Last Updated on 17th August 2020
If you’re purchasing a buy to let property that needs refurbishment, you may benefit from using bridge-to-let finance.
The world of buy to let is packed full of financial options. There’s a lot more than just a conventional buy to let mortgage to choose from. Furthermore, each type of loan suits certain investment strategies better than others.
This guide will cover everything you need to know about bridge-to-let finance. Our advisors are also available to answer any questions. If you’re ready to apply, you can make an enquiry to get started.
What is bridge-to-let finance?
Bridge-to-let finance is a loan used to purchase a buy to let property that requires refurbishment or further building works. The loan is a type of bridging finance which can be a convenient source of income when needed. Furthermore, bridge-to-let loans can be used on a property which isn’t suitable for a mortgage.
If a property is really run down, then most mortgage lenders will refuse a regular buy to let mortgage. This is because lenders want adequate security for their loan. If a property is in really bad shape, then it doesn’t offer lenders adequate security for a mortgage.
This is especially true if a property doesn’t have a useable bathroom or kitchen. Buy to let mortgage lenders require properties that are ready to let out and not in need of an extensive refurbishment.
On the other hand, a bridge-to-let loan can provide you with the funds to spend on the refurbishment of your buy to let property. Once the property has undergone a full refurb, you should be able to take out a regular buy to let mortgage. In doing so, you’ll also clear the outstanding balance with your bridge-to-let lender.
When are bridge-to-let loans suitable to use?
Bridge-to-let loans can be used in a number of scenarios to provide funds for your buy to let property. It’s common to use bridge-to-let finance in the following circumstances:
- When you’re unable to get a buy to let mortgage on a property
- If the buy to let requires renovation but you’re short on funds
- Need a quick loan to meet deadlines
- Buying a property at auction
- Simply don’t want a mortgage
- Capital is tied up elsewhere
- You’re adding value to your buy to let
- HMO conversion
- Commercial buy to let
There may be other reasons why you’d need a loan for your buy to let. That being said, the ultimate reason is to raise capital. Bridge-to-let loans usually have a maximum timeframe of one year before they need to be repaid. Some lenders do offer flexibility on timeframes so if this is a requirement of yours, do make an enquiry.
Bridge-to-let interest rates and fees
Lenders that offer bridge-to-let finance usually charge rates between 0.4-1% per month. The majority of lenders will also only offer loans at 75% LTV. You may be able to get a higher LTV such as 85% but rates will be a lot higher than average. Typically, interest-rates start to reduce with the more you personally invest in the property.
Each lender is different and may charge fees in addition to the interest on the loan. You’ll have to calculate the projected figures for your investment to ensure using this type of finance is viable.
For instance, if you’re buying a property at a discount due to its condition, consult an estate agent on how much the property will be worth once you’ve completed your refurbishment. This will give you a good indication of what fees and rates are viable for your project.
Lenders will carry out their own valuation of your buy to let property with a selected surveyor. Nonetheless, it’s a good idea to check the numbers before committing.
Comparing what each lender will offer you is also advised. This is to ensure you’re not overpaying on a loan. After all, buy to let is an investment so you should keep the numbers in mind.
Our advisors can check every lender you’re eligible with to find you the most competitive deal available. This can save you money, but also time so you’re able to focus on other aspects of your investment.
Having a clear exit strategy to repay the loan
You will need a clear exit strategy of how you’re going to repay the loan. Lenders will also need details of this. For instance, your lender will want to know the potential market value of your buy to let once it’s been refurbished. This will indicate whether approval is a viable proposition.
Bridge-to-let typically has one exit strategy and that is to get a buy to let mortgage once the property has been refurbished. This should enable you to release capital from the property to cover your loan repayment in full. The plus side is that you’ll have an investment property which should generate a monthly rental income once you’ve found tenants.
If your exit plan is to sell the property, then you’ll need a buy to sell mortgage rather than bridge-to-let finance. This is because bridge-to-let is specifically designed for buy to let property.
Read more: What is a buy to sell mortgage?
Advice from bridge-to-let brokers
There are many variables to consider when applying for finance. Although bridge-to-let finance is geared around buy to let, there’s still a lot to consider before deciding on the right type of loan. Purchasing a buy to let that’s not in a good condition is a risk, but you’re able to minimise this risk by having the right funding in place. Getting it wrong could leave you with a substandard property which could turn into a liability.
Our advisors specialise in all types of buy to let finance, including bridge-to-let loans. Once we’ve understood your buy to let goals and your financial situation, we’ll be able to advise you on the best route to finance. This may or may not be bridge-to-let finance as there are many other forms of finance that may be better suited.
With whole of market access, our advisors are able to compare thousands of deals to calculate which deal is the best. This can save you time, money and a lot of a hassle in case things go wrong. Furthermore, you’ll have the confidence that you’ve got the best financial arrangement for your investment.
You can make an enquiry now or call on 0800 195 0490 for further information.