Bridge To Let Mortgages
Fast Bridge To Let Finance
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
What we cover in this article:
Bridge to let explained
What is a bridge-to-let?
Bridge to let mortgages, or refurbishment buy to let mortgages, are a specialist hybrid product 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 mortgage sees a lender offer a bridging loan initially, with the exit route pre-approved with a buy to let mortgage. This removes the risks involved with traditional exit strategies and offers surety.
They are popular with buy to let landlords, holiday lets and HMOs in particular.
How do they work?
They work in much the same was as both a bridging loan, and buy to let mortgage, in terms of the loan being secured against property.
The main thing here is the lender underwriting, as they underwrite both sides of the loan upfront to ensure a reliable exit, which are typically buy to let loans.
The initial loan will be used to cover the purchase or development work. Once this work is complete, a new valuation will be carried out to make sure the work is completed to a satisfactory standard. If the valuation report states that the property is lettable, the bridging will transition onto a buy to let mortgage or commercial mortgage product.
What are they used for?
Bridge to let mortgages can be used for almost any reason, however, some of the more common ones are the following:
- To buy 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 an asset 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.
- Provide resources to increase the rating on the EPC register.
- To repay development finance when a majority of the work is complete.
An alternative to bridge to let mortgage for portfolio landlords is the property investor hunting licence.
Bridge to let criteria
The criteria with bridge to let mortgages differs between lenders, however here is some of the lending criteria to be considered:
- Property type, i.e. HMO, MUFB, PBSA, commercial.
- The maximum LTV.
- Applicant experience in refurbishment and rental properties.
- The financial history of the applicant.
Will I qualify for bridge to let?
Yes, as long as you have suitable security for the loan, have enough deposit and funds for the development works and your financial rating meets the lending policy.
We work with the leading lenders from across the UK market, so can support most borrowers with bridge to let mortgages.
If you would like to know if you qualify, speak to one of our advisors and they’ll be happy to help
What loan term can you offer?
Initially, the bridging element will last for around 6 months. If a heavy refurb or development is needed or you need tome to improve cash flow, this may be stretched out to 24 months to cover the period of the work.
When switching to the buy to let element, much like a mortgage, terms of up to 35 years are available.
What checks will the lender carry out during the application process?
During the application process, the lender will assess the following:
- The reason for the loan.
- Your deposit or equity position.
- The property value and whether it provides suitable security for the loan.
- Your financial status, assets and liabilities.
- The cost and nature of the works.
- The property and rental value after works have been completed.
Will I qualify if I have bad credit?
Yes, many bridge to let funders offer bad credit bridging loans and offer bridge to let mortgages subject to it meeting criteria, but usually take a commercial view.
If this is the case, adverse credit usually impacts the loan to value offered and the rate you will pay, both on the bridging part and the buy to let part.
Not all lenders allow bad credit though so it’s worth checking this before you apply, a good broker will know exactly which one to apply with.
Who can apply?
We offer bridge to let mortgages to the following borrowing entities:
- Individuals, partnerships or LLP’s.
- High net worth (HNW) borrowers.
- Business owners.
- Property investors, landlords and developers.
- Limited Companies, including Offshore.
- Complex multiple ultimate beneficial owner (UBO) structures.
- Pension Funds.
- UK borrowers, overseas investors and foreign nationals.
How much can I borrow?
Minimum and maximum loan sizes
The minimum loan amount is £30,000 with no maximum loan size.
The maximum loan size will be calculated by looking at a combination of the LTV and rental income.
LTV requirements
The maximum loan to value ratio (LTV) is 75% on the bridging element and 80% LTV on the buy to let element.
Does income affect my maximum borrowing?
Yes, income will have a bearing on your maximum borrowing.
The rental income of the completed property will need to be high enough to meet the affordability cover and Debt Cover Service Ratio (DCSR).
You may have an income outside of this property, this may also be used and is often called ‘top slicing’.
Bridge to let rates & costs
What interest rate will I pay?
The interest rate on bridge to let mortgages realistically starts at 0.65% on the bridging portion and 5.44% at the buy to let stage.
With any bridging finance or mortgage, the lower the LTV, the lower the rates. Often, buy to let mortgages carry higher arrangement fee if you opt for a lower interest rate.
Commercial bridging and buy to let loans tend to cost more.
Are there other set up costs to consider?
