UK Bridge to Let Mortgage Borrowing

Your complete guide to bridge to let UK mortgages, including costs, exit strategies, pros and cons.

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UK Bridge to Let Mortgage Borrowing

Finding the financing to purchase a dream property or investment opportunity can be tricky, particularly when the building is dilapidated or uninhabitable and, therefore, ineligible for a conventional mortgage.

Bridge to let mortgages can be a solution as a short-term financing product available to most individuals or businesses while they wait to sell another property or for the next financing stage to become available.

What Are Bridge to Let Products?

Bridging loans are inherently short-term products (they are the bridge between an immediate financing requirement and a longer-term mortgage).

Before applying for any bridging loan, you'll need a demonstrable exit strategy to show the lender how you intend to repay the debt - normally by selling the building or refinancing onto an alternative mortgage.

A bridge to let mortgage is a unique product designed for buy to let landlords.

You can borrow financing to purchase an investment property, which isn't eligible for other mortgage schemes.

The benefit is that your exit strategy is built into the agreement with pre-approved financing.

Why Use a Buy to Let Bridging Loan?

There are many reasons a buy to let bridging loan may be advantageous, for example:

  • You've found an ideal property but are still waiting for another to sell.
  • You want to buy a great building at auction and have just 28 days to remit the balance - and a traditional mortgage will take far too long.
  • You want to invest in a renovation project as a property developer.
  • You need to refinance a buy to let investment to cover taxation charges.

The Benefits of Bridge to Let Loans

A bridge to let loan can be an opportunity to finance a property investment or take out a loan that wouldn't have been possible through mainstream lending.

Bridge to let loans can help landlords who have an investment opportunity but in a property that isn't eligible for a standard borrowing product in its current condition.

The applicant can secure a full mortgage offer rather than hoping that the remortgaging solution comes through.

Faster Completion Times on Bridge to Let Applications

A bridge to let mortgage can be a solution if you need to complete the purchase within a short timeframe.

There is the potential for the loan to be underwritten and pass through completion in a matter of days.

Avoiding Property Chains With a Bridging Loan Buy to Let

Another common issue is that a property investor, or homeowner, may find an ideal property but miss out because they are stuck in a chain waiting for their existing property to sell.

Bridging loans can be a way to complete a purchase before selling a current asset, provided both homes have a reasonable value, and the mortgage is affordable.

The bridge to let loan closes the gap between wanting to buy now and having the finances to proceed with a regular mortgage.

Once the previous home is sold, the buyer can use the proceeds to repay the bridge loan.

Exit Strategies for a Bridge Loan to Buy to Let Mortgage

The idea of a bridge to let mortgage is that you have a bridging loan to cover the upfront property acquisition costs (to a limit) plus financing for any renovation works.

Because your exit strategy (i.e. the 'to let' element) is built into the initial agreement, you're set to refinance the short-term bridging loan onto a buy to let product as soon as the work is completed.

That benefit is that you would otherwise:

  1. Apply for a bridging loan.
  2. Need to provide evidence of a buy to let remortgage agreement in principle to repay the debt.

Instead, you apply to one lender for your bridge loan and buy to let mortgage in one swoop, so you have pre-approval with the same provider.

First, you take the bridging loan finance secured against the property, and you use that funding to buy the asset and contribute towards the renovation costs.

As soon as the work is complete, you refinance onto the buy to let mortgage, as pre-agreed, and this takes over, repaying the bridge to let loan and acting as a longer-term interest-only mortgage.

It's possible to take out a bridging loan with one provider and refinance elsewhere onto a buy to let loan, but this can be tough within the same transaction.

The buy to let mortgage lender won't have enough information from the outset to make a confirmed offer, so a bridge to let mortgage with the same lender is more straightforward.

Applying to Bridge to Let Lenders for a Property Renovation Project

Bridge to let mortgages are often used to finance the purchase and renovation of a dilapidated building.

If you find a property sold at a low price where some investment would transform it into a valuable rental asset, a bridge to let mortgage may be the right product - but you might be asked to prove you have the experience and skills to manage the work.

It is extremely difficult (if not impossible) to mortgage an uninhabitable property through a high street bank or mainstream lender because the risk is too high.

A bridge to let loan is often the best solution in these situations.

