Bridge to Let
In the competitive world of property investment, timing is everything.
Bridge to let finance offers a unique solution for investors looking to move quickly on lucrative opportunities.
This innovative financial product combines the speed of a bridging loan (for the purchase) with the long-term stability of a buy-to-let mortgage (for the exit), providing a seamless transition from property acquisition to rental income.
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What is Bridge to Let Finance?
Bridge to let finance is a specialised lending product designed to help property investors secure and refurbish rental properties swiftly.
It combines two distinct lending products:
a short-term bridging loan and a long-term buy-to-let mortgage.
This combination allows investors to purchase properties that may not initially qualify for traditional mortgage products, complete necessary renovations, and then transition smoothly into a standard buy-to-let arrangement.
Unlike standard bridging loans, which require a separate exit strategy, bridge to let finance comes with a pre-approved buy-to-let mortgage.
This built-in exit strategy provides investors with greater certainty and results in a more streamlined process.
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Components of Bridge to Let Finance
The bridging loan component typically lasts for 3 to 18 months, providing the initial funds to purchase the property and cover renovation costs. Interest rates for this phase are higher than buy to let mortgages, reflecting the short-term nature and increased risk.
The buy-to-let mortgage element activates once the property is ready for tenants, offering more favourable long-term interest rates. This mortgage can extend up to 25 years or more, depending on the lender and the borrower’s circumstances.
Key Features
Bridge to let finance offers considerable flexibility in terms of loan amounts, typically ranging from £150,000 to £5 million or more. Loan-to-value (LTV) ratios generally cap at 75-80%, though some lenders may offer higher LTVs in certain circumstances.
Interest rates vary but usually fall between 0.44% to 1.5% per month for the bridging phase.
The subsequent buy-to-let mortgage rates align more closely with standard market rates. It’s worth noting that the overall cost of borrowing may be higher than traditional routes, but the added speed and flexibility often justify this for many investors.
How Bridge to Let Loans Works
The process begins with an application to a specialist lender or broker.
Once approved, the bridging loan is released, allowing the investor to purchase the property and begin any necessary refurbishment work. Throughout this period, interest is rolled up and added to the loan balance, though some lenders may offer the option to service the interest monthly.
As the refurbishment nears completion, the property is revalued.
Assuming all conditions are met, the pre-approved buy-to-let mortgage then replaces the bridging loan. This transition is usually seamless, with both elements often provided by the same lender.
Eligibility Criteria
Bridge to let finance is available for a wide range of properties, including residential, semi-commercial, and houses in multiple occupation (HMOs).
Most lenders will consider both individual borrowers and those applying through limited companies.
While specific requirements vary between lenders, they generally focus more on the property’s potential rather than traditional income multiples. This makes bridge to let finance accessible to a broader range of investors, including those who might struggle to secure traditional mortgage products.
Regarding credit considerations, while a good credit history is beneficial, many bridge to let lenders take a more holistic view. They place more emphasis on the viability of the project and the strength of the exit strategy than on perfect credit scores.
This can make bridge to let finance an option for investors who might struggle to secure traditional mortgage products due to past credit issues.
Application Process
The application process for bridge to let finance is faster than standard mortgages, often completing within 2-4 weeks.
Required documentation usually includes proof of identity, details of the property to be purchased, a business plan outlining the proposed works and anticipated rental income, and evidence of the exit strategy.
A key part of the process is the property valuation.
Lenders will instruct a surveyor to assess both the current value of the property and its projected value post-refurbishment. This helps determine the loan amount and ensures the property will provide adequate security for the long-term mortgage.
Timeframes can vary depending on the complexity of the deal and the lender’s processes.
However, many bridge to let lenders pride themselves on rapid turnaround times. It’s not uncommon for the entire process, from initial application to funds release, to be completed within 2-4 weeks.
Some lenders even offer “fast-track” services for urgent cases, potentially reducing this timeframe further.
When to Use Bridge to Let Finance
Bridge to let finance shines in scenarios where speed and flexibility are essential.
It is designed for investors who wish to retain the asset being purchased as an investment property.
It’s particularly useful for:
- Purchasing properties requiring significant refurbishment before they can be let out.
- Securing properties at auction, where completion is required within 28 days.
- Breaking property chains, allowing investors to move quickly on new opportunities without waiting for the sale of existing assets.
