How does bridge to let work?

Despite the many financial challenges of the last few years, the property market is one sector that hasn’t suffered. Investors have remained keen to expand their portfolios and the strength of the market has meant that there’s been considerable competition to snap up properties quickly.

For investors buying properties at auction, or simply trying to secure properties before other interested parties, coming up with the full payment quickly can be tough and conventional mortgages are rarely an option due to the length of the process.

This is where bridging finance has thrived as a way of providing investors with large sums of money quickly. And it’s become an increasingly popular choice, with a 40% increase seen in recent years.

In this article, we look at how the process of applying for bridging finance works when you’re not selling the property after purchasing, and who can benefit?

What is bridge to let finance?

Bridge to let mortgages are a specialist form of bridging loan which provides applicants with a pre-approved buy to let mortgage, and it’s designed for investors to enable them to buy a property they’d otherwise struggle to afford with a standard mortgage.

The loan covers the cost of purchasing and renovating a property, just as a conventional bridging loan would, making sums as large as £250m accessible within just two weeks, and even quicker for smaller sums. It’s a convenient and seamless transition for those in need of money to secure a property that’s ineligible for a standard mortgage through to the exit strategy of buy to let finance.

Where a standard bridging loan is suitable for developers who want to sell the property shortly after purchasing, a bridge to let finance is best suited to landlords who intend to keep the property and rent it out to tenants. UK finance brokers Finbri, explain that bridge to lets are suitable for:

• Experienced landlords & property investors
• First-time landlords
• Limited companies, SPVs and offshore companies
• Expats and foreign nationals
• Property developers

Rental yields across the whole of the UK average 4.3% and this rises to 4.8% for hotspots in the north-east, making buy to let an attractive investment compared to other options which provide less favourable yields currently.

How does it work?

The initial bridging loan is used to purchase, and in some instances develop or renovate, a property, after which it’s transferred to a pre-approved buy to let agreement once the property is completed and tenants have been found. There are two main ways that bridge to let finance differs from other forms of financing – speed and exit strategy.

While a traditional mortgage can take months to be approved and underwritten, bridge to let finance can be arranged in a matter of days which makes them ideally suited to auctions or situations where borrowers need finances in place quickly to secure long-term gains.

The other benefit of bridge to let is that it delivers borrowers with a pre-approved exit strategy – an essential for bridging finance. Both borrowers and lenders know that once the property has been purchased, and developed if necessary, that it will be let out to paying tenants to bring in an income. This exit strategy is part of the agreement, so borrowers can move from the bridging loan to a buy to let mortgage with the same lender, saving time and stress in the process.

When is bridge to let the right choice?

Unlike traditional mortgages which are renowned for taking months to arrange, bridging finance is a short-term and convenient solution that can leave you with the funds in a matter of days or weeks.

As the name suggests, a bridging loan ‘bridges’ the gap in the financing process, providing quick access to funds to secure a property. Homeowners may need to use bridging loans if they’re in a chain and need the money to buy their next property, or a commercial investor may need finances to purchase a property that’s come available on auction.

Likewise, if you want to purchase a property that’s not eligible for a conventional mortgage, such as a property without a kitchen or bathroom, bridging finance can be used to plug that gap. For buy to let investors, bridging loans are most likely to be used to refurbish a property before it’s suitable for letting, or to expand a portfolio when you can’t initially afford the deposit.

Because of the specialist nature of bridge to let financing, this type of bridging loan provides a flexible source of funding for landlords and developers who want to maximise their opportunities and move quickly on a prime piece of real estate. It comes with the knowledge that you have a long-term plan in place from the get-go, which provides the speed and security that traditional lending can’t always offer.

Final thoughts

Specialist bridge to let products combine several advantages into one convenient package, providing accessibility to large sums of money quickly, the ability to conduct purchases and renovations at short notice, and gradual repayments of the full balance once the purchase has been completed.

With the buy to let market being such a competitive sector, moving quickly is essential to secure the right property at the right price before other investors have the chance, and this may mean moving before a mortgage or deposit can be put in place. Bridge to let loans offer a great solution.