Bridge to let: bridging finance for landlords

Bridging finance can be an invaluable tool for property investors. Find out about the range of financial solutions available, including ‘bridge-to-let’ loans.

Bridging finance has many uses in buy to let

  • Refurbish an uninhabitable property. Refurbishment can add value to property and turn run-down buildings into high-yielding rentals.

    But a below-market-value property might be missing necessary features, such as cooking or sanitary facilities. Or it may be below most lenders’ minimum value thresholds.

    In either case, it will be difficult to finance with an ordinary buy-to-let mortgage. Investors can use a bridging loan to fund the sale and the refurbishment work. After this, they can exit onto longer-term finance.

  • Convert property into multiple units. It is possible to convert larger, single-let homes into shared multi-unit properties. Houses in multiple occupation (HMOs) can generate higher yields in some areas.

    Buy-to-let lenders prefer a property to be lettable from day one. Thus, it may be difficult for an investor to take out a buy-to-let mortgage on a property they intend to renovate.

    As with a refurbishment project, a bridging loan can fund the transaction and construction.

    Note that more regulation is in place for HMO landlords, and that some HMO properties need a licence. You may also need planning permission to convert an ordinary property into an HMO.

  • Speed up a transaction. Buy-to-let investors often encounter situations where they need fast access to finance.

    Auctions, for instance, can be a good place to find investment property. But the short timescale for auction transactions can put non-cash buyers at a disadvantage.

    Outside of auctions, several buyers often still compete for the same property. A buyer who shows that they can complete in good time may be able to clinch the deal without having to overbid.

    Bridging loans exist for just this purpose. They process faster than traditional mortgages, enabling investors to take advantage of short-lived opportunities.

Bridging loan borrowers should have an exit strategy

A bridging client’s exit strategy is the means by which they will repay their bridging loan. This might be flipping the property. It might be completing another transaction with a separate asset, such as a sale or remortgage. Or it might be refinancing the property in question with a longer-term loan.

The repayment plan determines whether the bridging loan is ‘open’ or ‘closed’. Open bridging loans have no fixed repayment period and no definite exit strategy. Closed bridging loans have a set repayment date and an exit strategy that, while still not guaranteed, is coherent and credible.

Closed bridging loans are less risky for the lender and thus tend to have more favourable terms.

‘Bridge to let’ combines the loan and exit strategy into one product

Some bridging providers offer a bridge-to-let option that allows the borrower to make a seamless exit onto long-term finance.

Bridge-to-let loans first came onto the market in 2012. Since then, several lenders have introduced their own bridge-to-let propositions. Clients who take out a bridge-to-let loan have the option of switching to a buy-to-let or commercial mortgage with the same lender.

The benefits of bridge to let can include:

  • reduced or waived legal and valuation fees
  • lower rates and fees than those charged to clients not using a bridge-to-let feature
  • the opportunity to raise capital in line with any increase in value, subject to other limits
  • the ability to refinance before the traditional six-month ownership period has ended
  • dealing with only one broker and lender

Clients will usually need to own the property for between one and four months before they can switch to long-term finance.

Commercial Trust can help find your next bridging loan

Our expert advisors review each client’s individual circumstances and recommend the product that is most suited to them. We are not tied to any lender and have access to a wide range of short- and long-term financial solutions.

If you would like to discuss your bridging or buy-to-let requirements, call us on the number at the top of this screen. Or, fill in our enquiry form and one of our advisors will call you back.

This information should not be interpreted as financial advice. Bridging loan rates are subject to change. Speak to our advisors for a loan illustration.