Everything you need to know about bridge-to-let mortgages and how a broker can help
Firstly, are you looking for a Bridging Loan for a Buy-To-Let property?
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If you’re not currently able to secure a regular buy-to-let mortgage for the property you want to invest in, a bridge-to-let mortgage could be a quicker, easier solution. We’ll explain the benefits and how to get one.
What is a bridge-to-let mortgage and how do they work?
A bridge-to-let mortgage is a type of bridging finance for landlords. It’s a loan that provides a short-term cash injection that can be arranged much more quickly than standard mortgage products. Bridging finance typically requires an exit strategy, which in this case would be to later secure a buy-to-let mortgage.
The bridging loan is typically taken over a year or less, although some lenders will extend this to 3 years in certain circumstances. The buy-to-let mortgage is the same as those offered by traditional mortgage lenders and may span a term of 25 years or longer, depending on your circumstances. In the majority of cases, both the bridging and buy-to-let elements are taken with the same lender and underwritten simultaneously, although there are some exceptions.
What are the benefits of using a bridge-to-let mortgage?
The main benefits of this type of product are:
- Speed. The fast turnaround time, in comparison to a buy-to-let mortgage, allows you to act quicker and can make your offer more appealing to sellers.
- Flexibility. Bridging lenders are often willing to consider loans against properties that many mortgage lenders would not.
- Convenience. The buy-to-let mortgage element acts as a built-in exit strategy for the bridging element.
These benefits make bridge-to-let mortgages useful for both residential and commercial landlords who can’t get a regular buy-to-let mortgage if, for example:
- They’re buying at auction. Bridging finance can be arranged within a few days or weeks, easily allowing you to meet the typically standard 28-day payment window allowed for this type of purchase.
- The property is unmortgageable. The bridging element allows time for any renovation work needed before it can be deemed suitable for occupation by a residential or commercial tenant.
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As with any financing, each lender has its own eligibility criteria, so the key to a successful application is approaching one whose criteria matches your circumstances. Bridging lenders will consider:
Deposit and asset requirements
The LTV (loan to value) typically offered is between 70-80%, meaning you’ll need at least a 20-30% deposit. It’s fairly common to use high-value assets, such as other properties in your portfolio, in place of or alongside cash. In fact, some lenders may insist that you do.
Like a traditional buy-to-let mortgage, lenders will assess whether you’re able to afford the repayments based on the income potential of the property. They will expect the forecast rent to cover at least 125% of the mortgage repayments.
Having prior landlord or development experience will strengthen your application. How important this is depends on the level of work required on the property.
Generally, a first-time landlord is only likely to be approved for a property with little or no work needed. Properties in need of extensive renovations, such as structural work, or rewiring, are better suited to landlords with a history of similar successful projects.
Property type and condition
For the most part, bridging lenders are much more flexible about the property type you can buy. As this type of finance is commonly used to renovate uninhabitable properties, buildings of non-standard construction and those without basic amenities are not usually an issue. That said, if the property is in particularly poor condition, you may be offered a lower LTV.
Bad credit won’t usually affect your access to this type of finance. However, if your credit issues are at the more severe end of the spectrum, you may be offered less competitive rates.
If your bridging loan and buy-to-let mortgage are from the same lender, your exit strategy is built in. If you choose a mortgage from a different lender, you’ll need to provide evidence of the pre-approval to your bridging lender.
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How to get a bridge-to-let mortgage
Here are the steps to follow to get your application started…
- Speak to an experienced bridge-to-let broker
With a complex product such as this, the first step is to seek specialist advice. This is important because this type of finance is not regulated by the FCA (Financial Conduct Authority) as it’s classed as a commercial transaction, so a knowledgeable advisor will protect you from unscrupulous offers.
As well as providing bespoke advice and recommending a suitable lender, specialist brokers will be able to help assess your development plan to ensure it aligns with typical lender expectations for your exit strategy onto a buy-to-let mortgage.
The brokers we work with have strong relationships with a whole host of bridging lenders and access to the whole market, so whether you’re looking at residential or commercial lets, they will have the knowledge and experience necessary to help you achieve a smooth transaction.
