Bridging loan mortgages
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Bridging loan mortgages
When you’re buying, renovating or investing in property, timing can make or break a deal. If you don’t have funding quick enough, you could miss out on a seriously good buy-to-let investment. Often, traditional mortgages move too slowly, and coming up with the money upfront is rarely an option. A lot of the time, you need to move quickly – for example, if you’re buying at auction, taking on a property to refurbish or trying to secure a buy-to-let property – before another investor snaps it up, leaving you disappointed. Luckily, bridging mortgages exist, and they could be exactly what you’re looking for.
Bridging mortgages offer fast, flexible and short-term finance to help you move quickly and strengthen your position as a buyer. Whether you’re a landlord, developer or investor, Everest Mortgages is on hand to help you secure the funds you need, as soon as you need them.
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What is a bridging loan?
Ever wondered how someone managed to quickly find the money to take on a buy-to-let project? There’s a good chance a bridging loan was involved. From big commercial development projects that need to hit the ground running, to residential properties that need refurbishing before being let out to tenants, a bridging loan helps to ‘bridge’ the financial gap.
A bridging mortgage is a short-term, interest-only loan designed to get your project moving financially, until you can secure long-term finance or sell the property. They fall into the buy-to-let mortgage category, and they’re commonly used when access to money is needed quickly and standard mortgage criteria is unlikely to be met. Unlike a standard buy-to-let mortgage, you don’t need the property to be in lettable or mortgageable condition to be approved for a bridging loan.
How do bridging mortgages work?
Though they are a type of buy-to-let mortgage, bridging loans work in a slightly different way to the standard mortgages you’re probably used to.
Short-term funding
Bridging mortgages are a type of loan, with terms usually lasting from a few months to a few years, depending on your project. This is different to other types of buy-to-let loans, which can span decades.
Fast approval
A lot of people applying for bridging loans need funding fast, and lenders work quickly to ensure deadlines are met. If you were applying for a standard mortgage, there’s a high chance the approval process would take too long, causing delays to your project or resulting in you missing out on a property investment.
Interest-only
There are various ways to handle bridging mortgage payments; rolled-up interest, retained interest or monthly payments. Most investors choose rolled-up or retained interest, as this means you avoid having to make monthly repayments whilst work is being carried out.
Secured against property
Bridging loans are usually secured against the new purchase, an existing asset you own or multiple properties, if you’re applying for a larger loan.
Requires an exit strategy
If you want to be approved for a bridging mortgage, you need to know how you’re going to pay the money back. You might plan to refinance onto a buy-to-let mortgage, or you might want to sell the property. Lenders want to know what you’re planning before they approve you.
Who are bridging mortgages best for?
- Buy-to-let investors – Bridging loans help investors purchase properties quickly, renovate them and refinance them onto long-term buy-to-let mortgages.
- Portfolio landlords and SPVs – For those wanting to acquire multiple properties quickly, or buy homes that need work before becoming mortgageable, bridging mortgages can provide the funding.
- Property developers – For property refurbishments, conversions and pre-development work, bridging loans can get things moving, until another type of mortgage becomes an option.
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Bridging mortgages vs development finance mortgages
Both bridging mortgages and development finance mortgages help to fund property projects, but they serve different purposes. Bridging loans are best for short-term needs – such as buying, refurbishing or refinancing quickly – and funds are released in one lump sum. You can then use it for things such as funding to buy a property that’s otherwise unmortgageable or to cover the cost of light refurbishments.
Development finance mortgages are different because they’re best for larger, ongoing projects, such as building from the ground up, heavy structural works or large renovations. Funds are released in staged drawdowns, and the loan tends to have longer terms. Development finance mortgages are better suited to experienced developers, major projects and for long-term finance.
If you’re buying or refurbishing a property, a bridging loan is likely to be best. If you’re building or undertaking major structural works, you might want to consider development finance. For many investors, both products are used at different stages of their investment journey.
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Why bridging loans are popular with buy-to-let borrowers
Unmortgageable properties
You can’t always get a standard buy-to-let mortgage on all properties, such as those without a functioning kitchen, a working bathroom, heating or safe electricity. But, a bridging mortgage is often an option.
Faster portfolio expansion
You can use bridging loans to secure properties before refurbishing and refinancing onto long-term buy-to-let mortgages, helping you to expand your portfolio quickly.
Auction purchases
Most auctions require completion within 28 days, which isn’t usually enough time to get a traditional buy-to-let mortgage. The entire bridging loan process is quick, which means they’re often the only realistic solution.
Bridge-to-let strategy
Some investors follow a bridge-to-let strategy, which involves buying a property using bridging finance, renovating or converting it, increasing its value and refinancing onto a new buy-to-let mortgage. Equity is then extracted and reinvested elsewhere.
At Everest Mortgages, we work with bridging lenders who understand investors and landlords, to help you to secure the ideal bridging mortgage for your property project. With us, you can relax, knowing that your investment strategy will stay on track from start to finish.
Frequently asked questions
Is a bridging loan the same as development finance?
No, though there are similarities between the two, they’re not the same. Bridging loans provide short-term, fast access to funds in a lump sum, while development finance funds major building works in smaller stages.
Can I use a bridging loan for a buy-to-let property?
Yes, especially if the property isn’t mortgageable yet or needs renovating before refinancing. A bridging loan helps you to purchase the buy-to-let property, when other types of mortgage might be out of reach.
Do I need property experience to get a bridging loan?
No, not always. However, experience helps if you’re using a bridging mortgage to fund refurbishment or conversion projects.
Do bridging lenders accept applicants with bad credit?
Yes, some do. You won’t automatically be turned down for a bridging loan because you have bad credit, but good credit does encourage lenders to approve you. As bridging loans are secured against assets, lenders tend to place more weight on security and exit strategy.
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