Think bridging finance is all the same? Think again! Jeni Browne examines three light refurbishment bridging finance products for buy to let landlords, offering you a range of investment options, each with their own benefits depending on your needs.
85% LTV Bridging Loan
Yes, you read that correctly: a light refurbishment bridging loan with a maximum LTV of 85%. With this product, you can purchase a property in need of some light refurbishment at 85% LTV, as long as the uplifted post works value does not exceed 75% LTV.
This bridging loan is ideal for purchasing properties which need a little aesthetic improvement; think decorating, new kitchen, bathroom and windows, or minor remedial work including damp repairs and re-plastering. While light refurbishment improvements like these won’t significantly increase the overall property value, they can improve the buy to let rental income potential, maximising your overall yield. Another perk of this bridging loan is that you can borrow 100% of the refurbishment costs, as long as the total LTV does not exceed 85% LTV (or 75% of the post works value, whichever is lower).
Of course, as a stand-alone bridging product, you will need to consider your exit options at the point of application. I would say that this is an excellent option if you plan to keep the property as a buy to let; however, if you plan to flip and sell then the restriction on the property value uplift may not allow you to attain the level of profit you might want.
At the moment this is a pretty unique offering with substantial maximum loan limits, so is certainly worth considering if you’re looking to purchase buy to let properties in need of some love! The lender can roll up interest (deducted from the loan) meaning you don’t need to make repayments while works are carried out, which is definitely another benefit. If you’d like to talk through all the maths calculations for this product, please do not hesitate to contact our team who will be more than happy to help!
Bridge to Let
For those of you who are certain that the property you’re purchasing will be rented out after some light refurbishment, then a bridge to let product is a great way to secure all your finance at once. Like the above, you purchase a property needing light refurbishment (or at auction where you need the finance to complete quickly), with a bridging loan. While you’re completing the works, you won’t need to make any repayments, and then at the end of the bridging term when the property is ready, move straight onto a full buy to let mortgage.
Lots of our clients choose bridge-to-let products as they require one application, rather than applying for a separate buy to let mortgage later down the line, and hoping it completes at a similar time to the end of the bridging term. Another benefit is that you know what your monthly mortgage repayments will be before you’ve completed the refurbishment. For many, this makes financial planning a lot easier and gives you peace of mind of a guaranteed exit.
We currently have access to a very popular bridge-to-let product that allows you to purchase a property at 65% LTV (admittedly, not suitable for everyone) and move onto a buy to let mortgage at 75% LTV of the new value. As this product is suitable only for light refurbishment requirements, the bridging term is only six months, so you’ll need to be confident the works can complete in that time, but the buy to let mortgage can have a full 35-year term!
I would say that while the bridging rates are competitive, the buy to let mortgage rates, while not terrible, are not the cheapest compared to other “free-standing” buy to let mortgage options. However, for many clients, the convenience of bridge-to-let arrangements out-weigh the slightly higher buy to let mortgage at the end, and you may save money on application fees associated with refinancing. As with all property finance, it depends on your circumstances. Again, our team can help you with comparisons of your options here, but if it’s convenience you’re after, this is certainly an excellent and very popular route for many landlords.
Refurb to Let Mortgage
Currently a unique offering from one of our more specialist buy to let lenders, this product allows you to purchase an ‘un-lettable property’ with a buy to let mortgage, under the condition that you complete the works required to make it ‘lettable’. Like the options above, this is only applicable for light refurbishment requirements, and works by underwriting the mortgage against the post works rental income.
This product’s primary attraction is that it avoids a bridging loan completely, which many consider pricey. As with a traditional bridge-to-let arrangement, it’s just one application rather than two, meaning it’s a convenient and time-efficient process for you the landlord. Again, convenience does come a cost; rates are higher than standard buy to let mortgages, although you may still make a saving by not having the bridging element. Of course, as you immediately enter a term mortgage, this option isn’t suitable for those of you looking to flip properties for a profit, as you’re tied in for a minimum of two years. However, for those looking to make long-term buy to let investments, it can be a great way to pick up slightly cheaper property that needs a little cosmetic attention and start renting it out as soon as it’s ready.
If you have any question about any of the bridging options we’ve detailed above, our expert brokers are on hand to talk through your options and find the most suitable finance for your plans and circumstances. Give them a call today on 0345 345 6788 or email firstname.lastname@example.org!
10th February 2021