A bridge-to-let loan could be an ideal solution for purchasing a property that you otherwise wouldn’t have been able to.
Our experts are here and ready to answer any questions that you may have about whether this type of finance is the best fit for you and your current situation.
- What is a bridge-to-let loan?
- Example of a bridge to let loan
- Pros and Cons of a Bridge to Let Mortgage
- How does a bridge-to-let work?
- When would a bridge-to-let be used?
- What are the interest rates for a bridge-to-let?
- How much can you borrow with a bridge-to-let loan?
- Eligibility criteria
- How do I apply for a bridge-to-let loan?
Compare market-leading bridging loan quotes with no obligation
- Loans from £20,000 to £30m plus
- Max 75% LTV first charge 70% second charge
- Secured on Residential and Commercial property
- Adverse credit considered
- Both Regulated and Non-Regulated Bridging Loans
What is a bridge-to-let loan?
A bridge-to-let loan, also known as a bridge-to-rent loan, is a form of short-term finance typically used by property developers and investors in real estate.
The purpose of this loan is to allow the borrower to quickly purchase property before they have arranged for more traditional, longer-term financing.
In the case of a bridge-to-let loan, the intent is to buy a property, often one that needs renovations or development, and then rent it out. Once the property is rental-ready, the borrower can then refinance to a longer-term, buy-to-let mortgage loan which often has more favourable interest rates compared to the short-term bridging loan.
This type of bridging loan is called ‘bridge-to-let’ because it acts as a ‘bridge’ from the initial purchase to the time when the property is ready to be let out to tenants. It provides the necessary financing to make the purchase and complete any renovations or developments in a timely manner; then the loan is typically repaid or refinanced once the property is let and generating rental income.
Example of a bridge to let loan
Imagine a real estate investor named Jack who spots a promising property that he believes could be a successful rental property. The property costs £500,000, but it requires extensive renovation before it can be let out to tenants. Due to the high demand in the property market and the need for quick action, Jack decides to apply for a bridge-to-let loan.
Jack contacts a lender that offers a borrowing range from £50,000 up to £50 million, a loan term of 1 to 24 months, and an interest rate starting from 0.44%. In Jack’s case, he applies for a loan amounting to 80% of the property’s value, or £400,000, which is the maximum loan-to-value (LTV) ratio allowed without additional security.
Upon receiving Jack’s application, the lender makes a same-day decision in principle, giving Jack confidence to move forward with his purchase. The loan uses a “rolled-up” interest type, meaning the interest is calculated and added to the loan monthly, but the total amount isn’t repaid until the end of the term.
With the bridging loan approved and financed within the space of 5 days to 2 weeks, Jack is able to swiftly secure the property and start the necessary renovations. This rapid completion time is one of the key advantages of a bridge-to-let loan.
Once the property has been renovated and is ready for tenants, Jack’s exit strategy is to refinance the bridge-to-let loan with a traditional, long-term buy-to-let mortgage. Alternatively, if Jack finds a suitable buyer, he could also sell the property to repay the loan. Importantly, the lender does not charge any early repayment fee, allowing Jack flexibility in managing his finances.
In this way, a bridge-to-let loan enables Jack to quickly purchase and renovate a property with the intention of letting it out, providing him with the opportunity to secure a promising investment and begin generating rental income as soon as possible.
| Available loan term | 1 to 24 months |
| Borrowing range | From £50,000 up to £50mil |
| Loan to value (LTV) | Up to 80% max. (Without additional security) (Up to 100% with additional security) |
| Interest rate | From 0.44% |
| Interest types | Rolled-up, retained or serviced |
| Decision in principle | Same-day |
| Completion | 5 days to 2 weeks |
| Early repayment fee | None |
| Exit strategy | Refinance, or sale of property |
Pros and Cons of a Bridge to Let Mortgage
Pros
- Speed: One of the main advantages of a bridge-to-let mortgage is speed. Traditional mortgages can take months to close, but a bridge-to-let loan can be arranged within a few days to weeks. This can be a significant advantage in a competitive real estate market where speed is of the essence.
- Flexibility: Bridge-to-let loans are often more flexible than standard mortgages. They can be used for properties that may not qualify for a standard mortgage, such as those in need of renovation.
