Bridging Loans Are the Buy to Let Investor’s New Top Choice
It’s not uncommon for buy-to-let investors to set their sights on properties in need of repairs and refurbishments. The reason being that as competition for such properties is relatively low, they can often be picked up at rock-bottom prices. After which, the repairs and refurbishments can be performed at an equally low price, before turning a profit on the property by letting it out to tenants.
Unfortunately, targeting properties in need of renovations or refurbishments can lead to problems with financing the purchase. This is because the vast majority of traditional lenders will only issue mortgages against properties that are considered habitable at the time of the application. Even if you can demonstrate your intention and capacity to renovate the property after the purchase, you’re unlikely to qualify for a traditional mortgage.
In addition, landlords often seek to expand their buy-to-let property portfolios by purchasing homes at auction. Some in need of repair, others perfectly habitable. In both instances, however, it is usually necessary to pay the full purchase price of the property (and any additional fees) within 28 days – sometimes sooner. Needless to say, this is nowhere near enough time to organise a traditional mortgage.
Combined with the increasingly restrictive lending criteria of major banks for buy-to-let landlords, all of the above places prospective investors in a tricky position.
A Flexible and Accessible Alternative
This is precisely why bridging loans are fast becoming the new top choice for buy-to-let investors. A dynamic and flexible type of secured lending, bridging finance goes far beyond the limitations of traditional High Street mortgages.
For one thing, most bridging finance specialists are uninterested in the condition of the property. Even if it is in a pretty sorry state of repair, it is of no real consequence to the lender. Instead, the only thing that matters is the borrower’s capacity to cover the loan with acceptable collateral. This may be provided in the form of the property being purchased, or any other properties currently owned by the applicant.
Likewise, bridging finance can be uniquely convenient and accessible for purchasing buy-to-let properties at auction. Irrespective of how much money is needed, it can typically be organised and transferred to the applicant within five working days. Again, it’s simply a case of the applicant putting up the necessary collateral to cover the loan. The nature and condition of the property being purchased being of no real interest to the lender.
What matters most with a bridging loan is two things – collateral and a viable exit strategy. By exit strategy, this means a clear and validated method of gaining access to the money needed to repay the loan on the agreed date. It’s possible to take out a bridging loan without an exit strategy, but this may (depending on the lender and the loan) result in higher overall borrowing costs.
Speaking of which, the potential value for money of a super-short-term bridging loan also appeals to buy-to-let investors. In many instances, it’s possible to borrow significant sums of money for less than 0.5% per month. Just as long as the loan is repaid quickly (in accordance with the agreement of the lender), overall borrowing costs can be kept to absolute minimums.
The Importance of Comparing the Market
Now more than ever, the importance of comparing the market in full cannot be overstated. Particularly when considering buy-to-let investment opportunities, it is essential to consider as many deals as possible from as many lenders as possible.
The quickest and easiest way is to take your case to an independent broker, who can compare deals from a panel of specialist lenders on your behalf.