When building your property portfolio, there may be circumstances that prevent you from immediately taking out a Buy-to-Let mortgage, or you may want to complete additional work to increase the rental value when you eventually let out your property. In those situations, it may be necessary for you to take out a short-term bridging loan before being able to transition onto a Buy-to-Let mortgage.
When might Bridge-to-Let be necessary?
Situations where bridging finance before a buy-to-let exit is needed may include, but is not limited to;
- Securing the purchase of a run-down property and allow time for repairs to make available for rent
- Refinancing an existing property that needs modernisation to add value, or to meet the Minimum Energy Efficiency Standard
- To purchase or refinance a Home of Multiple Occupancy that needs improvement to meet licensing rules.
- To make necessary refurbishments to a property that otherwise would not be eligible for a Buy-to-Let mortgage.
When you’ve done the work and the property is ready to receive its first tenants, you will be ready to repay the bridging loan and move onto a longer-term Buy-to-Let mortgage.
In those circumstances, Bridge-to-Let loans are a flexible and often cheaper option to do the necessary works before exiting.
What Bridge-to-Let offers
Lenders approach Bridge-to-Let loans in different ways. Broadly it will always offer the security of planning out your finance journey from the start.
The LendInvest Bridge-to-Let is designed for flexibility. So for professionals looking to complete light refurbishments to their property before exiting onto a Buy-to-Let, we offer a lower interest rate on our bridging finance, as well as the flexibility to exit onto any Buy-to-Let mortgage, with no penalty fee if it is not one of ours.
Other lenders may ask you to have both your bridge and buy-to-let mortgages agreed with them before they lend.
What security will I need for a Bridge-to-Let mortgage?
Security for a bridge-to-let mortgage is a first charge over the property and most lenders will offer you up to around 75% of the property’s market value. Personal guarantees are also required if you are putting the investment into a limited company.
Title insurance might be asked for as a backstop. This is a relatively low-cost insurance policy that protects the lender against any defects emerging in the legal ownership of the property. You shouldn’t have to provide a charge over your family home, but do be aware that a personal guarantee is a promise to pay.
What does a Bridge-to-Let mortgage cost?
As with any mortgage, rates differ based on the borrower’s history and the amount of LTV required.
In addition to interest, you should budget for an arrangement fee of around 1% and solicitors’ costs to put the security in place. Look out too for any other fees, for example an early-exit fee.
Advantages of a Bridge-to-Let mortgage – a summary
Different Bridge-to-Let mortgages offer you different advantages, so depending on which you choose you can see:
- Lower interest rates than traditional bridging loans – at LendInvest, for example, when we know the intended exit is Buy-to-Let our Bridge-to-Let rates start at only 0.49% per month
- A complete financial package that takes you from the initial purchase through to renting the property out
- Lower security and arrangement fees
- The possibility of releasing equity in the property at the refinancing to mortgage stage if the property’s value has gone up sufficiently.
How to apply
To find out more about the Bridge-to-Let mortgages available from LendInvest, please contact one of our team on 020 3747 4183 or download our free guide and see page 9.