Last reviewed on 9th August 2023 by Martin Alexander (Mortgage Advisor)
If you’re purchasing a buy to let property that needs refurbishment, you may benefit from using a bridge-to-let mortgage. The world of buy to let is packed full of financial options to help you with your investments. There’s a lot more than regular mortgages to choose from. Furthermore, each type of loan suits certain investment strategies better than others.
Key features include:
- Fixed terms for 1-3 years
- Shorter terms available
- Open and closed bridging options
- Minimum loans from £25,000 (dependent on the lender)
- Approval within 24-48 hours
- Available on any property type
This guide will cover everything you need to know about bridging loans for buy to let investment. 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 a bridge-to-let mortgage?
Bridge-to-let is a bridging loan used for buy to let property that requires refurbishment or further building works. Furthermore, bridge-to-let loans can be used on properties that don’t qualify for a mortgage. As a result, it can be a convenient source of capital when needed.
If a property is really run down, then most mortgage lenders will refuse a buy to let mortgage. This is because lenders want adequate security for their loans. If a property is in really bad shape, then it doesn’t offer lenders enough security for a mortgage. For instance, if a property doesn’t have a useable bathroom or kitchen, it will be very difficult to get a mortgage.
Buy to let mortgage lenders require properties that are ready to let out and not in need of extensive refurbishment. As a result, a home that’s uninhabitable would be ideal for bridging finance.
Bridge-to-let mortgages 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 get a regular buy to let mortgage. In doing so, you’ll also clear the outstanding balance with your bridging lender.
When should I use a bridge-to-let mortgage?
Bridging loans for buy to let can be used in a number of scenarios to provide funds for your investment.
- When you’re unable to get a buy to let mortgage on a property
- If the property requires renovation but you’re short on funds
- 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. Bridging loans usually have a maximum timeframe of one year before they need to be repaid. Some lenders are flexible on timeframes so if this is a requirement of yours, do make an enquiry.
What rates can I expect?
Bridge-to-let rates are typically between 0.4-1% per month. The majority of bridging 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 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 suitable 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.
How can I get the best rates?
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 each 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.
Will I need an exit plan 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 your proposition is suitable.
Bridging 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 allow you to release capital from the property to cover your loan repayment in full. The main benefit is that you’ll have an investment property that 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 a bridging loan. This is because a bridge-to-let loan is specifically designed for letting rather than selling.
Read more: What is a buy to sell mortgage?
Advice from bridge-to-let brokers
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 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 investment which could turn into a financial liability.
Our advisors specialise in all types of buy to let finance, including bridge-to-let. 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.
Our advisors are able to compare each deal to calculate which deal is the best. 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.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.