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Bridging loans have multiple applications and are usually a great option when you want to invest in a property that is difficult to get a traditional buy to let mortgage against.
This guide will run through short-term financing for rental investments and all you need to know before applying.
For help with your buy to let investment, give the Revolution team a call on 0330 304 3040, or drop us a message to email@example.com.
Bridge to let loans are offered to property investors who want to buy an investment property that they cannot mortgage - for example, because it is currently uninhabitable and requires renovation.
The key is to have a viable exit strategy to show how you will repay the debt.
In this scenario, it could be remortgaging on a typical buy to let mortgage once the renovation works are complete, or selling the property at a profit.
Pretty much anything - here are some of the most common examples!
There are many reasons investors turn to bridge finance:
You can, and this is typical for bridge to let mortgages. In essence, you apply for the bridging finance, and the remortgage simultaneously with the same lender.
Provided the buy to let remortgage is approved in principle, the bridging finance is released.
You get the bridge loan first, secured against the property, and use these funds for the renovation works. When the property is finished, it can be remortgaged, with the financing paying back the bridging loan plus any interest accrued.
There are options to apply for a bridge loan on an uninhabitable property and then remortgage as a buy to let with a different lender. Still, the process can take longer and be more expensive with separate valuations required.
It depends - properties needing a general redecoration are usually approved for bridge lending for any property investor.
Should the project be complex and longer-term, lenders will usually need to see a minimum number of years experience, and a well thought out business plan.
In some cases, lenders will offer financing against the Gross Development Value (GDV) - the project's value once it is finished.
Therefore, you can borrow more, but need to be conscious that the exit strategy still needs to generate enough income to repay the loan in full, plus the interest.
Lenders will cap the loan value depending on several elements.
Interest rates vary significantly between lenders, as do the fees.
Lenders will need to evaluate the anticipated rental income of the finished property. This relies on area averages and revenue from similar size and quality rental homes.
Your rent needs to cover the interest-only buy to let mortgage payments by 125% to 145% depending on your tax bracket.
There are two parts to the loan, and for the bridging finance, you will usually need at least a 30% deposit.
Other associated costs can include:
The mortgage application process is different from residential borrowing, so if you're concerned about eligibility, it's worth considering how likely you are to be approved.
Possibly yes - again, it's essential to prove a solid exit strategy and good rental income prospects that will comfortably cover the borrowing costs.
Even if you have severe credit issues such as DMPs, repossessions or bankruptcy, you may still be approved through a specialist bad credit lender.
Letting out the finished property is the exit strategy, at which point you can repay the bridging loan with a standard buy to let mortgage.
Other options include switching to another bridging loan if there were any issues with completing the project on time or selling the property.
For more advice around borrowing to finance a rental property's refurbishment, get in touch with business finance broker on 0330 304 3040, or email us at firstname.lastname@example.org.
Our independent teams can recommend any financing product we think represents the best deal for you, and manage the negotiations and application process to get your loan in place as quickly as possible.
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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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