Completion times are fast and can fund property purchases and renovation work beyond the scope of a conventional mortgage, with peace of mind that the buy to let mortgage, as an exit strategy, is already pre-approved.

Experience Requirements for a Bridge to Let Mortgage

There are circumstances where bridge to let lenders will only consider a project managed by an experienced landlord or property developer.

Projects where the renovation costs are minimal, are easier to finance because there is less scope for things to go wrong, so a bridge to let loan provider might lend even if you haven't completed any previous projects.

You may need to demonstrate previous experience if you plan to renovate a whole property or refit an entire building.

Borrowing Limits on a Bridge to Let Mortgage

It isn't easy to give a finite limit you can borrow on a bridge to let mortgage.

The evaluation process works quite differently from residential or buy to let mortgages.

The bridge loan is split into an 'upfront' financing cost to buy the building and pay renovation costs and a 'to let' segment. You'll be refinancing on a buy to let product and using the rental income to cover the interest costs.

Bridging Loan Buy to Let Calculations

Bridge to let mortgages are available either on an interest-only basis or with interest rolled up into the loan balance, so no regular instalments are required.

Interest can be added to the loan balance at the point of approval or charged per month.

If you have a suitable exit strategy of a value to repay the full bridge to let loan balance, then the lender may not ask for further proof of affordability.

However, if you expect to pay the interest per month, the lender will normally require income evidence and conduct an affordability assessment as part of the application process.

Key Factors in a Bridge to Let Loan Offer

For both the lender and applicant, there are a few metrics that will form the basis of your bridge to let mortgage application:

  • Loan to Value, or LTV ratio: lenders tend to cap bridge to let loans at 70%, or 80% of the property value.
  • Nature of the property: uninhabitable homes in a derelict state may attract financing, but normally at a lower LTV percentage.
  • Loan term: longer-term bridge to let loans may have a lower maximum LTV.
  • Exit plans: if you do not have a defined way to repay the loan, you're unlikely to be successful - a tangible exit strategy is essential.
  • Use of the property - where an applicant already lives in a property, it falls into the category of a regulated bridging loan, which means there may be additional restrictions.

Interest Rates on a Bridge to Let Mortgage

Interest rates payable on a bridge to let mortgage vary, depending on the lender, the value and the term length.

It's important to understand that a short-term bridge to let loan will incur higher interest rates than a longer-term buy to let mortgage.

You also need to account for arrangement fees and exit charges (where applicable), which could add anything from £3,000 upward to a bridge to let mortgage worth £150,000.

Monthly interest rates can vary considerably, so it's always advisable to speak to a whole-of-market broker before applying to assess the most competitive rates available.

Borrowing on the 'Let' Element of a Buy to Let Bridging Loan

When a bridge to let mortgage adviser considers your application, they'll assess the future rental income based on the same calculation as you'd expect in a conventional buy-to-let mortgage.

That means they'll look at the projected rental yield and want to see a rental income of between 125% and 145% of the buy to let mortgage interest charges.

Stress tests also apply, so the bridge to let lender will determine whether the rental income will still cover the interest if a 5% or 6% interest charge is used.

Deposit Requirements for a Bridging Loan to Buy to Let Mortgage

Most bridge to let mortgage lenders will offer a maximum loan of 70%, so you'll generally need a 30% deposit as a minimum.

Some lenders might offer a higher bridge to let loan cap, but that depends on how the property is valued and how much you're looking to borrow.

It can be possible to apply to bridge to let lenders without a deposit, usually if the property is undervalued and there is a clear business case.

For example, suppose you buy a repossession property for £70,000, and it has been valued at £100,000.

In that case, you could potentially apply for a bridge to let loan of £70,000 - which in effect looks like 100% LTV but is only 70% of the true property value.

Applying to Bridge to Let Lenders

Each bridge to let lender has a set of applicant criteria they'll need to run through before deciding.

