How do you refinance out of a bridging loan?

What are your exit options?

There are three ways out of a bridge: refinance onto a longer-term loan, sell or take a new bridge. Which one fits depends on where the property and your plans are when the term runs down.

"Bridge to let" usually describes a bridge taken with a buy-to-let refinance planned from the start, sometimes with the same lender on both sides. It doesn't remove the refinance tests below, but agreeing them up front can save time later.

What does the refinance lender check?

A refinance lender looks at the property's value today, whether the rent or income supports the new loan, how long you've owned it. For commercial property they would consider the trading behind it. Any one of these can shrink the loan you were counting on.

Valuation and LTV

The new lender instructs its own valuer and the loan is sized as a percentage of that figure. If the valuation comes in lower than you expected, the maximum loan reduces in line with the max LTV, which is the most common reason a refinance comes up short. Buy-to-let lenders typically lend up to 75% LTV, which can be less than a bridging lender would lend on the same property.

Rental cover (ICR)

Buy-to-let lenders test that the rent covers the mortgage interest by a set margin. The usual test is rent of at least 125% of the interest, worked out at the pay rate, meaning the rate you'll actually pay. On low-yield property, this test can cap the loan well below the LTV limit.

Seasoning and the 6-month rule

Some lenders won't refinance on the new value until you've owned the property for six months, and until then they'll value it at the price you paid. Don't count on evidence of works, such as invoices and photos, getting round this, so plan the bridge term on the basis that you'll need six months of ownership before the new value is used. If your refinance depends on a higher value because you bought below market value or refurbished, check this with the refinance lender before you take the bridge rather than near the end of the term.

Commercial property: trading and income

For a commercial mortgage, the lender looks at the lease and tenant or at the business's accounts if you occupy the property yourself. Lenders tend to lend less against purely commercial property than against residential. Our guide on bridging loan or commercial mortgage covers how the two compare.

What evidence should you have ready?

Have your paperwork ready before you ask for terms, because a lender can't price a case it can't see. The list depends on your exit.

How long does it take to refinance a bridging loan?

Once you've chosen a lender, a straightforward refinance can typically complete within a few weeks, but the planning should start much earlier. Here's how a 12-month bridge might run from month nine (typical timings, not promised).

If the numbers look tight at month nine, you still have time to change plan. At month twelve you don't.

Why do bridging exits fail?

Most exits fail because the LTV is too high for the next lender. "If the LTV is too high it can be hard to refinance," says Ashley Thomas, Capito's Director. This is why he tells borrowers to review their redemption three months before the term ends.

LTV creeps up for a few reasons. Interest on a bridge is often rolled up, so the debt grows each month while the property value stays put, and extra drawdowns for works add to it. A valuation that lands below expectations then squeezes from the other side.

Worked example (illustration only)

If the buy-to-let lender lends up to 75%, its maximum loan here is £712,500, which leaves roughly £67,500 to find before the bridge can be repaid. See bridging loan costs for how rolled-up interest and fees build.

What can you do if your LTV is too high?

You can close the gap by reducing the debt, increasing value, adding other property as security or buying time. Which works depends on what you own and how far apart the numbers are.

• Pay down part of the loan from savings or another source, so the refinance covers the rest.
• Offer another property as additional security, which lowers the overall LTV.
• Sell part of a portfolio, or one unit of a block, and use the proceeds to reduce the debt.
• Re-bridge until finished works lift the value, then refinance on the higher figure.

Should you extend, re-bridge or let the term run out?

If you can't exit on time, ask your current lender about an extension and compare it with a re-bridge before the term ends. Letting the loan go into default is usually the most expensive outcome, and it's calmer to sort this out early.

Some lenders on Capito's panel will re-bridge loans that are past term or in default up to 75–80% LTV, and refinance in receivership up to 75% LTV. If a receiver has already been appointed, take independent legal advice. Our guides on extending or re-bridging and refinancing when LPA receivers are appointed explain how each route works.

What about development schemes?

If you've built a scheme with development finance and units are still unsold, a development exit loan can repay the build lender while you sell. Lenders typically lend up to 75–80% of the value of the finished, unsold units. See development exit finance.

What if you or your family will live in the property?

If you or a close family member live in the property or plan to, the refinance is likely to be a regulated mortgage. Capito doesn't arrange regulated mortgages, so we pass these enquiries to an FCA-authorised firm. Our guide to regulated and unregulated bridging explains the difference.