Ideal Scenarios for Bridge to Let
Consider an investor who spots a rundown property with great potential in a prime rental area.
Long-term lenders will not accept its current condition, but bridge to let finance allows the investor to purchase the property, renovate it to a high standard, and then transition to a standard buy-to-let mortgage once the work is complete and the property value has increased.
Another common scenario involves property auctions.
The speed of bridge to let finance enables investors to compete effectively in this fast-paced environment, knowing they can complete the purchase within the required timeframe.
Advantages Over Traditional Financing
The primary advantages of bridge to let finance are speed and flexibility.
While mortgages can take months to arrange, bridge to let funding can often be in place within weeks. This rapid turnaround can be the difference between securing a lucrative investment opportunity and missing out.
Furthermore, the flexibility of bridge to let finance allows investors to take on projects that might not initially meet standard lending criteria. This opens up a wider range of potential investments, including properties that can be significantly improved to boost their rental and capital value.
Don’t miss out on lucrative opportunities.
Costs and Fees
While bridge to let finance offers valuable benefits, it’s important to understand the associated costs.
Interest rates for the bridging phase are higher and are quoted monthly rather than annually.
Rates can range from 0.44% to 1.5% per month, depending on the lender and the specifics of the deal.
Many bridge to let products are designed with flexibility in mind and may not include early repayment penalties, especially for the bridging element.
However, some lenders may impose charges if the loan is repaid within a certain period, particularly on the buy-to-let mortgage portion. It’s important to clarify these terms with your broker to avoid unexpected costs if your plans change.
In addition to interest, borrowers should be prepared for several fees:
- Arrangement fees: Usually 2% of the loan amount
- Valuation fees: Vary based on property value
- Legal fees: Cover both the borrower’s and lender’s legal costs
- Potential exit fees: Some lenders charge a fee when transitioning to the buy-to-let mortgage
Exit Strategies
A clear exit strategy is needed for all bridging loans, and a bridge to let is no exception.
Fortunately, there is a pre-arranged transition to a buy-to-let mortgage once the property is ready to let.
Once the refurb is complete the lender will have the property re-inspected for the buy to let mortgage stage.
This built-in exit strategy is one of the key advantages of bridge to let finance over standard bridging loans.
Is Bridge to Let Finance Right for You?
Bridge to let finance can be an excellent option for many property investors, but it’s not suitable for everyone.
It’s particularly well-suited to experienced investors who can accurately assess potential deals and manage refurbishment projects effectively.
For first-time landlords, bridge to let finance can be a useful option due to its simplicity.
But it’s important to have a solid understanding of the property market and realistic expectations about the costs and potential returns.
Bridge to let finance offers a flexible and fast solution for property investors looking to seize opportunities in the buy-to-let market.
By combining the speed of a bridging loan with the long-term stability of a buy-to-let mortgage, it enables investors to act quickly and add value to properties before letting them out.
While it comes with higher short-term costs and requires careful planning, the potential benefits in terms of speed, flexibility, and the ability to take on a wider range of projects make it an attractive option for many investors.
You also only have to deal with one lender.
If you’re considering a property investment that might benefit from bridge to let finance, the next step is to speak with a specialist broker who can provide tailored advice based on your specific circumstances and goals.
For more information or to discuss your specific requirements, please don’t hesitate to contact us. Our team is ready to help you turn your property investment plans into reality.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
FAQ
Yes, many lenders will consider first-time landlords, although you may need to demonstrate a solid understanding of the property market and have a well-thought-out business plan.
Related reading: Why Buy-to-Let Landlords Use Bridging Finance
Most lenders offer up to 75% LTV bridging loans, although some may go higher in certain circumstances.
While timelines can vary, many lenders can complete the process within 2-4 weeks.
Read more: How Quickly Can You Get a Bridging Loan?
Strictly speaking, bridge to let is designed to fund residential dwellings such as houses, flats and HMO’s.
It’s important to communicate with your lender if delays occur. Many will be willing to extend the bridging period, although this may incur additional costs.
Yes, bridge to let finance is a popular for auction purchases due to its quick turnaround times, allowing investors to meet the typical 28-day completion deadline for auction properties.
Once the property refurbishment is complete and it meets the lender’s criteria for a buy-to-let mortgage, the lender will arrange for a new valuation. If everything is in order, they’ll then automatically switch you to the pre-agreed buy-to-let mortgage terms. This process is usually seamless and doesn’t require a new application.
