Will my senior lender simply lend against the VAT?

Some will, but many will not lend against VAT because it is a recoverable tax rather than asset value. Where they do, it usually increases the loan-to-value on the property.

Isn't the senior rate cheaper?

Per annum, usually yes. But senior debt runs for years while a VAT bridge runs for weeks, so the comparison has to be total cost over the actual period, not a rate against a rate.

What is the main drawback of extending the senior facility?

You borrow long against a short-term need. The VAT comes back in one to three months, but the higher senior balance and the LTV it created can persist for the life of the loan.

Does a VAT bridge affect my senior facility?

Not where it is unsecured against the property. Where a second charge is taken, your senior lender's consent is required, so raise it early.

VAT bridging finance

VAT Bridge or Extend Your Senior Debt?

PropertyVAT Team · Updated 21 October 2026 · 3 min read

The instinct is reasonable: you are already borrowing from a lender who knows the deal, so why add a second facility for the VAT?

Sometimes that is right. Often it is not, and the reasons are structural rather than about price.

The core mismatch

The VAT is a short-term, self-liquidating liability. It is repaid by HMRC in one to three months.

Senior debt is long-term, amortising or interest-only, and secured against the asset for years.

Funding a two-month need with a five-year facility creates a mismatch that persists long after the VAT has been refunded.

What actually differs

	Extend senior debt	VAT bridge
Term	Years	Weeks
Repaid from	Rent, sale or refinance	The HMRC reclaim
Effect on LTV	Increases it	None, if unsecured
Credit process	Full, with valuation	Focused on the reclaim
Typical speed	Weeks	48 hours
Headline rate	Lower per annum	Higher per annum, short term
What happens when HMRC refunds	You hold surplus debt, or pay early-repayment costs	Facility clears

That last row is the one that gets overlooked. When the £200,000 refund lands, a VAT bridge disappears. An extended senior facility does not — you either carry the extra debt or pay to reduce it, and some facilities charge for early repayment.

Will they even lend against it?

Many senior lenders will not advance against VAT, on the straightforward basis that it is a recoverable tax rather than value in the asset. Their loan-to-value is calculated on the property, and VAT is not part of the property.

Where a lender will stretch, it is usually by increasing the advance against the property — which means a higher LTV on the same asset, with whatever covenant and pricing consequences that brings.

The rate comparison, done properly

A senior facility at 7% per annum sounds obviously cheaper than a bridge at 0.03% per day.

But run it over the actual period on £300,000:

VAT bridge, 60 days: roughly £5,400 plus arrangement fee, then it is gone.
Senior debt, £300,000 extra: around £1,750 over the same 60 days — but only if you repay it at 60 days, which usually means an early repayment charge, a redemption process, or simply carrying the debt for longer.

Carried for a year rather than refunded away, that £300,000 of senior debt costs around £21,000 — and the VAT was back in your account after month two.

The bridge is more expensive per day and cheaper per deal, because it ends when the need ends.

The three questions

Will your senior lender advance against VAT at all? Many will not. That often settles it.
What does the extra senior debt do to your LTV and covenants? If it pushes you into a worse pricing band or a covenant breach, the cheap rate is not cheap.
How quickly do you need to complete? A VAT facility can be in place in 48 hours. A senior variation with revaluation is a matter of weeks.

When extending the senior facility is right

You are at a low LTV with plenty of headroom
There is no time pressure
Your lender will advance against the VAT without repricing the whole facility
You would rather manage one relationship than two
There is no early repayment penalty, so you can clear it when the refund lands

When a VAT bridge is right

Fixed or short completion, especially at auction
Senior lender will not lend against VAT, or will not move quickly
You are already near your LTV ceiling
You want the senior facility and its covenants left alone
The VAT is large relative to the deal

This guide is general information, not financial advice. Compare total cost over the real term, and take advice on your specific facilities.

Frequently asked questions

Will my senior lender simply lend against the VAT?: Some will, but many will not lend against VAT because it is a recoverable tax rather than asset value. Where they do, it usually increases the loan-to-value on the property.
Isn't the senior rate cheaper?: Per annum, usually yes. But senior debt runs for years while a VAT bridge runs for weeks, so the comparison has to be total cost over the actual period, not a rate against a rate.
What is the main drawback of extending the senior facility?: You borrow long against a short-term need. The VAT comes back in one to three months, but the higher senior balance and the LTV it created can persist for the life of the loan.
Does a VAT bridge affect my senior facility?: Not where it is unsecured against the property. Where a second charge is taken, your senior lender's consent is required, so raise it early.

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