In this case study, Auction Finance assisted a client in using bridging finance to address three key goals: refinancing an existing property, raising capital, and funding essential renovations. The objective was to enhance the property’s market value and boost its rental income potential, setting the stage for a profitable long-term investment.
With the speed and flexibility of bridging finance, the client could access funds quickly, make necessary upgrades, and later exit onto a term mortgage based on the property’s improved valuation.
Objective
The client sought to:
Refinance an existing property to pay off a previous loan and reduce monthly interest costs.
Raise Capital by releasing equity, which could then be invested in other opportunities.
Fund Renovations to increase property appeal and attract higher-paying tenants.
The Challenge: Funding Renovations Without Delays
Key Challenges:
Quick Refinancing: Traditional refinancing was too slow, so bridging finance allowed immediate refinancing to pay off existing debt.
Securing Renovation Funds: The client needed capital for property upgrades, which a bridging loan could release from existing equity.
Maximising Property Value for Exit: Renovations would increase rental yield and support a higher valuation, paving the way for a smoother exit onto a term mortgage.
Solution: Auction Finance structured a bridging loan that enabled the client to refinance, raise capital, and fund renovations within a streamlined timeframe, addressing all their financial and property enhancement needs.
Step-by-Step Strategy and Execution
Step 1: Refinancing the Existing Property with a Bridging Loan
The client refinanced an existing property valued at £350,000 using a bridging loan to replace the prior loan and reduce interest costs. The bridging loan also included provisions for capital raise and renovation funding, creating an efficient, all-in-one solution.
- Property Value: £350,000
- Bridging Loan: £262,500 (75% Loan-to-Value)
- Interest Rate: 0.8% per month, on a 12-month term
Step 2: Raising Capital for Additional Investments
The bridging loan allowed the client to raise an additional £50,000, unlocking funds to allocate towards other investments or address other financial goals. By leveraging the property’s equity, the client gained flexibility in how these funds could be used.
Step 3: Funding Renovations to Increase Property Value
The bridging loan also provided funds for necessary renovations to improve the property’s appeal and rental potential. The renovation work included:
- Kitchen and Bathroom Upgrades: Modernised features for greater marketability.
- Energy-Efficient Improvements: New windows and insulation to attract eco-conscious tenants and reduce energy costs.
- Curb Appeal Enhancements: Landscaping and facade improvements to make the property more inviting.
- Renovation Costs: £30,000
- Total Investment So Far: £380,000
Step 4: Exiting the Bridging Loan with a Term Mortgage
Once renovations were complete, the client exited the bridging loan by securing a term mortgage based on the property’s new value. This uplift in value allowed the client to secure long-term financing with improved terms.
- New Property Valuation: £420,000
- Exit Mortgage: £315,000 (75% Loan-to-Value)
Financial Breakdown
- Initial Investment: £380,000 (£350,000 original value + £30,000 renovations)
- New Mortgage: £315,000
- Equity Remaining: £105,000
- Monthly Rental Income: £2,200 (up from £1,800 pre-renovation)
With a new mortgage payment of approximately £1,300 per month, the client enjoyed a monthly cash flow of £900, a substantial profit increase.
Why Auction Finance’s Expertise Was Essential
Auction Finance’s experience in crafting bespoke bridging loans enabled this client to refinance quickly, raise additional capital, and fund critical renovations all within an efficient timeline. Their approach ensured the client achieved a higher property value and boosted rental income potential.
Quick Bridging Finance: Immediate funding to allow quick refinancing and capital access.
Flexible Capital Raise: Released equity offered funds for other investments or financial needs.
Increased Rental Yield: Renovation funding improved tenant appeal, increasing profitability
Flexible Financing Options: Bridging finance provides a flexible solution to refinance, raise capital, and fund property improvements in one seamless package.
Increased Rental Income via Renovations: Strategic upgrades enhance rental yield and make properties more attractive to tenants.
Value Uplift for Better Financing: Renovations that boost property value improve refinancing terms, giving clients a better exit strategy with enhanced equity and cash flow.
This case study exemplifies how bridging finance can be a valuable tool for investors looking to refinance, raise capital, and enhance property value all at once.
