Residential & Buy-To-Let Bridging Loans

Residential investments:

Residential investments often relate to properties that are purchased by property investors or high-net worth clients looking to increase their property portfolio. They may then look to renovate or convert the building or hold the asset to try and achieve long-term capital gain. They can include buy-to-let properties that will be lived in.

Buy-to-let investments:

Buy-to-let investments relate to assets bought with the intent to ‘let’ out the property to one person or family residing under one roof. It can also be used for Houses in Multiple Occupation, where a number of different tenants rent individual rooms.

Speed

Property investment can be tricky, particularly for those cases with tight deadlines or complex circumstances. Applying for traditional long-term finance can take months to complete. In these situations, short-term finance allows you to secure your asset.
But there are a variety of reasons why investors may prefer to use unregulated finance:

• Purchasing property in need of refurbishment
• Buying a new property while awaiting the completion of a sale
• To release capital for other ventures – including commercial property purchases
• Extend a lease
• Recover from a broken property chain
• Provide breathing to gather rental income evidence to arrange a Buy-To-Let Mortgage
• Counter delays caused by long-term lenders
• Purchase new build investments or properties sold at auction

There are several reasons why people use a bridging loan, including to:

• Refinance existing property portfolios
• Start a property portfolio
• Purchase Houses in Multiple Occupation properties
• Acquire new build properties
• Undertake light development with intent to let
• Purchase property with the intent to let
• To facilitate Freehold/Leasehold extension

There are four key types of buy-to-let properties that you can purchase on the UK property market. These styles are:

1. Studio Apartment
2. Flats / Apartments
3. Houses
4. Houses in Multiple Occupation

If you are interested in investing in buy-to-let properties, before you purchase your property, it’s important to think about the tenants you wish to rent to. Each property often reflects the type of tenant that you wish to attract. Of course, other factors will come into play here – additional areas to consider are rental price, location and quality of the interior.

There are two main advantages of owning buy-to-let assets:

1) Monthly income

By letting out their properties, landlords receive rental payments, typically on a monthly basis. Landlords also often factor in a profit to make the endeavour worthwhile. However, they also need to consider other costs to keep the property(s) in a rentable condition. These additional payments can include:

• Paying any existing debt on the residential property (e.g., ongoing mortgage payments)
• Landlords and building insurance
• Any bills managed by themselves instead of the tenants
• Repairing wear-and-tear damage
• Renovation or refurbishment projects (bathroom, kitchen etc)

2) Long term capital gain

Owning a buy-to-let property for the medium to long-term can mean that the asset will potentially rise in value, and provide capital gains for the owner. This increase in value often follows the trajectory of average national house price increases, which are steadily rising across the country due to the demand for houses. If the landlord decides to sell the property, the market value of the house could be a lot higher than when it was first purchased.

To counter delays caused by long-term lenders

Many borrowers use a bridging loan because they are fast. Traditional lending is a long process. In many cases, it can take up to 130 days – even for a seemingly simple application. With such a large amount of time spent waiting for funds, this delay can put the borrower’s residential purchase at risk of falling through, or open to gazumping tactics from other buyers.

To purchase new build investments

Buying new build properties is particularly popular with overseas clients. The period of exchanging and completing on a new build is generally set by the developer and is often around 2 weeks. This puts the borrower at risk of losing their deposit. A bridging loan is usually required when the buyer is not able to secure the funds by the set completion date.

To buy a property at auction

Auctions can be a great place to look for good value properties, whether it be residential or commercial. Auctions are also popular for those looking to work on refurbishment projects, so that they can redecorate, refurbish then resell the property for a potential profit. Auction finance is designed to move quickly, as auction houses usually provide a tight completion window, averaging only 28 days.

To release funds for other ventures

If you, or a client of yours, is looking to expand their property portfolio, a bridging loan can be a short-term finance solution for purchasing commercial assets. Much like with residential properties, this is usually due to the speed in which funds can be deployed. The buyer can secure their bridging loan on a residential asset in order to release funds to purchase a commercial asset. There is however also the option to look at a commercial bridging loan, which can allow the investor to complete without the worry of the sale falling through, by securing the bridging loan against the commercial asset being purchased.