Since 2010, there has been a 50 per cent increase in bridging finance market-wide. This can be put down to a number of reasons, including the more flexible underwriting used by bridging lenders and the speed at which the finance can be arranged. Indeed, as banks have tightened up their lending criteria, bridging loans have proved a popular choice for customers looking to take out short-term finance – particularly useful for renovations, expansions and restorations and, of course, auction properties or those with long and complicated chains.
There are some negatives, such as having to pay two lots of fees for two separate finances (the bridge and the exit finance), but bridging loans remain a popular option, particularly among the landlord community.
This is where bridge-to-let finance comes in. For clients looking to diversify their portfolios, a bridge-to-let loan could be ideal. Bridge-to-lets basically enable a bridging loan which then rolls into a traditional buy-to-let mortgage. The benefits are that the customer gets a direct and streamlined route to their exit finance – some lenders only require one application to be submitted and therefore only one underwrite need be carried out – and only one set of legal fees needs to be paid. Two valuations would need to be carried out – an initial valuation, as is the case with all mortgages, and a subsequent re-inspection of the property before the bridge transforms into the buy-to-let mortgage. The lender would also require a full schedule of works, as is to be expected. But this is a very viable option for those purchasers looking to keep hold of a property that needs some refurbishment or restoration work in the interim.
Although mostly utilised by limited companies looking to raise finance, bridge-to-lets are available to individuals too.
So how does the finance stack up? The majority of bridge-to-let lenders will provide an initial loan of up to 75%, although some may go higher in certain circumstances. The arrangement fees are comparable with what you’d expect to see in most bridging pricing. An arrangement fee would be payable – this could be up to 2% of the loan but certain lenders offer a competitive 0.75%, and there would be a second arrangement fee payable when the customer moves onto their buy-to-let rate. In terms of these rates, customers of bridge-to-let loans would generally exit on to a sub-5% rate, which is comparable for a traditional limited company mortgages.
It’s important to point out that the bridge part of these loans are limited to a six month period, but that no early repayment charges are payable as long as the loan is transferred during this period. And as an added bonus, customers can move up to an 80% loan to value of the enhanced value of the property so could potentially get a sum released to them when the finance is transferred. What makes bridge-to-let finance particularly appealing is that unlike standard mortgage products, bridge to let lenders will offer loans based on the property’s gross development value, which takes into account how much the property will be worth once all works have been completed. So customers can borrow more money to ensure improvements are made properly.
Bridge-to-let lenders will examine certain additional factors in an application, such as whether the customer has renovated a property before and the plan for the property once it has been refurbished. Other assets can also come into play, but this type of finance certainly offers a welcome lifeline to those looking to boost value but who perhaps don’t have a perfect credit score or who are able to prove their exit strategy before they borrow.
If this sounds like a good option for you, or you would like to find out more, contact one of our specialist bridging and commercial brokers today on 020 8660 8613 or email email@example.com or firstname.lastname@example.org.