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Bridge to let mortgages

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 6, 2022

Bridge to let mortgages – Full guide on bridge-to-let and how it works

High street lenders may not approve of your dream of purchasing a home, funding a business venture, or even renovating an old building.

A bridging loan is a solution. A bridging loan is a short-term loan that can be used by individuals and businesses for almost any purpose, up to the next stage of financing or the sale of an existing property.

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What is a bridge to let mortgage?

Bridging financing is only available for short-term purposes. Lenders require that the borrower have an exit strategy before lending the money. This could be selling the property or refinancing the mortgage to another type.

A bridge-to-let loan can be used to purchase a property that investors would otherwise have difficulty financing with a traditional mortgage (using Bridging Finance). However, they also offer the benefit of an exit strategy through a preapproved refinance to a conventional buy-to-let mortgage.

There are many reasons to get a bridge loan.

  1. You might be waiting to sell your house, but you want to purchase another property just on the market.
  2. A property you are interested in buying at auction may be available. Most have 28-day terms. Bridging finance, a form of financing arranged in days or weeks instead of a traditional mortgage, can take several months.
  3. Developers who want to purchase and renovate a property and then sell them off for a quick turnaround profit can also use bridging finance.
  4. To pay tax bills that other lenders won’t let you repay
  5. You can use it anytime you have short-term cash needs.
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What are the advantages of using a bridge loan to let?

Exit finance pre-approval

Bridging loans are a great way to finance a property purchase or a loan that would otherwise not be possible. A bridge to let is an excellent option for those who must demonstrate their exit strategy before closing.

Instead of leaving this up to chance (in the lack of a complete mortgage offer like some bridging loan where only an initial agreement would do), you can market the property if a buy-to-let mortgage is impossible.

Bridging loans can complete quicker

Bridging loans are a great option if time is an issue. They can be underwritten and processed in days or weeks, unlike traditional mortgages that take a few months.

Can a bridge loan be used for auction?

Absolutely. After the hammer falls, most auctions require a 10% deposit. The Memorandum of Sale must be signed, and the deposit must be paid.

A bridging loan can be used to buy a buy-to-let property at auction. The balance of the purchase cost will typically be due within 28 days.

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The bridge to let mortgages can be used to help you break the property chain

Many homeowners have lost out on the property they loved because they waited for their homes to sell.

Bridging loans are outstanding because they allow people to purchase a property without selling their current home as long as both properties are viable and within the lender’s budget.

A bridging loan is a loan that closes the financial gap. It allows buyers to buy a property and pay the loan back in full once they have sold the previous property.

A bridging loan may be a great option if the borrower is in a financial position to repay the entire amount within the loan term.

Bridging finance is an option for uninhabitable properties.

Absolutely. Bridging finance can be used to purchase an uninhabitable home. This is because bridging lenders have a greater appetite for risk and consider the entire project’s viability.

You can use bridging finance to bring your building up to standard and apply for a standard mortgage.

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Combining bridging financing with an exit strategy

Bridge to Let mortgages is a bridging loan that allows you to exit and get a mortgage.

Instead of applying for a loan bridging (with the exit as remortgage onto a buy-to-let), an applicant applies simultaneously for both the exit and bridging financing. This would mean the applicant could only complete the exit if the buy-to-let remortgage is approved.

The bridging loans are the first to be set up and secured against the property. Funds will then be released from the bridging product to the buy-to-let at the end or sooner of the pre-agreed term. After that, the property remains a standard buy-to-rent deal.

Although it is possible to bridge with one lender and then refinance on a buy-to-let with another lender, this is usually not possible in one transaction. The second lender will not have all the information necessary to process the complete remortgage offer. The buy-to-rent remortgage is approved only after the active bridge if you use more than one lender.

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Can I borrow a bridge loan to purchase and renovate a house?

Yes. While it is hard work, renovating a property that has been neglected can be so rewarding. You will feel proud of yourself after seeing the before-and-after photos.

An old building that needs some TLC is a great investment opportunity.

Getting a mortgage on uninhabitable properties with high-street banks and lenders can be challenging, if not impossible, because such buildings are considered high risk.

Because in the rare event that the homeowner cannot pay their mortgage payments and the property is repossessed by the bank, an unfinished house can be difficult to resell and return the lender’s money.

Many landlords choose to use a bridge loan because of its simplicity and speed. They can buy the property but also temporarily finance their renovation project.

Are you looking for experience in letting?

It all depends on the nature and purpose of the project. Bridging lenders may be willing to lend without prior experience for projects requiring a little work.

For projects requiring more work or risk, like a complete property refit, the bridging lender may want to see a history and business plan.

It is not an easy task to renovate a property. It might be easier to start your first renovation project by applying for a bridge loan.

These projects require a lot of skill and manual labour. It can be overwhelming to begin a project if you don’t have any experience in building, plumbing, or electrical.

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What property value can I borrow?

There is a difference between standard mortgages and bridge-to-let products. Some lenders offer loans based upon the Gross Development Value (GDV).

GDV is the term that describes the value of a property after it has been renovated. It is typically higher due to the improvements.

This could mean that you can borrow more money to improve your property.

You should never borrow more than you can repay, whether renting out the property, remortgaging the property, or even selling the property.

What maximum amount can I borrow to pay off a bridge mortgage?

