. The plan was then to refinance the property at its improved value, using the holiday let rental income for mortgage affordability. The client had already spoken with local holiday letting experts to confirm the potential yield would fit the business plan.
The Solution
From our experience with refurbishment enquiries, we knew a bridging loan would be the right product. The client advised the works would take three months, so we sourced a competitive bridging product offering a nine-month term with no exit fees. Six months of interest were retained and prepaid on day one, with the final three months serviced monthly, provided the client’s income was strong enough to cover those payments – which it was. This structure allowed the lender to provide a larger net loan on day one, rather than deducting all nine months of interest upfront.
Following completion of the works, we sourced a low five-year fixed rate for the client, providing a 75% loan-to-value mortgage against the improved property value. The lender used a 32-week average of low, mid and high season weekly holiday let rental estimates for affordability purposes. Because the client finished the works and refinanced within five months, the sixth month of interest that had already been prepaid was credited back off the redemption figure, returning more of the client’s initial funds to them.
Summary
Bridging finance has real advantages when it comes to keeping on top of a timeframe, offering the flexibility to complete works and release funds from a property far more quickly than a traditional buy-to-let mortgage would allow.
Clients can access up to 85% LTV on bridging finance, giving the flexibility to carry out refurbishment projects without needing a substantial deposit, while still completing at speed.
Frequently Asked Questions
How does retained interest work on a bridging loan?
Retained interest is deducted from the loan upfront, so the client does not make monthly payments during that period.
This is often structured for the earlier months of a term, with later months serviced monthly instead, giving the lender confidence over affordability as the case progresses.
What happens to prepaid interest if I redeem a bridging loan early?
Any prepaid interest for months you did not actually use is typically credited back to you at redemption.
This means redeeming earlier than the full term can return some of your initial funds, rather than losing the full retained amount regardless of how quickly you complete.
Can holiday let rental income be used to refinance a bridging loan?
Yes, some lenders will assess affordability using an average of low, mid and high season holiday let rental estimates.
This average is usually confirmed by an independent local expert rather than estimated by the applicant.
What LTV can I get on a bridging loan for refurbishment works?
Clients can typically access up to 85% LTV on bridging finance for refurbishment projects.
This can remove the need for a substantial deposit while still allowing works to complete and funds to be released quickly.
Commercial Finance Network is a whole-of-market FCA authorised commercial finance broker working with property investors, developers, and businesses across the UK and internationally. We work across the full specialist bridging and holiday let panel and will tell you which lenders will engage with your deal, what LTV and rate to expect, and how to structure the application before anything is submitted.
Commercial Finance Network is directly authorised and regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a loan secured against it. Buy-to-let and business-purpose lending secured against investment property is not regulated by the Financial Conduct Authority.
Call us on +44 1494 622 111 or email info@cfnuk.com to speak to a specialist directly.
Related Pages
- Bridging Loans – fast, flexible funding secured against property
- Bridging Loans for Refurbishment Projects – where refurbishment bridging finance commonly goes wrong
- Serviced Accommodation Finance – flexible mortgage solutions for short-term let and Airbnb-style property
- Bridging Loan Calculator – estimate monthly interest and total borrowing costs