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Guide to Bridge to let mortgages

We look at the various benefits and potential issues with bridge to let mortgages for property landlords

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 17 April 2021

8 min read

Guide to Bridge to let mortgages

Owning an investment property or a portfolio of investment properties gives you the opportunity to generate rental income. Financing your investment properties can be done in a number ways, including bridge to let mortgages. 

In this section we look at the various benefits and potential issues with bridge to let mortgages for property landlords. There are many reasons for considering using a bridge to let mortgage to help fund your properties and to grow your property portfolio. 

SUMMARY: A bridge to let mortgage can be extremely useful for property investors that are looking for ways to grow their portfolio. They can avoid the need for big deposits as well as avoiding the standard competitive property market. You can use this type of loan to build your portfolio to purchase properties that are in need of repair or less desirable. 

What is a bridge to let mortgage? 

A bridge to let mortgage is a type of ‘bridging mortgage’. This type of mortgage can be used by property investors or landlords to purchase a property, usually that is in need of repair. This can be a more convenient and faster method for sourcing funds. 

Typically, bridging mortgages are used to finance a property for a shorter period (usually 12 months). This is then extended to a standard mortgage or sold at a later date. There are differences between a normal bridging mortgage and a bridge to let mortgage. The main difference is that this comes with a pre-approved buy to let mortgage at the end of the bridging period. 

Reasons for using bridge to let mortgages: 

  • Purchase a property in need of repair 
  • Buy an unmortgageable property 
  • Auction properties 
  • HMO property purchases or conversions (Homes of Multiple Occupancy) 
  • Renovate a buy to let property 
  • Commercial buy to let properties 

The most common reason for using a bridge to let mortgage is to purchase a property that is not mortgageable. The building could be in need of major repairs (e.g. structural or significant cosmetic). Most of these properties would be classed as uninhabitable when you purchase them, and therefore ideal for bridge to let loans. 

These types of loans are very useful for borrowing funds where a traditional buy to let mortgage is unavailable. A traditional buy to let mortgage would likely be unavailable due to the state of the property. Buy to let mortgages require that the property is in a good condition and ready to rent out to a tenant. 

Purpose of bridge to let mortgages: 

  • Renovate buy to let properties 
  • No capital to purchase properties via traditional buy to let 
  • Don’t want to take a buy to let mortgage 
  • Shortage of funds to renovate a property 

How do bridge to let mortgages work? 

Typically a bridge to let mortgage is the first stage of a buy to let mortgage. This mortgage will be taken out to renovate an investment property that is unmortgageable. 

Both parts of the loan are approved at the application stage. This means you’ll usually have a buy to let mortgage pre-approved with the same lender. The initial bridging loan period will last for 12 months. Some lenders will however allow longer periods up to as much as 3 years, depending on your circumstances. 

The initial bridging period would be where the renovations would need to be carried out to get the property to a liveable state.  

Am I eligible for a bridge to let mortgage? 

The normal mortgage criteria would apply to bridge to let mortgages. There would also be some extra requirements from the lender for the repair work. 

Ultimately, the lender will want to be comfortable that you are safe to lend to. They will want to be certain that you are capable of carrying out the repair work. They will assess this based on your credit history and your plan for the property renovations, plus any previous experience. If you have a history of bad credit you may find it harder to get a bridge to let mortgage.

Criteria for bridge to let mortgages: 

Deposits – most lenders will require a minimum deposit of 20% of the purchase price of the property or value. As with other types of mortgages, bigger deposits and lower loan to value loans will help you. Larger deposits will attract more favourable rates and higher approval rates. The benefit of bridge to let mortgages is that the property values are lower and so deposit amounts should be smaller. 

Assets – it is normal for lenders to require some additional security for this type of loan. This security can be other investment properties in your portfolio. This can be used in addition to your deposit or instead of a cash deposit in some circumstances. 

Affordability – your loan application will be assessed in two ways, which will be different for both elements of the finance. The bridging finance element will be assessed based on its own criteria. Then the buy to let element will use normal investment property rules. 

Bridging affordability – this element is not usually assessed based on your personal financial circumstances. The only reason it would be is you intend to pay the interest monthly. Some lenders will consider different types of affordability criteria for this element of the loan. 

Buy to let affordability – this element of the loan should be assessed on its own merit using more traditional calculations. Most lenders would require the rental income to generate at least 125% of the mortgage repayment. Lenders will look at the estimated rental value based on the property after the repairs have been done. 

Your experience and previous projects – lenders will want to understand and assess your previous experience in property renovations. It is far less important whether or not you are an experienced property landlord. The most important factor is your previous renovation experience. 

