Bridge To Let Mortgage

A bridge-to-let loan can be a great option when you need to refurbish a property before letting it out.

One application for both loans helps simplify the process and potentially save on time and costs.

Call us today to see how a bridge-to-let mortgage could work for you.

Call us – 01604 212879

Red circle with text saying no fees

Save £100's - We'll never charge a broker fee

    Speak To A Bridge-To-Let Expert

    • Ideal for Property to let that needs refurbing first
    • Borrow up to 75% LTV
    • Refurbishment & Conversion Projects

    Consent to contact you back (required)

    Home 9 bridging-finance 9 bridge-to-let-mortgage

    We’ll find the best terms for your bridge-to-let mortgage

    Lend Invest Logo
    Shawbrook Bank Logo
    Together Money Logo
    Precise Mortgages Logo
    Octopus Bridging Logo
    West One Logo
    Lend Invest Logo
    Shawbrook Bank Logo
    Together Money Logo
    Precise Mortgages Logo
    Octopus Bridging Logo
    West One Logo

    and many more…

    What is a bridge-to-let mortgage?

    A bridge-to-let mortgage, or bridge-to-let loan as it is also referred to, is a form of bridging finance that allows for the purchase of a property that is to be used for rental purposes and also offers an ‘exit’ strategy for the bridging loan on to a buy to let mortgage, with both loans falling under one application.

    It differs from a normal bridging loan as the loan will switch to a buy-to-let mortgage once any works are completed on the property in question. 

    woman reading a guide leaning against a large red book

    Bridge-To-Let Mortgages

    Author: Darren Ferguson – Bridging Specialist & Owner

    Published: 21st November 2023

    Read Time

    Read Time – Approximately 4 Minutes

    Our bridge-to-let guide should be helpful, but it’s always best to speak with an adviser to discuss your own personal circumstances and to get the best advice. Call us on 01604 212879 should you have any questions.

    When would you use a bridge-to-let mortgage?

    The most common usage for a bridge-to-let loan is when a property to be let is not classed as being in a ‘lettable’ or habitable condition and needs an element of refurbishment work to be completed before it can be let.

    Other reasons might include:

     

    • Auction purchase – you need to purchase the property quickly, typically within 28 days, which is unlikely to happen with a standard buy-to-let mortgage.
    • Conversion – perhaps you intend to change the use of the property from a standard house to HMO usage and want confirmation that the buy-to-let mortgage is available once the conversion is complete.

    What are the advantages of using a bridge-to-let mortgage?

    The main advantage of a bridge-to-let loan is that it is just one application for both loans. This means you could save time by not having to do two applications and providing two sets of supporting documentation. More importantly, you could also save money by reducing application and valuation fees.

    A bridge-to-let product also provides the borrower with a valuation for the property once the works are complete, enabling them to complete the works with the knowledge that the property will value as expected before starting the work, provided those works are completed as stated.

    What are the disadvantages of using a bridge-to-let mortgage?

    The main disadvantage of a bridge-to-let mortgage is that the selection of interest rates or products available for the buy-to-let part of the loan might not be as competitive as you can find elsewhere.

    It’s a balancing act as you might find a cheaper rate elsewhere, but you may be required to have a new valuation and pay new legal fees. There is also no guarantee the property will value as expected. You would have to get the work done, submit a new application to a new lender, get the property valued and then hope it values as expected. 

    Ultimately, you need to consider the pros and cons of each route and decide which works best for you. 

    How does a bridge-to-let loan work?

    There are two parts to a bridge-to-let application: the initial bridging loan and the buy-to-let loan.

    The bridging loan is a short-term loan used for the initial purchase of the property and to complete any refurbishment work, and the buy-to-loan is the longer-term mortgage used to repay the bridging loan.

    The process of a bridge-to-let mortgage

    A bridge-to-let mortgage is processed differently than a normal bridging or buy-to-let application, and our guide below illustrates the process involved.

    1. Application Submitted To Lender

    application form

    Your broker submits one application to the lender for both the bridging loan and the buy-to-let mortgage that will be used to repay the bridging loan. 

