Bridge To Let Mortgage - Everything You Need To Know
Bridge to let mortgage work well for homebuyers who couldn’t afford a home with a traditional mortgage. But what is a bridge to get financed? Who does bridge to let mortgage work best for and what are its main benefits? Here’s everything you need to know.
What Is A Bridge To Let Mortgage And How Does It Work?
A bridge to let mortgage is a form of bridging financing designed specifically for use by homeowners and typically has a built-in exit strategy in the form of a rental-for-rental mortgage. As with all bridge financing, the initial (or bridging) loan is a quick, short-term injection of cash that can be arranged much faster than standard mortgage products.
In most cases, both bridging and buy-to-let items are taken out and underwritten at the same time with the same lender, although there are some exceptions. The bridging loan is usually taken out for a year or less, although it is possible to find lenders that extend this to 3 years under certain circumstances. The buy-to-let mortgage is almost identical to the mortgage offered separately by the more traditional mortgage lenders and can have a term of 25 years or longer, depending on your circumstances.
Why Could This Be Used?
The main advantages of this type of product are speed, comfort and flexibility. Options are available to both private and commercial owners and are suitable for most circumstances, but they are especially useful for those looking to buy a rental property:
Fast For example, when buying property at auction, bridging financing can be arranged in a few days or weeks, making it easy for you to meet the standard 28-day payment term allowed for this type of purchase.
That is not a mortgage: for example, those properties that need significant renovation work before they are considered suitable for occupancy by a residential or commercial tenant.
Having HMO (multi-occupancy) status, which can make it more difficult to find a traditional rental lender, while bridge lenders are often willing to take on higher-risk investments.
When Is Bridge To Let Mortgage A Good Option?
Unlike traditional mortgages, which can take months to complete, bridging financing is short-term and can be processed within days or weeks.
In general, bridging loans, unsurprisingly, exist to bridge a funding gap. The classic example for homeowners is when a borrower is stuck in a chain but needs immediate access to money to secure their next property.
They can also be the solution if you want to buy a property that is currently not eligible for a regular mortgage (for example, when the property lacks an essential element, such as a kitchen or bathroom).
In a buy-to-let scenario, a bridging loan is more likely to be required when a rental property needs some remodelling or development before it is suitable for rental.
In addition to the speed they offer, bridging loans are generally a very flexible source of funding and many lenders will take an underwriting approach on a case-by-case basis. In short, they can enable developers and homeowners to take advantage of opportunities not currently offered by major lenders. With a bridging loan for rent, this is combined with the certainty that you have a long-term plan from the start.
With a bridging loan to rent, you may or may not be forced to switch to bridge to let mortgage from the same provider, and borrowers will consider the pros and cons of securing their way out rather than keep their options open to choose the best offer available at the time
Are You Eligible?
Different lenders will have different eligibility criteria; an important example is whether or not to offer bridging mortgages for rent to new homeowners/developers. Some will have standard criteria, while others will take a case-by-case approach, usually based on the nature of the project and/or the level of renovation required.
Other factors that lenders will evaluate, in addition to some of the factors you would expect in a typical mortgage application, are likely to include the current condition of the property, your remodelling/development plans, and the scope of work to be completed.
Eligibility Criteria – Bridge To Let Mortgage
As with all forms of financing, each lender has its specific eligibility criteria, so the key to a successful application is to approach one with criteria that fit your circumstances. Most lenders in this niche review each application on its merits, but usually, the following criteria apply:
Deposit and Asset Requirements
The LTV (loan to value) offered is typically between 70-80%, meaning a minimum deposit of 20-30% is a standard requirement. It is quite common to use valuable assets, such as other properties in your portfolio, in place of or in conjunction with a cash deposit, and some lenders may insist that you do so.
Affordability
The criteria for the bridging loan and the rental mortgage are calculated differently.
Bridge element
Personal affordability does not play a big role with this type of loan unless you plan to pay the monthly interest on the bridging loan; in the vast majority of cases, however, this will accumulate and add to the loan itself, as is the case with many interest-only products.
Loan approval depends on the strength of your rental application.
Buy Items To Rent
As with traditional rentable mortgages, this financing element will be based on the income potential of the property, so most lenders will not require a personal minimum income, although they expect the rent to cover at least 125% of the mortgage payments.
Previous experience
To some extent, whether or not the owner needs previous development or experience depends on the level of work required on the property, although some lenders have stricter requirements than others. In general, a first-time homeowner is more likely to be approved for a home that requires minimal improvements.
Properties in need of extensive renovations, such as structural work, or infrastructure improvements such as wiring, are generally only suitable for more experienced owners with evidence of previous successful projects of similar magnitude.
Home type and condition
In general, bridging lenders are much more flexible about the type of property you can buy. Since this type of financing is often used to renovate uninhabitable properties, buildings of non-standard construction and buildings without basic services are usually not a problem. That said, if the property is in particularly bad shape, you may be offered a lower LTV.
Solvency
If you have a bad credit history, it usually won’t affect your access to this type of financing too much, but you may not be offered such competitive rates if your credit problems are more severe the ghost.
