Bridge to Let enables property investors to purchase a rental property, complete any necessary changes required to make it mortgageable and then switch onto a Buy to Let mortgage. These types of loans can be used for Light Refurbishments, Conversions and development exits.
These are Bridging Loans aimed specifically at the buy-to-let market. The fixed-term loan is used to secure a property that you intend to rent out but don’t have a basic mortgage or deposit organised.
Clients can use them for either commercial or residential properties. The exit strategy would be to refinance onto a conventional Buy-to-let mortgage, and renting the property out either fully or in part.
The loan would be based on being able to achieve 100% rental coverage. This means that your potential rental income should be equal to your payments.
One way for property investors to maximise their Buy to Let returns is by purchasing a property that requires some work in order to make it fit for purpose, carrying out the work, and then letting the property.
Light refurbishment is the term used for a property renovation that requires no planning permission or building regulations and where there is no change of use to the property, and commonly includes renovations like a new bathroom, new kitchen, redecoration, rewiring or new windows.
A light refurbishment of a property is a good way of adding both capital and rental value to the property without having to undergo significant structural changes.
HMOs are a popular way for landlords to increase their ongoing rental income and so one way for a property investor to increase their returns is to buy a property and carry out work to convert it to an HMO.
An HMO is a building that is not entirely comprised of self-contained flats and where the occupants share one or more of the basic amenities (defined as a toilet, personal washing facilities and cooking facilities). A typical HMO might be a student house that is let to a number of different students, but HMOs are also popular close to city centres amongst young professionals and near to hospitals for medical and maintenance staff.
Investors buying a property with the intention of letting it as an HMO will usually need to carry out some work to make the property fit for purpose, and this is where the Bridge to Let loan can come in. The initial bridging loan can be used to purchase the property and carry out the work, before switching it to a Buy to Let mortgage when the work has been completed and the building is ready for tenants.
Bridge to Let can also be used as a development exit loan, putting developers in a position where they have greater control over when they choose to sell in order to achieve the best price.
The bridging element of Bridge to Let can be used as a development exit loan to refinance a scheme that is completed or nearing completion, often at a lower rate than the development finance facility and can also free up capital that a developer can use to start their next project.
By letting out the properties, rather than selling as soon as they are ready, developers have greater control over when they choose to sell, so can ride out any downturn and plan their exit strategy at a time when they are most likely to achieve the best price.
A bridging loan is a short-term loan used to buy or invest in property. These are typically up to 12 months in duration and are repaid when long-term funding is in place – which can be either a mortgage, or through the sale of the property or another asset.
They are fast, versatile, short-term property loans used in all kinds of property transactions; from downsizing in retirement, to flipping properties for a profit, to buying property at auction. The use-cases are numerous and varied.
For example, bridging loans are often used to buy a new home while you're waiting for your current property to sell - bridging your gap in funding.
Bridging loans can be arranged much faster than standard mortgages; however:
As bridging loans are secured against property, the risks are relatively small to your lender. This means interest rates are fairly low compared to other types of short-term finance.
Interest is calculated and charged monthly; however, if you can pay back your bridging loan early, you'll stop being charged interest on the same day you repay.
For example, if you take out a 12-month bridge but find you're able to pay it back after 6 months, you'll only be charged 6 months interest.
Interest can also be 'rolled up' within the loan, so you don't need to worry about monthly payments - instead, you can opt to repay the entire balance (loan and accrued interest) in one lump sum.
Broadly, the main advantages of bridging finance are:
In many cases, using a bridging loan can mean not having to rush the sale of your house while you buy a new property, and it can also allow you to move quickly in the property market and avoid missing out to cash buyers.
There is a range of different costs involved with bridging finance. The exact bridging loan cost will be dependent on the complexity of your case, loan size, and other factors.
Here’s a list of potential bridging loan costs:
The interest you repay on your bridging loan is calculated as a monthly rate instead of an annual rate, like with a standard mortgage.
Because of the short-term nature of bridging finance, interest rates are usually much higher than a typical mortgage, but you only need to pay the rate for a much shorter period.
Bridging loan rates are affected by several factors, including:
You can borrow up to about 80% of the value of the property you’re using as security.
It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance.
Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan.
You can get a fast bridging loan within a few days. However, not all bridging loans can be arranged this fast, and it depends on your situation and the properties involved.
You will also likely need a broker to push an application through this fast, and it may incur additional fees from your lender and solicitor to expedite your case.
On average, most bridging loans take between 3 to 6 weeks to arrange as a standard timeframe.
Every bridging loan lender in the UK has their criteria that a borrower has to fulfil to qualify for a loan. Whilst most lenders look for low-risk borrowers, many others have niche areas they specialise in and can facilitate.
As a rule, there are two essential criteria you'll need to meet:
Since the loan is secured against property or other collateral, a lender won't need proof of income. Equally, your credit history won't affect an offer as long as any outstanding debts or adverse credit doesn't impact your ability to repay the loan. However, if you do have a bad credit rating, you may have to pay higher interest rates.
Other basic criteria you will need to fulfil include:
If you have any questions about your eligibility for a bridging loan, speak to one of our advisors who will be happy to discuss your situation.
It is fairly common practice to speak to a bridging loan broker for advice on taking out a bridging loan.
You can go direct to lenders, but not all lenders accept direct applicants. Also, most people use a bridging loan broker to guide them through the process, compare rates and get the best deal.
