Light vs heavy refurbishment - the critical distinction
Bridging lenders divide refurbishment projects into two categories. Which category your project falls into determines the lender panel, the works advance structure, and whether a monitoring surveyor is required.
- Light refurbishment - Cosmetic works only - new kitchen, bathroom, flooring, redecoration, minor electrical or plumbing updates. No structural works. No planning permission required. Lenders typically advance the works budget upfront. No monitoring surveyor required for works under £150k.
- Heavy refurbishment - Structural works - loft conversion, extension, change of configuration, basement excavation, any works requiring planning permission or building regulations approval. Works advance is staged (drawdown in tranches). Monitoring surveyor appointed by lender (cost £1,000-£2,500). LTGDV cap is more conservatively applied.
If the works require planning permission or building regulations sign-off, they are heavy refurbishment. If they are purely cosmetic and self-contained, they are light refurbishment. If in doubt, a specialist broker can assess which category the lender will apply before you apply.
How lenders structure refurbishment bridging
A refurbishment bridge has two components: the purchase advance (or refinance of an existing property) and the works advance. Both together must not exceed the LTGDV cap.
- Purchase advance: up to 75% of the day-one (current condition) property value
- Works advance: up to 100% of the agreed schedule of works - but total facility must not exceed 70-75% of the GDV (post-works value)
- Works schedule: a detailed schedule of works from a qualified contractor is required by all lenders at application stage
- GDV evidence: the lender will commission a valuation showing both the current 'as is' value and the post-works GDV - the LTGDV cap applies to the GDV figure
- Monitoring (heavy refurb): tranche drawdowns triggered by monitoring surveyor certification; typically 2-4 drawdowns over the build programme
The LTGDV calculation - worked example
Understanding LTGDV is essential to knowing whether your deal is fundable before you approach a lender.
Example: Derelict Victorian terrace purchased at £310,000. Current condition value: £310,000. Estimated GDV (post-refurbishment): £625,000. Works budget: £185,000.
Maximum facility at 70% LTGDV: £625,000 x 70% = £437,500. Purchase advance (75% of £310k): £232,500. Works advance available: £437,500 - £232,500 = £205,000 - comfortably covering the £185,000 works budget.
If the works budget had been £250,000 (total needed: £232,500 + £250,000 = £482,500), the deal would breach the 70% LTGDV cap (£482,500 / £625,000 = 77.2%). In this scenario the borrower would need to contribute some works capital personally, or negotiate a higher GDV valuation.
Exit strategies for refurbishment bridges
Every refurbishment bridge is underwritten around a clear exit. The five routes lenders will accept are below.
- Sale - the most common exit. Property sold at the improved GDV after refurbishment. Most refurbishment bridges are funded specifically for properties to be flipped post-renovation.
- Residential remortgage - property retained by the owner-occupier on a residential mortgage after works are complete and the property is habitable. Requires the borrower to demonstrate mortgage affordability.
- Buy-to-let remortgage - property retained as an investment, remortgaged onto a BTL product at the improved post-works value.
- HMO refinance - see HMO bridging guide. Heavy refurbishment converting to HMO exits onto specialist HMO BTL mortgage.
- Development finance - for projects that evolve into something larger than originally planned (e.g., refurbishment that reveals a need for structural underpinning or extension). Development finance can refinance the bridge mid-project.
Case study: derelict Victorian terrace, auction purchase, 31% gross return
A property investor purchased a derelict Victorian terrace at auction, the condition of which had deterred all mainstream buyers. Doulton advanced the purchase price at 75% LTV and the works budget in three tranches monitored by an appointed surveyor. Works included roof replacement, structural repairs to the front bay, complete internal strip and rebuild, and period-style restoration throughout.
Sale at £625,000 was achieved 22 weeks after completion of works. Gross return on equity invested: 31% after all financing costs.
- Property - Victorian terrace, 4-bed potential, West Midlands. Derelict - no roof covering, water ingress, structural movement to front bay.
- Purchase price - £310,000 (auction - 75% below comparable market value due to condition)
- Current condition value - £310,000 (confirmed by RICS)
- GDV (post-refurb) - £625,000 (RICS post-works valuation)
- Bridge advance - £232,500 (75% day-one value) + £185,000 works (heavy refurb, staged)
- Total facility - £417,500 (66.8% LTGDV)
- Rate - 0.72% pm (heavy refurb)
- Term - 12 months
- Exit - Sale at £625,000