Bridge to let

Bridge to let criteria and eligibility

Bridge to let criteria are read in two parts, because two facilities are involved. On the bridging loan, lenders look at the property, the purchase price and end value, the works and the cost of the refurbishment, the borrower's experience and, above all, the exit strategy, since bridging loans are only as safe as the plan to repay them. On the buy to let exit, lenders look at the finished property, the rental income against their stress test and the interest cover ratio that gives, much as they would on any buy to let mortgage. A credible exit is the heart of the case: the buy to let refinance has to be realistic on the end value and the expected rent, or the bridging loan should not be taken in the first place. Many bridge to let lenders lend to a limited company or SPV as well as to individuals, with directors giving personal guarantees, and the bridging loans market is comfortable with light adverse credit where the exit is sound. Because bridge to let products vary widely between lenders, from the loan to value on the bridge to the treatment of refurbishment and development works, the case has to be matched to the right desk. We size both loans together, so the bridging loan is only advanced where the buy to let exit stacks up, and we place each with a lender whose criteria fit. All criteria are indicative, vary by lender, borrower and property, and are not an offer of finance.

How much can you borrow with bridge to let?

On the bridging loan, borrowing is typically arranged up to around 75 percent of the property value, or on a refurbishment case up to a share of the purchase price plus a contribution toward the works, sometimes with the refurbishment funds released in stages as the project progresses. On the buy to let exit, the loan is sized on the interest cover ratio the finished property's rent gives against the lender's stress rate, indicatively up to 75 to 80 percent of the improved value, which on a successful refurbishment can release capital above the money that went in. That uplift is the appeal of bridge to let: buy below value or add value through works, then refinance onto a term mortgage at the higher figure and recycle the released capital into the next purchase. Bridging interest is usually rolled up or retained rather than paid monthly, which preserves cash flow during the works but adds to the balance to be refinanced, so the exit figure has to carry it. We model the bridging advance and the buy to let exit together, using the buy to let mortgage calculator for the end position, so the plan holds up before anything is drawn. The figures are illustrative, vary by lender and property, and are not an offer of finance.

Bridge to let rates and costs

Bridge to let carries the cost of two loans, so the total cost is the bridging loan plus the buy to let mortgage that follows. Bridging loans are priced monthly rather than annually and sit well above buy to let mortgage rates, reflecting their short term and speed, with the interest usually rolled up or retained rather than paid each month. Expect a lender arrangement fee on the bridge, often a percentage of the loan, a valuation fee, legal costs and sometimes an exit fee, and then a further set of fees on the buy to let refinance. The buy to let mortgage that takes out the bridge is priced on the ordinary buy to let market, on the loan to value and the interest cover ratio the finished property supports. Because the total cost depends on how long the bridging finance runs, keeping the works and the refinance on schedule matters, and a bridge to let calculator that models both loans together gives a truer picture than looking at either in isolation. We disclose our broker fee in writing and quote current indicative ranges for both the bridging loan and the buy to let exit rather than headline figures, and they are not an offer of finance.

When to use bridge to let: auction, refurbishment and conversion

Bridge to let earns its place where a landlord wants to keep a residential property but cannot use a standard buy to let mortgage to buy it. At auction, completion is usually required within 28 days, far faster than a term mortgage can deliver, so bridging loans complete the purchase and a buy to let mortgage refinances it afterward, which is why auction buyers lean on bridge to let. On a refurbishment, a residential property in poor condition, without a working kitchen or bathroom, or below a lettable standard, will not pass a buy to let valuation until the works are done, so bridging finance funds the buy and the refurbishment and the term mortgage follows once it is finished and let. Conversions, such as turning a house into an HMO or a multi unit freehold block, work the same way, and heavier schemes shade into development finance and development exit products rather than bridge to let. The alternative, plain bridging loans with no arranged exit, leaves the refinance to chance; bridge to let removes that risk by planning the buy to let exit from the start. Investment bridging arranged for landlords and companies is predominantly unregulated and falls outside the Financial Conduct Authority's regulated mortgage perimeter; a regulated bridging loan, for example one secured on a home the borrower will live in, is referred to an authorised firm. We arrange bridge to let alongside bridging loans, HMO, multi unit freehold block, semi commercial and portfolio finance.