Escape Strategy
Usually, your exit strategy is built in, but when you choose to refinance with another lender, you may need to provide proof of pre-approval to the lender offering the bridge loan.
How Do I Get A Bridge To Let Mortgage?
Here are the steps you need to follow to start your application…
Talk to an experienced bridge-to-let broker
The first step with a complex product like this is to seek advice from a broker who specializes in bridging leases. This is important as this type of financing is not regulated by the FCA (Financial Conduct Authority) as it is classified as a commercial transaction so an expert advisor will protect you from unscrupulous offers.
In addition to providing personalized advice and recommending a suitable lender, specialist brokers can help you review your development plan to ensure it aligns with typical lenders’ expectations for your buy-to-let mortgage underwriting strategy.
The brokers we work with have strong relationships with a wide range of bridging lenders and have access to everyone in the market, so whether you’re looking for residential or commercial rentals, they have the knowledge and experience to help you complete a smooth transaction. realize. Just get in touch to be matched with a suitable expert.
Prepare your development plan
While non-mortgage properties are perfectly acceptable for the bridging element of financing, most lenders will want to make sure that your development plans make the property a good rental investment to approve your exit strategy.
A full plan including costs and references to the architects and contractors involved is likely to be required. This will usually have to be more extensive the less experience you have with real estate development.
Make sure your power is acceptable
The vast majority of homeowners use assets to replace or supplement the bridge loan deposit requirement, but it’s important to note that not all lenders will accept all forms of assets.
Your broker can help you determine which lenders are a good fit based on your available assets.
Which Lenders Offer Bridge To Let Mortgage?
This area of financing is not offered by the typical high street lender and is usually limited to specialist lenders and cost banks. Some may only offer residential bridge-to-let, some commercial, and some offer both, but the vast majority will only be available through a broker.
Lenders offering bridging loans and buy-to-let mortgages include…
- Shawbrook Bank
- Accurate Mortgages
- Commercial Interbay
- Bank of Cambridge and Counties
It is not recommended to contact any of these lenders directly as this would mean accessing only one variety of offers. Many of them have no direct contact with the public anyway. Signing up through a broker who specializes in bridging opens up a whole market for you and increases your chances of a successful outcome.
Bridge To Let Mortgage Rates and conditions
While some bridging-to-lease products will include both the bridging element and the buy-to-let financing as one “package”, this is not always the case, so when calculating rates and terms, the bridging and buy -to-let-financing leaves elements they are always treated separately.
Of course, rates and terms vary from lender to lender, but most bridging providers offer to finance up to about 75% LTV.
Potential fees include, in addition to interest, appraisal fees, brokerage fees, if any, and associated legal fees.
Advantages Of The Bridge To Let Mortgage
Pre-approval of exit financing.
One of the ways that a bridging loan for rent is so beneficial is that it helps you test your exit strategy before approving it. In other words, you don’t have to leave your exit strategy to chance or put the house on the market if you can’t get a mortgage to rent.
Bridging loans can be completed more quickly.
If time is an issue for you, bridging loans are a great option because they can be signed and approved faster than traditional mortgages. How much faster? Unlike the few months of a standard mortgage, bridging loans can take several days (or weeks).
Bridging mortgages for rent can help break the chain of ownership problems.
Too many homeowners lose their dream homes because they wait to sell their current homes. If you opt for a bridging loan, you can buy your new home while you are still waiting for your current home to be sold (provided you are both approved by the lenders). Because bridging loans bridge the gap financially, you can buy a home and pay it off in full after the sale.
How much can you borrow in a Bridge to Let mortgage?
The amount you can borrow is determined by the rental income you can generate from the property.
This is subject to the lender’s maximum loan-to-value limit. For example, if a lender with an LTV of 80% agrees to save a £100,000 property, the loan will be capped at £80,000. In this scenario, the borrower would have to pay the remaining amount as a down payment.
There are a few factors that can affect your LTV:
- The condition of the property – If the property is in poor condition, lenders may lower your LTV limit for your application
- Loan maturity: Longer-term loans can lead to lower LTVs than short-term loans.
What are the costs for Bridge to Let?
In addition to the agreed-upon interest rate, lenders charge additional fees to cover the administrative costs associated with obtaining your loan. This can be:
- The valuation of the property
- An installation cost
- An exit fee
- Any legal costs
Rates are based on the value of the loan. For example, set up and exit costs can be between 1-2% of the value of the Bridge to Let mortgage.
Can You Still Get A Bridge To Let Mortgage With Bad Credit?
While poor credit limits your options, some lenders specialize in serving borrowers who need extra help with their applications. With the right lender, you may still be able to get a loan even with a low credit score, mortgage arrears or defaults.
If you have bad credit, you need to find the right lender so that your application is not rejected. Speak to a friendly advisor today to learn more about your options.
Conclusion – Bridge To Let Mortgage
Bridge to Let loans allows you to buy real estate where it would otherwise be impossible. Talk to one of our expert advisors today to find out if a Bridge to Let mortgage is the right option for you.
