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Bridging Finance for Buy to Let Properties

What is a Bridging Finance for Buy to Let (or ‘Bridge to Let’)?

Bridging finance is short term financing which is available as a number of different products. A Bridge to Let loan is specifically designed for those looking to purchase a Buy to Let (BTL) property.

They best serve those who struggle to obtain traditional bridging finance, due to the built-in exit strategy. This is in the form of refinance onto a traditional Buy to Let mortgage, which negates much of the risk to the lender.

What are the benefits of a bridging loan?

If you’re pressed for time, bridging loans are a great option. Unlike traditional mortgages which take around two to three months to arrange, a bridging loan can be in place within a week. This is especially helpful to those looking to buy properties at auction, which would need to be paid for within 28 days.

The other main benefit is the ability to apply for bridging loans on properties that may not be financed in any other way.

Can you use a Bridge to Let loan for renovating a property?

Individuals and limited companies can use Bridge to Let loans in order to renovate a property. Whether this is a single buy to let property purchased to create a passive rental income or a larger business development, the 12 month loan term allows time for property development prior to sale or rental.

They can also be used to purchase property that is currently uninhabitable. This includes those which are derelict, have structural issues or lack a kitchen and / or bathroom.

Do you need experience to Bridge to Let?

Lenders may consider an inexperienced property developer, where the property renovation required is mainly cosmetic. If considerable structural improvements or additions are necessary, they are more likely to only offer finance to those with existing experience.

What deposit do you need for Bridge to Let?

A Bridge to Let loan is usually offered at a maximum LTV (Loan to Value) of 70% to 80%. This means that a deposit of between 20% and 30% is required.

It’s worth noting that the state of the property can affect the LTV offered. If, for example, you intend to buy a property in need of a complete refit or structural work, then you’re likely to need a higher deposit.

What fees are involved with a Bridge to Let loan?

Much like mortgages, the interest rates payable on bridging loans will vary between lenders. It’s important to understand that interest is calculated on a monthly basis, not an annual basis, which can be incredibly expensive.

On top of monthly interest payments, there are a range of fees to consider:

  • Valuation fees for your chosen property
  • Arrangement fees of up to 2%
  • An exit fee of up to 1%
  • Legal fees, such as conveyancing

How do you apply for a Bridge to Let?

The application process is quite different than for a traditional mortgage. There will be a number of points lenders seek assurance on and you should be prepared to fulfill these requests when you apply.

First of all, you’ll need to have established a clear exit strategy, for example, whether the loan term allows enough time to develop and either resell or refinance the property. It’s important to research the market for saleability or rental potential of similar properties, and be able to provide full property details.

The lender will also enquire about your personal circumstances, such as your income, credit history and whether you have prior experience in property development. Your age and access to additional assets will also be considered.

Can you Bridge to Let with bad credit?

There are lenders who will consider applicants with a poor credit history, so even having a bankruptcy in your past doesn’t necessarily rule out Bridge to Let as an option. Of course, the acceptance criteria will vary between lenders, but a mortgage broker can advise you of your best options.

How can a Mortgage Broker help?

Bridge to Let loans can be quite complex to arrange and are often only offered by specialist lenders, not found on the high street. Mortgage brokers will not only find you the most appropriate deal on a Bridge to Let loan, but also ensure that you apply to lenders whose acceptance criteria match your circumstances.

Although The Mortgage Store doesn’t offer bridging loans, we can direct you to a third party, recommended by us, who will be able to help you.