Whether you’re a buy to let landlord or a commercial investor, knowing how to boost your portfolio is essential to a successful property investment journey. Could bridging finance be the answer?
For many landlords, finding your next property investment opportunity can be difficult: what type of property should you invest in, and how can you finance the purchase? Below, we look at the role bridging finance can play in boosting your property finance journey and what mortgage lenders will be looking for on your application.
What can bridging finance be used for?
Bridging finance is used to ‘bridge the gap’, allowing you to borrow funds while waiting for funding elsewhere. It has many benefits, such as being quicker to arrange than standard buy to let mortgages and allowing you to borrow a higher percentage of the property’s value. A type of short-term finance, the full bridging loan will typically only last between three months and two years.
You can use bridging finance in a number of different scenarios, including:
- Purchasing a property at auction
- Purchasing a property where time restraints require a quick completion
- Purchasing a property in an unlettable condition to refurbish, increase the value and either sell on to make a profit or let out to tenants. You may also be able to borrow some of the cost of works as part of your bridging loan.
- Capital raising against a property you own to invest in other projects at short notice.
How much can I borrow with bridging finance?
Typically, you can borrow around 70-85% of a property’s value/purchase price, making bridging finance an attractive offering for many investors. The ability to access a higher LTV means you may be able to contribute some of the loan towards the refurbishment works, if applicable.
While some lenders allow you to borrow 85% of the day-one purchase price, others will loan you up to 65% of the post-works value, whichever is lower.
Here is an example:
Initial property purchase price: £100,000
Cost of works: £15,000
Post-works value: £140,000
Net loan: £75,000
Gross loan: £83,107
Loan term: 12 months
Lender arrangement fee: 2%
LTV: 83.11%
Net loan and gross loan – what’s the difference?
Your net loan is the full loan you receive after deductions. This will differ depending on whether you choose to make monthly repayments to cover the interest or ‘roll it up’ and pay in full at the end of the loan term.
In contrast, your gross loan includes your lender’s arrangement fee and the payable interest on the property.
What do lenders look for on bridging finance applications?
What you intend to use the bridging finance for will determine what mortgage lenders need to see on your application.
The most important thing for bridging lenders is your “exit strategy” to repay the loan. This could be through either the sale of your property or a refinance onto a buy to let loan at its new value.
Other factors that lenders may look for if you’re planning to refurbish the property are some previous experience in refurbishment projects and a schedule of works. This should demonstrate to the lender what you plan to do, when, and at what cost.
Your lender may also want to see if you have obtained the relevant planning permission, or if you have applied for this as a minimum, if applicable. You will also typically need some sort of background income, whether this be solely from property investment, full-time employment or self-employment.
How can bridging finance boost my portfolio?
The best way to see whether bridging finance could work for you is to speak with an expert broker like ourselves. We can discuss your property investment plans and complete a complimentary portfolio review to see what types of opportunities you can access.
To start your FREE portfolio review, click here.
In the meantime, you can get in touch with our experts on 0345 345 6788 or submit an enquiry here.
Speak to one of our experts
If you have any questions regarding your mortgage application or want some advice, start an online chat with our specialist brokers or call us today on 0345 345 6788.
