Picking up buy-to-let properties at competitive prices almost always means acting fast. When time is a factor, conventional mortgages and High Street loans are rarely viable options.
This is where bridging finance can help – a fast-access facility that can be arranged within a matter of days. The speed and simplicity of bridging finance has made it a popular choice among BTL investors, who regularly use bridging loans to both purchase and renovate rental properties.
Even as a first-time BTL investor, you may find bridging finance a simpler and more cost-effective option than a conventional mortgage or property loan.
Bridging Loans: What New Landlords Need to Know
The most important thing to know about bridging finance is that it is provided as a strictly short-term facility. As the name suggests, bridging loans are designed to ‘bridge’ temporary financial gaps, with the aim of the loan being repaid within a matter of months.
Under no circumstances should a bridging loan be used as a longer-term funding solution, as interest accrues on a monthly basis – not annually.
A bridging loan can be secured against almost any type of residential or commercial property, and there are no limitations on how much can be borrowed. However, your lender will want to see evidence of a viable exit strategy – i.e. when and how you intend to repay the loan.
When bridging finance is used to fund a BTL property purchase, the most common exit strategy is transitioning the bridging loan to a longer-term BTL mortgage.
Why Do Buy-to-Let Landlords Need Short-Term Finance?
Landlords need access to short-term finance due to the sheer competition on the market. Demand for quality rental homes at affordable prices is at an all-time high. Particularly when it comes to homes in need of renovations and repairs that go under the hammer at auction at rock-bottom prices, beating other bidders to the punch is not easy.
With a bridging loan, the borrower is effectively turned into a cash buyer. This can give a prospective BTL investor a major edge over the competing bidders – particularly if they have obtained a pre-approval for a bridging loan.
It is often the speed at which finance can be accessed that determines who picks up the most appealing properties. In addition, bridging finance is a useful facility for funding any urgent repairs and renovations that need to be performed on a rental property.
For private landlords, the goal is usually to improve their properties to such a level as to generate the highest possible rental income. Bridging finance can be used to purchase a low-cost property, fund the subsequent renovations and pave the way for a generous ROI.
Is a Bridging Loan the Most Suitable Option for BTL Investments?
Bridging finance can be a highly flexible and cost-effective facility, but there are alternative secured loan options available if a bridging loan is not suitable.
As a first-time BTL investor, it is essential to seek independent broker support at the earliest possible stage. Your broker will discuss the various available funding options with you, highlighting the potential pros and cons of each.
Refurbishment Bridging to Help Landlords Meet EPC Targets
As things stand today, there is no such thing as a flawlessly energy-efficient home. However environmentally friendly a property may be, there is always something that can be done to make it more energy-efficient.
For landlords, ensuring their properties meet certain minimum energy efficiency requirements has been mandatory for some time. Back in 2007, the UK government introduced the Energy Performance Certificate (EPC) – a document showing exactly how energy-efficient a property is, and how much energy it utilises.
Since then, it has been a legal requirement to present this certificate when a home is built, let out to tenants or sold. Properties are graded from A (most efficient) to G (least efficient), and the EPC presented must be both up to date and freely available to current and prospective tenants.
The 2017 Clean Growth Strategy (CGS) outlined by the government specified that by 2035, as many homes as possible across the UK must reach EPC band C. For private BTL landlords, the same improvements need to have been made for all new tenancies by 2025 and for all existing tenancies by 2028.
Understandably, this has posed a major problem for many thousands of landlords, already dealing with stretched finances and limited on-hand capital. Properties with an EPC rating of F or G are now classified as unrentable and those found to have been letting out inefficient properties face the prospect of fines of up to £5,000.
With limited support available on the High Street, BTL landlords are increasingly turning to the specialist lending sector for assistance with property improvements to meet EPC targets.
Flexible and Affordable Bridging Finance
Specialist refurbishment bridging loans in particular are proving a lifeline for those in urgent need of funding for time-critical renovations. Refurbishment bridging finance combines the flexibility and accessibility of a bridging loan with the reassurance of a guaranteed exit strategy.
When the renovations have been completed and after assuming the property then meets its energy efficiency requirements, the facility is transferred to a longer-term BTL mortgage for ongoing repayment.
The beauty of bespoke BTL refurbishment finance lies in the speed and simplicity with which the funds can be accessed. Applications are typically processed within a matter of days, and the capital required to conduct the renovations can be released within a couple of weeks.
All required renovations can then go ahead without delay, with the full balance of the bridging loan being repaid three to six months later. This then gives the landlord time to get their own finances in order, during which monthly interest on the loan can be lower than 0.5% per month.
Refurbishment bridging finance is a specialist financial project, engineered specifically for these kinds of property improvement and renovations. All loan agreements are bespoke, tailored to meet the unique requirements of each landlord.
A convenient and affordable way to avoid potential penalties, refurbishment bridging finance can also be great for boosting the ROI on a property portfolio by maximising monthly rent yields.
Meta: Bridging finance is a popular facility among BTL investors, who are often looking to take advantage of time-critical purchase opportunities.