- No early repayment fee: Many bridge-to-let loans do not come with an early repayment fee, which offers borrowers more flexibility in terms of repayment.
- Access to property market: For those who may not have the necessary funds readily available, bridge-to-let loans provide an opportunity to enter the property market quickly, and potentially profit from rental income sooner.
Cons
- Interest Rates: Bridge-to-let loans usually have higher interest rates than standard mortgages due to their short-term nature and higher risk associated.
- Risk of property market fluctuations: Because the exit strategy of a bridge-to-let loan typically involves either selling the property or refinancing, changes in the property market could impact these plans. For example, if property prices fall, it may be harder to sell or refinance.
- Risk of non-refinancing: There is always a risk that the borrower may not be able to secure a long-term mortgage to repay the bridge-to-let loan, especially if the rental market conditions change, the property isn’t rented out, or the borrower’s circumstances change.
- High Loan-to-Value (LTV): While a high LTV may enable borrowers to secure a larger loan amount, it can also lead to higher interest rates and potentially greater financial risk.
How does a bridge-to-let work?
Firstly, the bridge-to-let loan is used as a transitional solution to finance the purchase of a property that will eventually be rented out. The initial loan is then transferred to a buy-to-let mortgage as an ‘exit’, once that has been set up. This is why this process is often referred to as a ‘bridge-to-let mortgage’. Any development works would also typically be completed as part of the bridge-to-let process and before the property becomes tenanted.
The key difference between traditional forms of finance and a bridge-to-let is that a bridge-to-let has a much faster turnaround time and also includes pre-approved exit strategies.
When would a bridge-to-let be used?
This type of loan can be particularly useful for borrowers who are unable to afford a large deposit or who need to move quickly in order to take advantage of a specific property, before the opportunity disappears.
If you’re looking to invest in the buy-to-let market, being quick to act can be essential to getting the right property. In some cases, this might mean acting before having a mortgage or a deposit arranged. A bridge-to-let loan may be appropriate under these circumstances.
These loans can also be useful for buying properties at auction, or for those that need development work done to add value to a property, before renting it out.
What are the interest rates for a bridge-to-let?
When examining the pricing structures for bridge-to-let loans, interest rates commonly range between 0.4% and 1% per month. This rate can vary based on a variety of factors, including the loan-to-value (LTV) ratio, the property’s condition, and the borrower’s creditworthiness, among other things.
A significant proportion of lenders specializing in bridge-to-let financing traditionally cap their offers at an LTV ratio of 75%. This limit is due to the increased risk associated with higher loan amounts relative to the property’s value.
Nonetheless, there are circumstances where a higher LTV, such as 85%, may be attainable. However, it’s crucial to note that any LTV beyond the customary 75% is likely to attract significantly higher interest rates. The rationale behind this is straightforward: the higher the LTV, the greater the risk to the lender, and this risk is offset by charging a higher rate.
Business Expert can help with the process of sifting through the right options that may be available to you. Please get in touch to find out what you may be able to borrow.
How much can you borrow with a bridge-to-let loan?
The size of the loan that is available will be dictated by how much rent can be made from the property.
The condition of the property is one factor that can affect your LTV. If the property is run-down, lenders may decrease their maximum LTV that they make available. The duration of the loan also impacts the LTV, with longer loans having lower LTVs than shorter ones.
The lender in this case would only loan 80% of the property’s overall value, so if you’re looking to purchase a £100,000 house as one example, you’d need to come up with the other 20%, or £20,000.
Eligibility criteria
The main factors that will determine if you’re eligible for a bridge-to-let is the deposit you have and what assets you can use as collateral. Lenders will also look at affordability, your experience in this type of market, the property’s condition and your exit strategy.
How do I apply for a bridge-to-let loan?
If you want to apply for a bridge-to-let loan, you’ll need to provide some personal information. Bridge-to-let lenders take different factors into consideration than normal mortgages, so they’ll ask for different types of details. Some of these can include:
- The full address of the desired property
- Your intentions for an exit strategy
- If you’ll be able to refinance before the loan is up
- An independent valuation
- Any potential planning permission details
- Whether you have any other collateral available
- Information on your company, if applicable and also your personal information
