If you’ve left it till now to get in on the substantial tax savings offered by the stamp duty holiday, you’re going to struggle to complete on a buy to let mortgage in time. However, as Consultant Broker Luke Worrell explains, there may be another option available to save the day.
The stamp duty holiday deadline is now just around the corner, and it’s becoming clear that few buy to let lenders can still guarantee completion before 31st March 2021. In fact, some lenders are no longer taking new applications where applicants specifically want to complete before the deadline. It really is all-hands-on-deck for solicitors, local authorities and lenders to get the vast volume of mortgage applications completed in time, and the reality is that new applications are unlikely to make it.
But what if I told you there’s another way?
Of course, securing a mortgage is the traditional way to secure a property purchase, but it’s not the only way to do it. Enter, bridging finance!
Bridging finance is a short-term loan secured against a residential asset and can be applied either in your personal name or through a limited company. There are many reasons you may want to use bridging finance as a buy to let landlord; refurbishment and purchasing property at auction are just a couple of examples. The main benefit is that funds released a lot quicker than conventional buy to let mortgage finance, meaning you get your finance, faster.
Currently, it could take at least two weeks just to get a buy to let mortgage offer, with potentially another month before completion (if you’re lucky). In comparison, bridging finance typically takes just three to four weeks to draw-down. The underwriting process is more streamlined as these lenders are used to working to deadlines; as I’ve mentioned, bridging finance is often used to secure auction property, which usually has a four to six-week completion limit!
Another benefit of bridging finance is that is can be used to purchase properties that a buy to let lender would not consider to be in a lettable condition. Using this short-term finance solution, you can secure the purchase, complete the necessary work and then refinance onto a buy to let mortgage. For more information about how buy to let landlords commonly use bridging finance, see our blog on the topic here.
In the context of the looming stamp duty deadline, using a bridging loan to purchase a property is currently more likely to secure you a completion before 31st March than a full buy to let mortgage. Once the property is yours, you can apply for a buy to let mortgage as normal, which will pay off the bridging loan and allow you to start renting the property!
As bridging finance is designed to be a short-term finance solution, interest is charged monthly and is typically a little pricier than conventional buy to let mortgages. However, one benefit is that bridging lenders will often calculate the interest for the duration of the term and deduct it from the loan. This means that you don’t have to make monthly repayments during the term, which is especially good if you don’t have any rental income coming in from the property in question. If you’d rather make monthly repayments, then we can arrange this too.
Currently, bridging finance rates for individuals and limited companies start from around* 0.85% for a 75% LTV 12-month term. If you’re able to put forward a larger deposit, then there are more competitive rates available.
At Mortgages for Business, we deal with bridging finance every day and have access to a wide variety of lenders. If you have any questions or would like some more information, do not hesitate to contact me, Luke Worrell, on 01732 471684 or email me firstname.lastname@example.org.
*Rates as at 27/01/2021
For all our customers seeking to complete property purchases prior to the expiry of the Stamp Duty Land Tax holiday on 31st March 2021, whilst we will do our utmost to enable completion to occur on or before this deadline, we are unable to guarantee this will be achieved. Mortgages for Business do not control processing timescales for lenders, valuers and solicitors. Accordingly, we do not accept any liability to you in the event that completion is not achieved prior to the expiry of the Stamp Duty Land Tax holiday.