If you’re looking to expand your rental property portfolio or snap up a buy-to-let opportunity quickly, standard mortgages might not be fast enough.
That’s where bridging loans come in handy.
These short-term lending solutions help property investors and landlords move swiftly when time matters. But how do they work for buy-to-let properties, and what do you need to qualify? Let’s look at your options and what you should know before applying.
What are Buy-to-Let Bridging Loans?
A buy-to-let bridging loan is a short-term finance option secured against property.
Unlike standard buy-to-let mortgages that can take months to arrange, bridging loans can be set up in a matter of days or weeks. They’re particularly useful when you need to act quickly or when standard mortgage lenders won’t help in time.
These loans work differently, instead of making monthly repayments over many years, you’ll pay the full amount back within a few months to a couple of years. The bridging loan interest can be either paid monthly or rolled up and paid at the end of the term along with the loan amount.
For buy-to-let investors, these temporary loans serve several purposes.
You might use one to buy a property at auction, where you need to complete within 28 days. Or perhaps you’ve found a property that needs work before it can be rented out – something that would put off standard mortgage lenders.
When to Consider a BTL Bridging Loan
Buy-to-let bridging loans work well in specific situations.
Say you’ve spotted an unmortgageable property at a great price – maybe it needs a new roof or has no kitchen. Standard lenders won’t lend, but a refurbishment bridging loan could help you buy it, fix it up, and then refinance onto a standard buy-to-let mortgage.
Auctions are another common scenario. When the hammer falls, you’ll need to pay the full amount within a strict timeframe. Auction finance can get you the money quickly and simply, letting you secure the property while you arrange longer-term finance.
These loans also help when you want to refurbish a property before letting it out. You can buy the property, carry out improvements, and then refinance based on its higher value once the work is done.
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Let’s talk bridging loans!
Eligibility
Getting a bridging loan isn’t as complex as you might think, but lenders will want to see certain things.
First, they’ll look at the property itself.
- Is it in a good location?
- What’s its current condition?
- What will it be worth after any planned improvements?
You don’t always need property experience to get a bridging loan, but it helps. Lenders will want to know about your exit strategy – how you plan to pay back the loan. This might be through selling the property or refinancing to a buy-to-let mortgage.
Your credit history matters less than with standard mortgages, but lenders will still check it. They’re more interested in the property’s value and your exit strategy than your personal income, though some might want to see that you can afford the monthly interest if you’re not rolling it up.
Read more:
Costs and Considerations
Bridging loans come with several fees beyond the interest rate.
You’ll usually pay an arrangement fee at the start, plus legal and valuation fees. Some lenders charge exit fees too.
The total cost depends on various factors: how much you’re borrowing, the property’s value, and how long you need the loan for.
Interest is charged monthly rather than annually, and rates are higher than standard mortgages because of the short-term nature and increased risk to lenders.
Be sure to factor in all costs when planning your project. Include any renovation costs, potential delays, and the cost of your exit strategy – whether that’s selling or refinancing.
Read more: How Bridging Loan Interest is Calculated and Charged
Exit Strategies
Your exit strategy is how you’ll pay back the loan, and it’s perhaps the most important part of your application.
Most buy-to-let investors either plan to sell (flip) the property or refinance onto a standard buy to let mortgage.
If you’re planning to refinance, speak to your broker about this before taking out the bridging loan.
Make sure you can get a mortgage approved once any work is complete. This reduces the risk of being stuck with a bridging loan you can’t repay.
Read more: How Do You Pay Back a Bridging Loan?
How a Broker Can Help
Working with a specialist broker can make a big difference when arranging any type of bridging finance. They know which lenders will consider different types of properties and circumstances, and they understand current market conditions.
Brokers can often access better rates and terms than you’d find directly. They’ll also help structure your application to give it the best chance of approval, and they’ll manage the process to keep things moving quickly.
Read more: Why Use a Bridging Loan Broker?
Alternative Options
While bridging loans work well for many situations, they’re not always the best choice.
Development finance might be more suitable for major renovation projects. Commercial mortgages could work better for larger portfolios, and traditional buy-to-let mortgages remain the most cost-effective option when time isn’t pressing.
Consider all your options carefully. A good broker can explain the pros and cons of each and help you choose the most suitable finance for your situation.
Ready to Move Forward?
If you’re considering a buy-to-let bridging loan, start by getting professional advice. The right guidance can save you time and money, helping you avoid potential pitfalls and find the most suitable finance for your needs.
Remember that every property deal is different, and what works for one investor might not work for another. Take time to understand your options and plan your exit strategy carefully before committing to any form of finance.
To speak with a specialist broker, please call us on 020 3951 2828.
FAQ
With the right documentation, you can receive funds within 7-14 days. Some lenders can move even faster for straightforward cases.
Lenders require 25-30% of the property value, though this can vary based on the property type and your exit strategy.
Read more: Do You Need a Deposit for a Bridging Loan?
Not always, but lenders will want to see a clear, viable exit strategy. First-time investors might need a larger deposit.
Read more: Can a First Time Buyer Get a Bridging Loan?
Most bridging loans run from 3-18 months, with some lenders offering up to 24 months.
Yes, bridging loans are commonly used for auction purchases as they can be arranged quickly to meet auction deadlines.
Read more: Using a Bridging Loan to Buy at Property Auctions
Yes, bridging lenders often fund unmortgageable properties, provided you have a clear plan to make them mortgageable.
Most lenders offer up to 75% LTV, with some going to 80% in strong cases.
Read more: How to Work Out your Loan to Value (LTV)
Yes, you’ll need a solicitor experienced in bridging finance to handle the legal aspects.
Read more: Do You Need a Solicitor for a Bridging Loan?
Yes, many investors use bridging loans to buy and refurbish properties before refinancing or selling.
Yes, this is a common exit strategy, but check with BTL mortgage lenders about their criteria first.
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Our minimum bridging loan is £150,000.
Read more: Understanding Bridging Loan Criteria & Eligibility