As an indication, these are the questions you might expect to be asked:

  • What experience do you have in renovating properties (or the relevant project you require the bridge to let mortgage for)? You're more likely to be asked about your experience if the plans include extensive renovations.
  • How will you refinance the bridge to let loan at the end of the term? You'll need to have a clear exit strategy prepared before you apply.
  • What assets do you have to offer as security? This factor isn't imperative, but you could use other assets to secure the loan, and some lenders won't approve a bridge to let loan without it.
  • Can you afford the monthly interest payments? If your bridge to let loan is interest-only paid monthly, this applies. Bridge to let mortgages, where the interest is rolled up into a lump sum payment, are different, but the lender will still need evidence of your income.
  • What will the property be worth on the open market if you can't complete the planned renovations? The lender needs to know what financial risk they're taking if, for any reason, the work doesn't proceed as planned.
  • Do you have any adverse credit history? Bridge to let lenders are fairly flexible, but severe credit issues might mean they decline the application or charge a higher interest rate.

Along with these questions, a lender will ask for your personal details, including the property address and your age, and more information about the building, such as the property type and construction materials.

Exit Strategies on Bridge to Let Loans

When you apply for a bridge to let loan, the period when you start to let the property is your exit strategy - you start collecting rent, thereby turning an investment project into a revenue-generating asset.

You don't need to have a secondary exit plan to secure a bridge to let loan.

If you change your mind and decide to sell the property, you would normally be able to proceed instead of refinancing your bridge to let mortgage onto a normal buy to let mortgage.

Lenders tend to require you to go ahead with the sale and repayment before the bridge to let loan period expires - which is also wise from a cost perspective.

In some cases, a property sale could be unavoidable. For example, if you borrowed against a bridge to let product for a renovation, and the work wasn't up to scratch with building regulations.

That scenario could mean that the renovation has gone over budget; you don't have surplus equity or cash and therefore need to sell to repay the bridge to let loan balance.

One alternative could be negotiating a bridge to let mortgage extension or remortgaging onto an alternative bridge to let product.

Expert Advice on Bridge to Let Products

Please contact the Revolution Finance Brokers team for more information about UK bridge to let mortgages and the varying products available.

Our independent consultants will scour the market for the most competitive deals and negotiate on your behalf while ensuring your application is comprehensive and complete.

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FAQs

How does our broker-matching service work?

Yes, bridge to let loans are often used to buy rental properties at auction. You normally need to put down an immediate 10% deposit, with the balance due in 28 days.

It can be very difficult to achieve mortgage approval in such a short time frame, so a bridge to let mortgage can be more viable.

Landlords are often concerned about applying for bridge to let products with an adverse credit history.

However, there are several specialist bridge to let lenders who will cater to adverse credit applicants and will consider loans with low credit scores, defaults, mortgage arrears and even more serious issues.

Although bad credit will potentially affect your approval prospects for a bridge to let product through a mainstream lender, it by no means implies that you won't find approval elsewhere.

Each bridge to let lender has a set of criteria and risk exposure tolerances, so the key is to work with an experienced, whole-of-market broker to identify the right lenders to apply to.

We'd always advise you to speak to an independent mortgage broker before applying for any bridge to let loans.

Our role is to research the most suitable lenders based on your income, the property, credit history and experience as a landlord - ensuring you don't encounter any hard credit assessments until you're ready to proceed.

Yes, you can use a bridging loan buy to let product to invest in a property that is currently categorised as uninhabitable (and ineligible for more conventional buy to let mortgage products).

Lenders will accept greater risk and assess the whole project to decide whether it's financially viable.

Applicants can use the bridge to let loan to pay for the renovation works and then apply for a regular buy to let mortgage to repay the debt.

A bridge to let mortgage will carry a few different costs, depending on the nature of the investment.

Typical bridge to let charges include:

  • Property surveys and valuation fees.
  • Arrangement costs (up to about 2% of the loan value).
  • Exit charges (sometimes up to 1% of the original loan).
  • Brokerage fees.
  • Legal costs for the conveyancing services.

Lenders use varying calculation methods, with some offering maximum bridge to let loans based on the Gross Development Value (GDV) figure.

The GDV means the anticipated value of the property when the owner has completed the valuation work - which is normally considerably more than before the project ends.

As a borrower, using a bridge to let loan in this way might mean you can borrow more than the building is currently worth, using those funds to finance the improvements.

However, the caveat is that you should always be conscious of the repayment costs and be realistic about the valuation and future rental income you'll rely on to pay the bridge to let mortgage interest.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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