Using Bridging Finance on Rental Investments
Bridging finance is a great way to avoid a break in a property chain, but how does bridging loan buy to let financing work for a rental investment and how do you organise bridging finance on property acquisitions? In this guide, we explore how landlords might leverage a bridge loan to their advantage.
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Using Bridging Finance on Bridging Finance on Property Rental Investments
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 – you can use bridging loan buy to let finance on property that is otherwise unmortgageable.
This guide will run through short-term bridging loan buy to let financing for rental investments and all you need to know before applying.
For help with your bridging loan buy to let investment, or to secure bridging finance on property assets give the Revolution team a call on 0330 304 3040 or drop us a message to [email protected].
Can I Get a Bridge to Let Loan?
Bridging loan buy to let finance is offered to property investors who want to buy an investment property that they cannot mortgage - for example, using bridging finance on property because it is currently uninhabitable and requires renovation.
The key is to have a viable exit strategy to show how you will repay the bridging loan buy to let 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 to repay the balance of the bridging loan buy to let financing on the property.
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What Can I Use a Bridging Loan Buy to Let Product For?
You can use bridging loan buy to let financing on property purchases for pretty much anything - here are some of the most common examples!
- Funding to complete a house purchase using bridging finance on property on planned investments while waiting to sell your existing property.
- Buying a property at auction since the payment is due within 28 days.
- Paying for the development of a dilapidated property that wouldn't be mortgageable.
- Repay tax bills since you cannot use other forms of lending for this purpose.
- Using bridging loan buy to let products due to cash flow management reasons.
Are There Benefits of Bridge to Let Loans Over Other Forms of Lending?
There are many reasons investors turn to bridging loan buy to let finance on property acquisitions:
- Assistance in finding investments before having the exit strategy in place.
- Faster completion time than mortgages and most other loans.
- Bridging loan buy to let finance can be used for auction finance investments, where usually a 10% deposit is required, followed by the balance within 28 days.
- Solving problems with property chains. A bridging finance on property acquisitions can allow a transaction to proceed while waiting for other chain properties to sell or complete.
- Flexible bridging loan buy to let lending and able to finance uninhabitable properties, which cannot be mortgaged in the usual way.
Can I Organise Bridging Finance and a Remortgage in One Go?
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, making your bridging finance on property arrangement more straightforward.
Provided the bridging loan buy to let remortgage is approved in principle; the bridging finance is released.
You get the bridging loan buy to let finance on property first, secured against the building, 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 bridging finance on property that is property and then remortgage as a bridging loan buy to let with a different lender. Still, the process can take longer and be more expensive with separate valuations required.
Is There a Minimum Experience to Qualify for Bridge to Let Mortgages?
It depends - properties needing a general redecoration are usually approved for bridging loan buy to let lending for any property investor since this is a low-risk bridging finance on property prospect.
Should the project be complex and longer-term, lenders will usually need to see a minimum number of year’s experience, and a well thought out business plan.
Can I Get a Bridge Loan Based on the Finish Value of a Property Development?
In some cases, bridging loan buy to let lenders will offer financing against the Gross Development Value (GDV) - the bridging finance on property valuations once the project 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.
Is There a Maximum I Can Borrow on Bridge to Let Mortgaging?
Bridging loan buy to let lenders will cap the loan value depending on several elements.
- Bridging finance on property assets usually carries no monthly repayments, but you need to pay back the capital plus the accrued interest at the end of the term. Provided the exit strategy comfortably covers the total, lenders will not need to run through further affordability checks. Therefore, the property's valuation and having an agreement in principle if you plan to remortgage is essential.
- Most lenders offer Loan to Values on bridging loan buy to let finance on property lending of up to 70% or 80%.
- Properties requiring extensive renovations may only be eligible for a smaller LTV on their bridging finance on property assets.
- The longer the term - i.e., the longer you need to repay the bridge loan, the higher a deposit you will need.
- The use of the property is also a factor, as if you are already living in it, you will need regulated bridging finance.
What are the Average Interest Rates on Bridging Loan Buy to Let Agreements?
Interest rates against bridging finance on property assets vary significantly between lenders, as do the fees.
- Arrangement fees - often around 1%.
- Exit fees - usually another 1%.
- Rates are quoted per month, so a 1.5% monthly interest rate works out as 18% APR.
How Do Bridge to Let Lenders Calculate the Maximum Remortgage Value?
Bridging loan buy to let 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.
How Much Deposit Do I Need for a Bridge to Let Mortgage?
There are two parts to the bridging loan buy to let loan, and for the bridging finance on property, you will usually need at least a 30% deposit.
What Fees Will I Pay on Bridge to Let Financing?
Other associated costs of using bridging loan buy to let finance on property assets can include:
- Property valuation charges.
- Facility fees, up to 2% of the loan value.
- Exit fees, usually around 1%.
- Brokers fees - although sometimes payable by the bridging loan buy to let lender.
- Legal costs for the Conveyancing services required.
Can I Apply for a Bridge to Let Mortgage?
The bridging loan buy to let 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.
- If you have past property renovation experience, this mitigates the risk to the bridging loan buy to let lender making a bridging finance on property investments lower risk.
- How stable is your exit strategy, and how likely is it that you will be able to remortgage or pay back the bridge loan before the end of the term?
- Can you offer any additional security against other assets?
- Are you able to make monthly interest payments if your bridging loan buy to let lender charges interest in this way?
- How viable is the property for sale on the open market if you cannot complete the renovation work?
- Do you have a clear credit history that makes you eligible for bridging finance on property investments?
Can I Apply for Bridge to Let Borrowing with an Adverse Credit History?
Possibly yes - again, it's essential to prove a solid exit strategy before applying for bridging loan buy to let finance on property assets 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 bridging loan buy to let lender.
Even if you have severe credit issues such as DMPs, repossessions or bankruptcy, you may still be approved through a specialist bad credit lender.
What Exit Strategies are Acceptable for Bridge to Let Loans?
One of the easiest options to repay a bridging finance on property investments is to refinance. Letting out the finished property is the exit strategy, at which point you can repay the bridging loan buy to let 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 – a second bridging finance on property can repay the first.
Professional Advice on UK Bridge to Let Lending
Our independent teams can recommend any bridging loan buy to let product we think represents the best bridging finance on property agreement 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.
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