85% LTV bridging loan – even for inexperienced BRRR’s

85% LTV bridging loan for property refurbishment

Lower deposits and make your cash go further.

The 85% LTV bridging loan was reintroduced in early 2021 and is particularly designed for those who want to Buy, Refurbish, Refinance and then Rent or Sell.

Because the lender will put in more money at day 1, this can free up your cash to either buy a more profitable property or make a deal work which was previously out of reach. If you’re familiar with bridging finance, you’ll know that generally the best loan to value available on a bridging loan is up to 75% of the property value. In fact, many lenders are currently lending going up to 65% or 70%.

So, a product allows you to borrow up to 85 % of the property value is absolutely fantastic but there are some conditions and considerations.

Bridging basics

Generally when taking out a bridging loan up to, say 75%, we are talking about the gross loan. This means that the fees and any interest are being deducted from the gross amount.

For example: a 75% LTV bridging loan on a property valued at £100,000. – It’s assumed in this case that the borrower doesn’t wish to make any repayments and all interest is added to the loan.

• Gross loan £75,000 (the amount you are likely to pay back if you keep the bridging loan for its full term)
• Fees £2,000
• Solicitors costs £800
• Anticipated interest £5,000 – assuming a 12 mth term with all interest retained
• Net Loan in hand £67,200

So when figures of 75% or 85% loan to value bridging loans are bandied about, be aware that the amount you will relieve will be less that this. However, if you qualify for an 85% LTV refurbishment bridging loan, on the example above, you will get close to an extra £10,000 cash in your hand. If the house you are buying or re-mortgaging is worth £300,000, expect to get an extra £30,000 towards the refurbishment costs.

85% LTV bridging – qualifying criteria

Unlike normal bridging, this product provides an element of cash out the outset to carry out property refurbishment. Therefore, it follows that you need to evidence how the extra money will be spent.

The key features and criteria are as follows:

• The borrower will receive 100% of the net loan proceeds on day one – no waiting for post completion stage draw downs.
   
• Acceptable security types include individual BTL houses , flats and HMO’s. Flats over 5 floors in the block, ex local authority flats or those above commercial property will also be considered on referral and need good sales demand. 
  
• The loan can be used for basic refurbishment which can be completed in 180 days including, but not limited to: decorating, replacement/renewal of kitchens, bathrooms, fixtures & fittings, flooring, windows & doors. Also minor remedial/repair/improvement works (damp repairs, re-plastering etc.). Must not require planning consent or change of use except C3 to C4).
  
• A schedule of works and costs will be required from the borrower and the surveyor needs to comment positively on the suitability of the proposed works and costs.
  
• The maximum loan is 85% of the property valuation in current condition, subject to a maximum of 75% of the completed value / GDV as advised by the valuer.
  
• For loans above 75% and up to 85% LTV the rate is 0.85%.
  
• The maximum loan is £750,000 – available as a first charge only.
  
• It’s available to individuals and limited companies.
  
• The applicant does not always need to demonstrate experience in owning and developing property of this nature.

Is 85% bridging good value?

If you look at bridging rates, they currently range for just under 0.5% per month to 1.25% per month.

The lower rates around 0.5% are available for low loan to value straight forward applications – normally around 50% LTV. As the LTV increases, so does the interest rate charged. At the time of writing, the best rates for 75% LTV bridging were just below 7% but most lenders are charging higher.

Therefore, a rate of 0.85% per month for 85% LTV bridging represents great value. Especially when considering that many lenders charge around 1% per month at 65% LTV.

85% of what? – even the small print is good

One thing most bridging lenders fail to make clear is the basis of the valuation. So, the headline LTV being offered can actually be fairly meaningless.

Fortunately, you don’t have to worry about that with this loan. But, let’s explain in case you want to compare:

There are various basis’s for a valuation to be carried and the lender will instruct the type of valuation it requires – and will base it’s lending on that figure. So the question to ask is ” What is the basis of the valuation the offer will be based on?”

Open market value (OMV)

This is the amount that a valuer estimates the property will sell for and exchange contracts between a willing buyer and a willing seller on the date of the valuation. It assumes plenty of time to achieve a sale and is based on similar properties sold in the area.

180 day valuation

As the name suggests, this is the valuation which a valuer would expect to achieve within 180 days. It is generally considered as a “forced sale” valuation. In a normal market, this could be typically 10% less than the OMV. However, if the market was particularly strong, it could be less. If the property was unusual and therefore has a limited number of potential buyers, the 180 day valuation could be 20% or more less than the OMV.

90 day valuation

Consider this similar to the amount a valuer expects the property to sell for at auction within 90 days. This could easily be 20% to 30% lower than the OMV if the property will only attract a limited demand due to its condition or demand for similar properties in the area is low.

There is no golden rule to determine what your property is worth without selling it, as valuers vary in their opinions. And, if you are buying the property at auction (at a 90 day valuation) don’t assume that a lender will offer 85% of the open market value. They offer the lower purchase price and valuation in most cases.

However, the main point is to understand what the lender is basing its valuation on. 75% of the 90 day valuation will get you a far smaller loan than 75% of the OMV.

Summary

If you’re a landlord or a property investor and you’re buying a property or remortgaging a property for investment purposes, and you need to do refurbishments, you can borrow up to 85% on a bridging loan. That’s going to get you an extra 10% cash on top of anything else that is out there in the market now.

This means that you have more cash available to to a higher spec’ refurbishment, or to buy a property which may have been out of reach.

Talk to Promise Money for more details

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