Bridge to let explained
What is bridge to let?
Bridge to let mortgages are designed for property investors who will ultimately let the property, but require a bridging loan in the short-term, usually while work is completed on the property.
Unlike a standard bridging loan, a bridge to let sees a lender offer a bridging loan initially, while pre-approving the borrower for a buy to let mortgage. This removes the risks involved with traditional exit strategies.
What can a they be used for?
They can be used for almost any reason, however, some of the more common ones are the following:
- To purchase a property that will be refurbished before it’s let – this is known as the build, rent, refurbish (BRR) model of property investment.
- Buying a property at auction, ensuring that the application completes within the required 28 days under auction conditions.
- Refinancing a property that’s already owned to fund improvements such as refurbishment or an extension, before re-letting the property for a higher return.
- To facilitate a quick completion when encountering problems with a property chain. Bridging finance can usually be completion in just a couple of weeks – far faster than buy to let mortgages.
- They are popular for buy to let properties, holiday lets and HMOs in particular.
An alternative to bridge to let mortgage for portfolio landlords is the property investor hunting licence.
Bridge to let criteria
We can offer bridge to let to individuals, partnerships, LLPs, Ltd companies, offshore companies and pension funds.
We can consider applications from overseas investors and expats, as well as UK and non-UK nationals living in the UK.
Adverse credit doesn’t preclude you form taking out a bridge to let mortgage. We’re can arrange a loan for borrowers with almost any credit problems.
The initial bridging finance element is usually arranged for a term of 1-8 months, before switching over to a buy to let mortgage. The buy to let part of the loan is usually arranged for any term up to 30 years.
Can I get a bridge to let mortgage with bad credit?
Yes, we’re able to consider loans for borrowers with adverse credit, but these will be underwritten on an individual basis.
Do you need experience to bridge to let?
Not necessarily, as long as the works are non-structural, you’re likely to qualify even if this is your first project.
How much can I borrow?
The amount you can borrow depends on several factors, with the ability to complete the works and let the property being key.
Our loans start at £25,000 and we lend with no maximum loan.
Loan to value
The ‘bridge’ element is calculated separately to the ‘to let’ part of the loan.
The bridging loan will usually be restricted to a maximum of 75% loan to value, with 80% available in some situations. Of course, the amount available will depend on several factors, the key ones being the property, its location, your plans for the property, your experience and credit history.
When moving over to the buy to let mortgage, the lender will also consider the expected rental income in addition to the above.
Subject to meeting the lenders criteria, the maximum loan offered on the buy to let mortgage is 75% LTV.
Where the monthly interest is rolled up or deducted from the loan, affordability usually plays very little role in the bridging element. That said, it’s crucial to the approval of the buy to let portion, and as it’s all approved alongside the bridging loan, it will need to be covered early.
Affordability is based on the rental income of the property and how that compares to your proposed mortgage payments.
The rules vary between lenders, but lenders usually expect your rental income to be at least 125-145% of your mortgage payment. Some lenders use ‘stressed payments’ in their calculations, which account for some increase in interest rates.
Where this is the case, they usually expect your rental income to be 125-145% of your ‘stressed payment. This is your payment at an interest rate of 5-6% usually.
Bridge to let rates & costs
Interest rates are usually tiered based on the LTV required, with lower rates being offered at lower LTVs. The lowest interest rates are usually offered on applications at 50% LTV and below.
Interest rate types
The interest on the bridging loan element of your loan will be expressed as a monthly figure, with the ‘to let’ element being expressed annually.
There are a selection of products from each lender, with fixed, variable and discounted rates usually available.
When taking out a new loan, your application will usually be subject to fees, which can also impact the cost of your finance often including some of the following:
Lender arrangement fee – This fee is usually between 1-2% of the loan amount and is charged when the funds are released by the lender. Larger loans are likely to be at the lower end, with smaller loans at 2%. This fee is usually added to the loan.
Broker fee – Many brokers charge a fee for their service, often between £1,000 and 1.5% of the loan amount. We don’t usually charge a fee when arranging bridge to let mortgages.
Valuation fee – The valuation fee (also known as a survey fee) is a fee paid to a chartered surveyor of the lender’s choice. Where significant refurbishment will be undertaken, the property will usually require a second valuation once works are complete, and prior to the switch to a buy to let.
Legal fees – Borrowers pay both their own and the lenders legal costs. These fees vary depending on many factors.
How to get a bridge to let mortgage
What documents will I need to provide when applying?
You will generally be expected to provide the following:
- Proof of ID & residency.
- Statements for your bank and savings accounts.
- Proof of income (payslips and accounts for business owners).
- Details and costings of any planned refurbishment works.
How long will my application take to complete?
These applications take longer to complete than traditional bridging loans, due to the work needed to ensure that the exit can also be guaranteed.
The underwriting of buy to let mortgages is slower and more methodical, and this will ultimately be the factor than delays completion.
You can usually expect the application process to take around 4 weeks to complete (including all legal work).
Are bridge to let loans regulated?
Much like buy to let mortgages and unregulated bridging loans, the FCA do not regulate this type of lending.
As such, it’s important that you work with reputable organisations when looking to take out this type of finance and should be very wary when asked to pay out upfront fees.
Can I borrow based on the value after refurbishment?
Yes, in most cases, borrowing can be increased when switching over to a term loan, based on the increased property value post refurbishment.
The ability to do so will be based on a new valuation being undertaken by a surveyor of your lenders choosing. The figure they give for the property value will usually be the figure from which the loan to value (LTV) is calculated.
Do High Street Banks offer bridge to let?
As with other types of bridging loan, high street banks aren’t usually involved in the bridge to let market. Instead, more specialist lenders, and some challenger banks tend to be the most active lenders in the space.