Simply get in touch to be paired with a suitable expert who will be able to guide you through the next steps.
- Prepare your development plan
Although unmortgageable properties are perfectly acceptable for the bridging element of the finance, most lenders will want reassurance that your development plans will transform the property into a sound buy-to-let investment.
You’ll need a full plan, including costings and references for the architects and contractors involved. This will typically need to be more extensive the less experience that you have in property development.
- Ensure your assets are acceptable
Most landlords use assets (such as properties) to either replace or top up their cash deposit for the bridging loan. However, not all lenders will accept all forms of assets. Your broker will help you determine which lenders will be suitable based on your available assets.
How much can you borrow?
There’s no maximum size for a bridge-to-let mortgage. The cap on your borrowing will be based on the value of the property, your deposit, and your ability to make the repayments, according to the lender’s affordability assessment (how much rental income potential the property has).
Which lenders offer them?
This area of finance is not offered by your typical high-street lender and tends to be restricted to specialist lenders and challenger banks. Some may only offer bridge-to-let on residential, some on commercial, and others will offer both. The vast majority will only be available through an intermediary, i.e. a broker.
Lenders who offer both bridging loans and buy-to-let mortgages include…
- Shawbrook Bank
- Precise Mortgages
- InterBay Commercial
- Cambridge & Counties Bank
Contacting one of these lenders directly is not recommended as this would mean having access to only one range of deals. Plus, many of them don’t deal directly with the public. Applying through a broker who specialises in bridge-to-let will open up an entire market to you and increase your chances of a positive outcome.
How much will it cost?
The initial bridging loan and the mortgage that follows each have their own costs. You can use the dedicated calculators below to get an estimate of the cost for both parts of the deal.
Bridging Loan Calculator
This calculator will tell you how much your bridging loan will cost each month and work out your loan-to-value ratio to give you a better idea of whether your finance agreement is affordable.
Total monthly payment:
Now that you have a clearer idea of how much your loan will cost, you should speak to a bridging finance broker to explore all of your options and boost your chances of getting the best deal possible.
Buy-to-Let Mortgage Calculator
Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.
Capital and repayment:
Loan to Value ratio (LTV):
Most lenders won't offer buy-to-let mortgages over a LTV of 80%.
Interest Cover Ratio (ICR):
Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.
Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.
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What interest rates to expect
There are two separate rates to consider, given that the loan will begin as a bridging loan, and then refinanced onto a buy-to-let mortgage in most cases.
Bridging loan interest rates
Typically higher on any form of bridging finance than mortgages due to the greater flexibility offered by this type of lender.
Interest is charged monthly, but is usually rolled up and added to the total of the loan, so you won’t need to make any interest repayments during the development period. Rates will vary based on the size of the deposit, and your personal circumstances, although they tend to be between 0.4% and 1% per month.
Buy-to-let mortgage rates
The buy-to-let interest rate should be more or less in line with typical rates for this type of borrowing. The table below gives you an indication of what the best rates are available at the moment.
Looking for more rates and deals?
We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.
Last updated October 2023
The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.
How Online Mortgage Advisor can help you secure a bridge-to-let mortgage
Bridge-to-let mortgages can be a convenient solution for landlords, but this is a complex area of the mortgage market. A broker who arranges this type of finance regularly will make your journey considerably easier.
We offer a free broker-matching service to connect you with a bridging specialist. Simply contact us on 0808 189 2301 or make an enquiry.
Not all bridging lenders will cater to holiday lets, but as long as you’re buying a property that is destined to be let out, you should be able to find a lender to meet your needs. A specialist broker will help you identify which lenders will consider holiday lets.
See our page on holiday let mortgages for more information.
It will help, particularly if you’re taking on a project involving complex renovations. If you’re a first-time landlord, your best chance to get financing is to choose a simple project and work with a broker who has had success with first-time landlords in the past.
No. A bridge-to-let mortgage can only be used for a property that is intended to be let out, so you won’t be approved if you’re renovating your own home.
They are secured loans. You’ll need to provide a deposit of 20-30%, which is usually either another asset you own or a mix of assets and cash.
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