With the IMF claiming the UK housing market is going to get worse before it gets better, buying a house is getting harder for everyone. A lot of things are to blame including banks suffering from toxic debt, the housing bubble and lack of competition in the mortgage market.
Not only has this made buying a house difficult, but also buy-to-let mortgages are becoming increasingly stringent too, usually rental income must at least equal 125% of the mortgage and you will need a deposit of around 40%.
It noted that rising rental yields, driven by a surge tenant demand as a result of stagnation in the housing market, had increased interest in buy-to-let.
With the emergence of bridging loans, landlords who are just starting out or own a property portfolio can substantially add to their collection of properties by borrowing on the equity contained within them.
What is a bridging loan?
A bridging loan is a short term loan that is secured on property or assets that you own. More traditionally it was used when someone is in a property chain and it collapses or is going to take longer than expected. The money still allows you to continue the transaction and requires you to sell the property at a later date and pay back the bridge loan.
Why are they becoming so popular?
As the bridging finance market matures, the loans have moved away from solely property. There are instances where the money has been used to buy yachts, cover outstanding corporate tax and business development finance.
This makes it perfect for buy-to-let (BTL) market, especially as a way to expand your portfolio, whether in property auctions or getting a good deal on a quick sale.
As landlords turn to this method of buying property, it gives them an almost first time buyer advantage by not being a part of a buyer chain, possibly allowing for discount. To purchase a property and negotiate a discount over and above the cost of the bridging loan, by being able to complete the transaction very quickly.
What does bridging finance offer?
One of the key benefits of bridging loans is simply the speed of the transaction. They are often completed within a week, which is especially useful when the buying property in a quick deal, such as an auction or when a property is repossessed.
You can also allow the interest to rollover and make a larger repayment at the end of the loan agreement. This means that if you buy a property that will not yield any money whilst being redeveloped, it is possible to simply pay it back when redevelopment is completed. Once finished, you can pay back the loan have either sold the property or have begun to rent it out.
Why would I use bridging finance instead of a traditional BTL mortgage?
Landlords often need to refurbish or convert properties for the rental market, but do not qualify for buy-to-let finance until there is a full rental valuation. Bridging enables them to finance this development period.
If you have equity in any other assets, you can combine them to increase your LTV rate, and gain a loan to cover repairs as well as the value of the property. This can also come in useful when buying land with or without planning permission.
Bridging finance isn’t a long term viable option and having a suitable exit plan is place is essential; the likelihood of getting your loan will depend on this. Buy to let mortgages still take president when acquiring property to rent, however bridging loan allow developers the chance to bring property back from a state of disrepair and gain financial rewards for doing so.
Bridging finance lenders such as Balmoral Bridging offer a personalised service which matches your specific requirements, so get in touch today.