Bridge to let mortgages have a maximum loan amount determined based on many factors. This is different from traditional mortgages for residential or buy-to-let affordability. As follows:

Calculating how much money you can borrow for bridging

Bridging finance can generally be arranged without monthly payments and interest added when it is taken out. Or, monthly interest payments can also be made, and the loan must be serviced.

If the interest is added and there is an exit strategy that can repay the entire debt, then there is no need to show how the borrower or business will be able to pay the repayments.

The application must include evidence that the monthly interest will be paid.

These are the key factors to maximizing borrowing on the bridge component of the bridge-to-let bridge.

  • LTV (Loan to Value) – Lenders typically limit loans at 70-80%. For example, a £100k property would allow for a loan of £80k if the borrower is qualified.
  • Property type – If the property is in a total wreck, the LTV could be reduced to a lower percentage.
  • The term – LTV limits may be lower for loans that are being extended.
  • Exit strategy – Lenders, might not lend to you if there isn’t an exit strategy.
  • Property use – If the applicant currently lives in the property, this is a “regulated” bridging financing deal. This is subject to FCA regulation with additional restrictions.
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What interest rates can I expect to pay for BTL bridging financing?

The lender and length of the loan will determine the interest rate on buy-to-let bridging loans. They may be higher than the standard rate and include high fees.

A loan with a 1% arrangement fee plus an exit fee of 1% would cost £33,000 more than a £150,000 loan. This is before you consider interest. If expressed at a monthly rate of 1.5%, it equates to 18.% APR. So you can see why expert advice is essential.
One of our advisors should be able to help you with the current interest rate if a remortgage forms part of your exit strategy.

What are the borrowing limits for the let component of a bridge-to-let?

A bridge-to-let mortgage’s “to let” component is calculated similarly to a traditional mortgage and will be determined based on the expected rental yield. When the rent is calculated at approximately.125-145%, it must cover the interest-only mortgage payments. With most lenders, the rate is usually 5% (but not always the actual rate).

However, some lenders are more flexible in their affordability models and can lend more to certain people than others. Talk to one of our advisors to learn more about buy-to-let affordability.

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What deposit is required for a bridge?

Most bridge lenders will lend up to 70%. This would require a 30% deposit from buyers. This is the standard rate in the market. In certain circumstances, lenders might offer higher rates. Sometimes, a lender may require a smaller deposit or none if the property is significantly undervalued.

If a property, such as a repossession, is put on the market at £70,000 but its actual value is £100,000., the bridging finance lender might be willing to lend 100% or £70,000. This is uncommon, but it is possible.

What fees are charged for the bridge to let?

Generally, a bridge to let mortgage will not only pay the interest but there may be additional costs.

  • The property’s initial value
  • A facility fee (could amount to up to 2% of the loan amount)
  • A cost for exit (could amount to about 1% of the loan)
  • If you borrowed the loan through a broker, a broker fee
  • Legal costs for conveyancing the property purchase or refinance
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How can you apply for a bridge to rent?

Bridge to let mortgage lenders evaluate different factors to mainstream loans when considering your application. Ask questions like:

  • Do you have any experience in renovating a property? This is especially important for large-scale refurbishments like lighting, structural and internal architecture, or plumbing.
  • Can you sell or refinance the property before the loan term ends? (Almost every lender will require you to have an exit plan ready).
  • Are there any other assets you may have? These assets may be eligible for funding, but even if they are not, lenders may decline to finance you.
  • Can you make interest payments if you are paying monthly? The monthly loans set up for price will need to be serviced, while rolled-up interest can be paid in one lump sum. Some lenders will need to know how much you earn.
  • Will the property quickly be sold if you cannot complete your renovations?
  • Credit history. Although bridging lenders are more flexible, some credit issues can lead to a decrease or even a higher rate.
  • Other personal information (such as the age and address of the property, etc.
  • Details about the property (what is the project? What is the property type? Construction material, etc.)

Is it possible to bridge to let even with bad credit?

Many landlords have expressed concern that their ability to be approved for bridge-to-let products will be affected by adverse credit. They have a poor record of repaying credit obligations.

Some specialists can help with all credit issues. Below is a list of possible credit problems you might face as a borrower. It is possible to get still bridge to let financing.

  • Credit score low
  • Mortgage arrears
  • Defaults
  • County Court Judgements (CCJs).
  • Individual Voluntary Arrangements
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

These factors can affect your chances of getting a bridge loan, but it does not mean you cannot get a mortgage with bad credit.

Each lender uses different criteria to determine the risk and ability to repay a loan. Some lenders will approve you regardless of any bad credit.

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Acceptable Bridging loan exit strategies

The “let” part refers to the exit strategy for bridge-to-let investments. An alternative plan is not required. However, if someone changes their mind and decides to sell the property rather than refinance, most lenders would accept this as long as it occurs before the end of the term.

Sometimes, the sale of the property may be necessary. This could happen if the property were damaged or the renovations were not completed to the required standard.

If possible, the only alternative would be to extend or remortgage bridging loans to another bridging lender.

What advice can I get before applying for a bridge loan?

A mortgage advisor can help you find the right lender based on your income, property history, and credit history. They will also ensure no unnecessary credit checks for a mortgage. Too many searches in a short period can cause credit damage.

Our expert advisors are experts in this field and can provide advice on how to apply for a bridge loan. They will also take care of the entire process.

Learn more about bridge-to-let finance

You can call today to discuss any topic or submit an enquiry online.

Relax, and contact us now to find the right mortgage broker for you. There is no fee, and you are not under any obligation.

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