The level of renovation work required will also have an impact on the level of experience that will be required. This means that properties with minor need for repair will be better for less experienced people. Heavy repairs would be better for experienced developers. 

Credit history – your credit history will also be assessed as part of the application for your bridge to let mortgage. It is however not necessarily as critical as with a traditional mortgage. It is however, better to have a good credit score to get lower rates and for quicker processing. 

Best bridge to let mortgage lenders 

It is likely that you will need to look at specialist lenders and banks for a bridge to let mortgage. Most of the traditional high street lenders don’t currently offer this type of finance or lending. 

There are also two different types of bridge to let mortgage lenders. Some may only offer residential loans and others only commercial finance. 

You will also usually need to apply for a bridge to let mortgage via a qualified mortgage specialist or an intermediary. This is because these types of loans don’t tend to be available direct through lenders. 

Bridge to let mortgage lenders include: 

  • Cambridge & Counties Bank 
  • Interbay Commercial 
  • Precise Mortgages 
  • Shawbrook Bank 

How much does bridge to let cost? 

There are a number of normal mortgage costs that you will need to be prepared for. There may also be some additional costs. 

Some costs that you will need to be prepared for will include: 

  • Deposit (usually 20% to 30% minimum requirement) 
  • Legal fees (conveyancing) 
  • Mortgage broker fees 
  • Auctioneers fees (if applicable) 
  • Arrangement fees (facility fees)
  • Mortgage lender costs 
  • Renovation costs 
  • Interest charges 

Best bridge to let mortgage rates 

You should expect to pay slightly higher interest rates on bridge to let mortgages than you would pay on a traditional high street mortgage. It is normal for bridging mortgages to have higher rates because they are short term loans. They also offer a higher level of flexibility than a traditional mortgage. 

Bridge to let mortgage rates are often between 0.5% and 1% per month. This would be for the period of the bridge (first 12 months). Interest will be charged monthly over the course of the mortgage. This is usually added to the overall cost of the loan, so will increase the overall amount of borrowing. 

Most bridge to let mortgages will allow you to defer any mortgage repayments whilst you are renovating the property. You can elect to make repayments during this period if you choose to. 

When you revert to the buy to let mortgage rate, this is likely to be similar to a normal buy to let mortgage rate. If you choose to continue with the same lender, then you might pay a slightly higher interest rate. This is compared to what a traditional high street lender would charge. 

Advantages of bridge to let mortgages 

You should consider there are pros and cons of bridging loans, but often the pros will greatly outweigh the cons.

There are a number of major benefits to a bridge to let mortgage. The benefits can make this an ideal option for many borrowers. You should also carefully consider any negatives before you make your final decision on whether to proceed. 

Bridge to let mortgage Pros 

  • Quicker and easier to apply for generally 
  • Good option for increasing portfolios at a lower cost 
  • Access to funding on unmortgageable properties 
  • Ideal for any investor developers 
  • Lower cost than other types of lending 
  • Less capital required than standard buy to let (lower loan amount)
  • Auction properties can be a better investment opportunity 
  • Less competitive than traditional property market 

As with any type of mortgage borrowing and especially development projects, there are risks that need to be considered. You should make sure that you are comfortable with these risks and prepared for all eventualities. 

Bridge to let mortgages Cons 

  • Higher rates than traditional borrowing 
  • Fees and charges can be higher 
  • Risks of development issues 
  • Planning requirements (if applicable) 
  • Potential renovation problems (e.g. structural repairs) 
  • Renovation works delays 
  • Additional charges (e.g. overrunning project work, late payments etc.) 
  • Only available through specialist lenders 
  • You will need an exit strategy for repaying the loan
  • Not available direct through lenders 

How to apply for a bridge to let mortgage 

The best way to apply for a bridge to let mortgage is to get proper advice from a qualified mortgage expert. There are a number of reasons why you should get proper advice for this type of finance. This is especially true given the fact that you can’t apply direct to most bridge to let mortgage lenders. 

There are a number of mortgage specialists that offer advice specifically for bridge to let mortgages. These specialists will help you to find the best deals more quickly. You should make sure that you check your mortgage advisors background and any reviews that are available online. 

Most bridge to let mortgage specialists will also charge a fee for their services. These fees can usually be added to the loan. It is worth asking for this information upfront so that you’re prepared for the costs. 

Resources

Homebuilding & Renovating – The A-Z of building your own home

Homebuilding & Renovating – Building a house step by step: A guide from start to finish

Citizen’s Advice – Loans

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