In this article
What is a Bridge to Let Loan?
How Does a Bridge to Let Loan Work?
Bridge to Let Loans for Auction Properties
Bridge to Let Loans for Property Renovation
Bridge to Let Alternatives
How Fluent Money Can Help
What is a Bridge to Let Loan?
A bridge to let loan uses a combination of 2 financial products: an initial bridging loan to purchase the property and a pre-approved buy to let mortgage. Bridge to let loans have 2 important features:
- Quick approval process and fast turnaround times
- A pre-approved exit strategy
How Does a Bridge to Let Loan Work?
The bridging loan aspect is particularly useful if you do not have the cash reserves to purchase a property at auction and/or a property that requires extensive renovation works to the extent that a buy to let mortgage would not yet be accepted on the property. Having the buy to let mortgage pre-approved means that you have an exit strategy from the bridging loan already in place. Having a pre-approved exit strategy enables a smooth transition between the 2 different loan types.
What is a Bridging Loan?
A bridging loan is a short-term financing option used to bridge a financial gap within a property purchase transaction. They are used as a temporary measure until another long-term financial solution (such as a buy to let mortgage) can be obtained. It provides immediate funds that allow you to complete a property purchase quickly, often within tight timelines, without having to wait for the sale of an existing property or the approval of a traditional buy to let mortgage.
Bridging loans are typically secured against the property being purchased or other valuable assets and have higher interest rates compared to traditional mortgages. They are often used in situations such as property auctions, where immediate funding is required, or when properties are not immediately mortgageable, such as those in need of significant renovation.
The loan is typically repaid in a lump sum when the existing property is sold or by transitioning to a long-term financing option, such as a buy to let mortgage. Bridging loans offer flexibility and short-term financing option.
What is a Buy to Let Mortgage?
A buy-to-let mortgage is a type of mortgage specifically designed to purchase a property with the intention of letting it out to tenants. It is a form of financing that allows you to borrow funds to purchase a property that will be used for rental purposes rather than for personal occupancy.
Why Would You Use a Bridge to Let Loan to Buy a Property at Auction?
Speed and competitive advantage: Auctions often require immediate payment and have strict completion timelines. By using a bridge to let loan, you can secure the necessary funds quickly to purchase the property at auction without the delays typically associated with other forms of finance. This can give you a competitive advantage over other potential buyers who may need to wait for approval.
Property condition and mortgage eligibility: Properties sold at auctions, especially those in need of extensive renovation or repairs, may not initially meet the requirements for a buy to let mortgage. Lenders typically have strict criteria regarding the condition of the property, and it may not be mortgageable until the necessary renovations are completed. This can make financing these costs challenging. Using a bridging to let loan allows you to acquire the property and begin the renovation process before transitioning to a buy-to-let mortgage once the property meets mortgage eligibility criteria.
Flexibility in exit strategy: Using a bridge to let loan allows you to complete the purchase quickly, even if you don’t have immediate access to funds from selling another property or liquidating assets. It provides flexibility in terms of the timing of selling your existing property or finalising other financial arrangements. Once you secure the property and complete the renovations, you will then transition to a buy-to-let mortgage.
Why Would You Use a Bridge to Let to Buy a Property That Needed Renovation Works?
Property condition: Properties in need of significant renovation or refurbishment may not meet the criteria for a traditional mortgage. Lenders typically require properties to be in habitable condition. By using a bridge to let loan, you can purchase the property in its current state, even if it doesn’t meet mortgage eligibility requirements. Bridge to let loans are designed to cover the costs of purchasing the property, carrying out renovations and then switching to a buy to let mortgage. You can use the loan to finance the purchase and fund the necessary renovation works to improve the property’s condition and then use the buy to let mortgage to rent the property out to tenants.
Exit strategy flexibility: A bridge to let loan allows you to complete the purchase quickly, regardless of the status of selling your existing property or arranging other financial arrangements. You have the flexibility to focus on the renovations without being pressured by immediate repayment obligations. Once the renovations are complete and the property is in a mortgageable condition, you will then transition to the buy-to-let mortgage.
Long-term financing: After the renovations, a bridge to let mortgage offers a more suitable and cost-effective long-term financing option for a rental property. It allows you to repay the bridging loan, lock in a competitive interest rate, and potentially benefit from rental income to cover the mortgage repayments.
Bridge to Let Alternatives
If you are considering purchasing a property at auction and/or it requires extensive renovation works that make it non-mortgageable, there are alternative financing options to a bridge to let mortgage:
Cash purchase: If you have sufficient funds available, you can make an all-cash purchase at an auction or purchase a house that needs extensive renovation works. This eliminates the need for financing and can provide you with a competitive advantage, as cash offers are often favoured in auction settings.
Personal loan or line of credit: Depending on your financial situation and the property’s price, you might consider a personal loan or line of credit to finance the purchase. However, keep in mind that if you kept the personal loan for a long duration, it may have higher interest rates and shorter repayment periods compared to the buy to let mortgage aspect of the bridge to let loan.
Renovation loan/home improvement loan: Some financial institutions offer specific renovation loans or home improvement loans. These loans are designed to finance the cost of renovations and repairs. They may have different terms and interest rates compared to a bridge to let option, and the amount you can borrow might depend on the estimated post-renovation value of the property.
Joint venture or partnership: If you don’t have sufficient personal funds or resources, you might consider forming a joint venture or partnership with another investor or a construction company. By pooling your resources, skills, and capital, you can share the financial burden and expertise needed to renovate the property. This option could involve various arrangements, so it’s crucial to consult with legal and financial professionals to establish clear terms and agreements.
Fluent Money are Specialists in Bridge to Let Mortgages
Using a broker such as Fluent Money who are specialists in bridge to let loans can give you a number of potential benefits including using our expertise and guidance to get you the most suitable and competitive deal for you.
Initial consultation: Schedule an initial consultation with a Fluent Money adviser. During this consultation, you can discuss your financing needs, provide details about the property you intend to purchase and outline any renovation plans.
Fluent Money assessment: Our advisers will assess your financial situation, creditworthiness, and the viability of applying for a bridge to let loan. They will review the properties details and help determine the potential loan amount you may be eligible for.
Fluent Money network: We have access to a network of lenders and can help you find suitable bridge to let loan options. We will base our recommendations on our experience and knowledge of the market. We will compare interest rates, terms, fees, and other factors to help you make an informed decision.
Application process: Your appointed Fluent Money adviser will assist you in completing the bridge to let loan application, ensuring that all the necessary documentation is provided and guide you through the process. They can also negotiate terms and conditions on your behalf to secure the most favourable loan terms.
Throughout the process, Fluent Money acts as an intermediary, helping you navigate the complexities of the financing process, saving you time, and providing expert advice. We have access to a range of lenders and can leverage our industry knowledge and relationships to find suitable financing options that align with your goals and circumstances.
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