    2. Lender Assessment

    assessment checklist

    The lender will review the case and consider what works will take place, what the end value is hoped to be, and what rental income the property might achieve once the works are complete.

    3. Property Valuation

    house valuation

    If acceptable to the lender, the valuation will be instructed. The valuer will provide two valuation figures, based on a ‘current market value’ for the bridging loan and an ‘after-works value’ for the buy-to-let loan.

    4. Issue Both Formal Offers

    documentation

    Provided the valuation is satisfactory, the lender will issue 2 formal offers, one for the bridging loan and the other for the buy-to-let loan. This gives you the confidence that a buy-to-loan loan will be available if the works are done as stated.

    5. Bridging Loan Completes

    picture of a bridge

    Funds for the bridging loan are released so you can begin work on the property. It’s essential to note that the works should be completed as per the initial schedule of works, or this could compromise the buy-to-let mortgage offer.

    6. Property Reinspection

    property being inspected

    Once the required works are complete, the valuer will revisit the property to complete a reinspection and confirm that the works have been completed as stated and are satisfactory.

    7. Buy To Let Completion

    rental sign

    Provided the valuer confirms that everything has been completed as it should have and that there are no changes, the buy-to-let loan can then complete and repay the bridging loan. Any additional funds that were agreed based on the uplift in value will be released to the borrower.

    What are the key points I need to know about the bridging loan?

    There are a few points you’ll need to understand about the bridging loan.

    Maximum Loan To Value (LTV) of 75%

    Typically the maximum Loan to value (LTV) available will be up to 75% gross.

    What do we mean by gross LTV?

    Gross LTV refers to a maximum loan to value that must include any fees and interest that will be payable. This means the net amount the borrower will receive after deducting fees and interest will be less than 75%, so in reality the deposit contribution might be more like 30%.

    The exception to this is where the loan is to be serviced, meaning the borrower will pay the interest due on the loan each month, rather than the interest being rolled up or retained.

    75 percent circle

    Schedule of Works

    As part of your application you’ll need to complete a schedule of works for the property.

    A schedule of works will detail the following:

    • The type of work to be completed – (e.g new kitchen)
    • The cost of the work – (e.g £5000)
    • When the work will start – (e.g 01/09/2023)
    • How long the work will take. – (e.g 1 week)

    You’ll also need to confirm what you expect the end value of the property to be once you have completed the works, known as the gross development value or GDV for short.

    Loan Term

    Bridging lenders can generally offer terms up to 24 months, but if you require a bridge to let product, then typically the maximum term for a bridge loan might be 6 months and you would be expected to complete the works and the refinance on to the buy to let within the 6 month timeframe.

    Call us on 01604 212879 for a free no-obligation regulated bridging quote

    What are the key points I need to know about the buy-to-let loan?

    Once the works are complete, the loan can then transfer to the buy-to-let loan, and typically criteria will be as follows:

    Maximum Loan To Value (LTV) of 80%

    Its possible with some lenders that you can borrow up to 80% of the afterworks value. This means that subject to the rental income being sufficient its possible that you could release some of the increased value.

    Loan amount subject to rental income

    Affordability for the buy-to-let loan will be subject to the rental income from the property, which will be subject to a stress test to calculate the maximum borrowing available.

    The stress test applied will be dependent upon several factors:

    • Whether the property is to be owned personally or in a limited company
    • The type of product applied for, for example, a 2-year or a 5-year fixed rate
    • The actual rate of interest you pay (if a 5-year fixed is chosen)

    You can learn more about how lenders calculate buy-to-let affordability with our helpful guide to rental stress testing.

    Should I arrange the two loans separately?

    Arranging two separate loans with two different lenders is an option for consideration. It’s possible that if you do so, you may be able to find better rates.

    Arranging two separate loans might mean:

    • Two applications
    • Two sets of lender arrangement and application fees
    • Two valuations
    • Two sets of legal work

    We’ll always explore both options for you and let you know the pros and cons of both.

    Call us on 01604 212879 to discuss your bridge-to-let requirements and get a no obligation quote

    Find out more about bridging loans

    Moving home and need a chain break? Find out how a regulated bridging loan could help.

    Need to borrow more? See how we can help with a residential mortgage.

    SubscribeNow