Buy to Let Bridging

What are the fees for Bridge to Let?

There are a lot of fees involved in bridging – and Bridge to Let particularly. There are arrangement facility fees that the lender will charge you. This can be a percentage of the loan – often 1% to 2%.

There’ll be valuation fees for the property, and it could require specialist valuers which are more expensive than standard. You may also need more than one valuation – perhaps initially when you’re buying the property, and a second when you’re exiting the bridging loan.

Depending on the loan structure, there could also be exit fees to pay. If you’re exiting really early from the loan, you often have to pay a small fee.

Short-term finance always has higher interest rates – they aren’t going to be what you see on the high street. It is more expensive. It’s a risk/reward thing – lenders look at the risk involved in deciding what interest rate to give you.

You also need to bear in mind your other costs – your renovation budget and the work you’re doing. Have that nailed down, because it’s difficult to go back to a lender and ask to borrow more. They don’t like that. It doesn’t give them confidence that you have the right plan to exit.

Can you get a Bridge to Let loan with bad credit?

Yes. There are lenders in this space that will accept people with adverse credit. This kind of transaction is viewed as a commercial opportunity. It’s more to do with the proposition in front of them than the individual.

Lenders ask questions about the property value and the potential sale value at the end of it. What are your costs? What does your plan look like? They’re not just looking at your credit score, but the whole proposition.

They will still consider your credit record, and it might mean you have to pay slightly higher fees or interest rates – or they might reduce the amount they’re willing to lend you.

But there are absolutely options there. If you’ve got bad credit but have a good deal, it could be a way to go.

How does remortgaging work with Buy to Let bridging?

It’s similar to remortgaging a standard mortgage. Once the work at the property is completed, you need to kickstart the refinancing plan and apply for a mortgage. You need to have that in place in good time to repay the loan before the term ends.

The new Buy to Let mortgage needs to pay off that bridging loan in full. If you’ve added value to the property significantly and the lender can see that, there could be an opportunity to raise money in excess of that bridging loan. That way, you end up with equity back out of the property to use for your next project.

Your new Buy to Let lender is going to assess the rental income, the standard of the work you’ve done, and normal things such as your experience, the rest of your portfolio and the deposit you’re putting down – which could be the equity in the property.

The crucial thing around remortgaging is timing. You need to ensure that the initial bridge gives you time to refinance. If you think the work on the property will take you three months, don’t bridge for three months – you need time to refinance. You might want to bridge for four months or ideally six to give you that extra time.

We’ll talk to you about how to set this up, because it’s really important not to cut things too fine and end up having to pay penalties.

What are the pros and cons of using a bridging loan to Buy to Let?

You can move quickly. You can normally arrange bridging finance within a relatively short space of time compared to standard finance.

It gives you the ability to buy properties that you couldn’t with standard finance, especially something that needs refurbishment. Or, if your money is tied up elsewhere, it can give you flexibility to move on a transaction in front of you.

It gives you the opportunity for better deals. If you can move quickly, you might be able to negotiate a better price for a purchase. Getting a deal done within a certain period of time might give you an advantage.

It can also help you avoid chains and stuck sale scenarios. So there are lots of pros for bridging loans for a Buy to Let, but there are cons as well. You’re going to be paying higher interest, higher fees and there’s more risk involved.

It’s short-term, so you won’t have a loan in place for years. Most bridging finance is from six months up to a year. Loans for slightly bigger projects could be over two years – you need to plan that right.

You’ve always got to think about the risks. You might do all this work on a property but what if you don’t achieve the valuation you expect? What if the market changes or you can’t sell the property, if that was your plan?

You need to really know your market to enter this area. It’s more complex and not as straightforward as with mortgages – there are more steps involved and hoops to jump through to show you can do this.

How do I apply for bridging to purchase a Buy to Let?

Come to us with a clear strategy. Know your plan and the deal you’re thinking about. What’s your strategy? What kind of price are you thinking about? Do you have an idea of the work that’s needed? What does your exit strategy look like?

Will you be renting the property out and therefore refinancing, or will you sell? How much additional value are you adding to the property?

Speak to a bridging broker that will do the work for you. Some brokers say they do bridging, but actually they will package you off to another company. Just check whether they speak directly with the lender or whether there will be another party involved.

Have your documentation ready – the property details and plans – and know your exit strategy. We can help you hone that down and work on it. But you need to have a clear plan in your head – that’s the best process. And start early: don’t wait until the last minute.

What else do we need to know about Buy to Let bridging?

A lot of lenders do this. There’s a wide selection and they all have their specialisms, things they focus on and types of deals they prefer. It’s always best to go to someone who knows that market and can help you find the right lender.

That’s really the benefit of talking to a broker. We compare the deals and give you a couple of different options so you have some choice as to which way to go.

Finally, make sure you have contingency in your plans. Don’t just cut it down to the wire and don’t spend every penny. Leave some wiggle room in case things don’t go to plan.

Key Takeaways:

• Bridging loans (also known as ‘Bridge to Let’ loans) are short-term finance for purchasing properties to rent out, especially for auction purchases or properties needing refurbishment when standard Buy to Let mortgages aren’t suitable.
• A robust exit strategy is crucial for securing bridging finance, typically through refinancing onto a standard Buy to Let mortgage or by selling the property.
• Deposits for bridging loans on Buy to Let properties are often around 30% (70% Loan to Value), but this can vary.
• Bridging loans involve various fees (including arrangement, valuation, and exit fees) and higher interest rates due to their short-term, higher-risk nature.
• While bridging loans offer quick property acquisition and the ability to purchase properties needing work, they come with higher costs and increased risk, requiring careful planning.

YOUR HOME IS AT RISK IF YOU FAIL TO KEEP UP PAYMENTS ON YOUR MORTGAGE OR ANY OTHER LOANS SECURED AGAINST IT.

BUY TO LET MORTGAGES AND COMMERCIAL LENDING ARE NOT USUALLY REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.