The set up costs that should be considered are:
- Lender arrangement fee – This is a fee charged by the lender and is usually added to the loan. Depending on the loan size, you can expect this fee to be 1-2% of the loan amount. Smaller loans tend to demand higher fees, and vice versa. The may be 2 separate arrangement fees for setting up both parts of the finance.
- Broker fees – Most brokers, or intermediaries, charge a fee for arranging the loan, often 1-1.5% of the loan amount. At ABC Finance, in most cases we charge no broker fee.
- Valuation fee – This fee is payable to the surveyor to carry out a valuation of the property. It is paid early in the process and the cost depends on the property value, type and location. There will likely be a fee for the bridging part of the loan, and again when the works are complete, often referred to as a ‘re-inspection fee’.
- Legal fees – This fee is charged for carrying out the legal work when setting up the bridging, and you are expected to pay both your own and the lenders solicitor costs. Some lenders will add their solicitor costs to the loan, however there may still be a full undertaking charged when solicitors are instructed. An additional fee may be charged when the facility switches to a buy to let mortgage.
Are there any upfront costs to pay?
In nearly all cases yes, typically this is the valuation fee and legal fees.
Do ABC Finance charge fees for arranging this type of property finance?
In most cases we do not charge, unless the loan falls below £100,000.
How to get a bridge to let mortgage
What is the application process?
The application process with bridge to let mortgages can vary between lenders, but typically works as follows:
- You discuss your enquiry with either a lender or experienced bridging loan broker with knowledge of dealing with the bridge to let finance market.
- When a suitable products chosen, your application and supporting documents are submitted to the lender for review.
- The underwriter will check your application and if it is acceptable, they will instruct the valuation.
- When the valuation report is back, if the details are satisfactory the offer will be issued and solicitors instructed.
- Both sets of solicitors will work towards a completion date and funds release.
What documents will I have to provide?
When applying for bridging loans or buy to let mortgage, the following documents will be needed:
- Application form including synopsis and schedule of works and costs.
- Proof of identity (ID), i.e. Passport copy or driving licence.
- Proof of address, i.e. a recent utility bill or bank statement.
- Latest 3 months bank statements.
- Proof of deposit for purchases.
- Details of prior refurbishment experience.
- Existing buy to let property portfolio details.
How long does the application process take to complete?
The application process should take between 2-4 weeks to complete, this can be done quicker if needed however the rate may be higher.
They often take longer than standard bridging loans due to the additional underwriting involved. Commercial bridge to let often takes longer to arrange than residential products.
This timescale depends on how long the underwriting, valuation and legal process takes. A good broker will be able to get this done in a streamlined manner.
How is my application assessed?
Your application will be assessed on the following basis:
- The property value and loan amount.
- The projected value after works value and rental value.
- Your financial repayment history.
Frequently Asked Questions
Can I repay my bridge or mortgage early?
Yes, bridge to let mortgages can be repaid early and at any point during the term however there may be a minimum amount payable, this is usually the first full months payment.
When the loan reverts to the longer term buy to let mortgage, there may be early repayment charges (ERC) for repaying the loan early. If you would like a product with little or no ERC’s you should discuss this at the outset.
If you only need the loan for a very short time, you should consider whether this is suitable given the set-up costs involved.
Do I need to provide proof of income?
In nearly all cases you will be asked for proof of income. This includes personal income from employment or self-employment and any income generated from buy to let rental property and can be in the form of payslips, P60 and tax returns.
In some cases, an accountant’s reference or projected future income or forecasts may suffice.
What is the minimum deposit when I buy a property?
When you buy a property, the minimum deposit is 25% plus any fees and interest.
Is there an age limit?
Typically yes, the maximum age limit is aged 85.
In some cases, older applicants are offered loans by referral.
Why work with ABC Finance?
ABC Finance has been offering mortgages since the year 2000 and are well trusted within the industry.
Our knowledge of the market means we can assist clients in almost all situations and are on hand to offer advice and get you started.
Can I calculate my expected costs using a bridging loan calculator?
To calculate your costs, you can use our bridging loan calculator.
Given that calculating costs for this type of loan can be complex, you are better off speaking an ABC Finance mortgage advisor who will be able to gather the right information to calculate this accurately.
Bridging loan case studies
Second Charge Bridging Loan Secured for Buy to Let Property Refurbishment
Bridging Loan Secured for HMO conversion and refurbishment
