Bridge to Let mortgage – where a refurbish to let mortgage can help
7th June 2021
By Ben Walker
Bridge to let mortgage
Often landlords find themselves in a catch 22 scenario.They can’t buy the property because it needs work carrying out to make it mortgageable. Additionally, they can’t raise enough money to purchase and do the works required. That’s where a bridge to let mortgage gives Landlords another option.
How can a bridge to let mortgage help
With recent changes in lending policies, bridge to let mortgages are available to first time landlords, on holiday lets and at higher LTV’s
These are specific products that combine a bridging loan and buy to let mortgage with the same lender. The advantage is both the bridging and exit mortgage are underwritten with the same lender. This gives a borrower more certainly of the exit. It can also lead to lower application costs as potentially they will just be one valuation rather than two and one set of application fees.
However, the convenience and surety of doing both transactions with one lender does remove some flexibility. Each part of the transaction could possibly be arranged at higher LTV’s so where equity is tight this might not be for you. In addition, the rates that you might pay on both the bridging and the ultimate buy to let mortgage could be cheaper if done with two separate lenders.
The important point is to recognise the existence of the product so it can be considered alongside other options.
The following guide will help to understand how the product works.
The offer is for both the bridge and for the buy to let mortgage and will only require one application form and one lender.
The same underwriter will deal with both the bridging element and the buy to let mortgage from start to finish which creates continuity and accountability.
Where a re-inspection is required the same valuer will carry out both surveys which also gives greater continuity and less surprises.
There is only one conveyance taking place which can also reduce the legal fees.
As with a traditional bridging loan, no mortgage payments are required whilst the refurbishment works are being completed. Interest is therefore included in the loan which in turn reduces the amount of cash in hand.
The gross amount typically available on the bridging loan is 65% to 75% LTV. From this fees and interest will be deducted resulting in a lesser amount in hand than other options.
The subsequent buy to let mortgage will typically allow up to 75% LTV of the post works valuation. Again this is lower than many other BTL mortgages.
Both the bridging rates and the buy to let mortgage rates are relatively competitive. But not necessarily the cheapest on the market.
Note: These LTV’s are correct at the time of writing and may increase so its always best to ask.
The product described here is from the lender which is leading the way on this type of combined lending at the moment. However, there are other lenders taking a more traditional view by simply underwriting a buy to let mortgage but retaining an element of the advance until after the improvements are completed. Unlike the bridging scenario above, the lender would wish to see that there were sufficient savings or income in place to cover the mortgage payments during the development phase as there will be no rent coming in.
Other options available in a refurbishment buy to let scenario include buy to let bridging which is available up to 85% of the purchase price or remortgage value. An element of the bridging is designated for the refurbishment costs
This option is likely to allow landlords to raise more cash on day one so is ideal if they only have a small deposit.
In summary, these types of products can work well in a straight forward scenario where the works are light and there is plenty of equity.
In complex purchase scenarios consider specialist refurbishment bridging as well as a bridge to term buy to let mortgage. And where the works are light it may be possible to arrange a standard mortgage with a retention on more favourable terms.
Always deal with experts who have access to, and are familiar with, whole of market bridging, specialist buy to let products as well as the whole market range of buy to let mortgages.
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