There is a growing demand for buy to let properties. If a property isn’t habitable or they need the funds quickly, property developers can use bridging loans to purchase a property through an auction or agent and use the bridging finance to develop the property, after which, the loan could be repaid with longer term finance, such as a buy to let mortgage.
Commonly buy to let bridging loans are used to purchase property at auction. A percentage of the deposit is paid on the day of the auction to secure the sale and then the final balance usually has to be paid in full within 28 days. A short term bridging loan could complete within this time where a standard buy to let mortgage may not.
You may also want to obtain a second charge bridging loan on your development or rental property and leave the first charge in place. This is common where smaller amounts are required to make the property habitable or to complete or improve your development prior to selling. If you want to release larger loans, a first charge bridge would typically be the norm as this could potentially be done on a cheaper interest rate.
However, there are a few drawbacks to buy to let bridging loans. They can work out to be expensive if you do not repay the loan when due. Delays in the development of a piece of land or property refurbishment can occur for a number of reasons and delays in redeeming the loan may incur additional costs if you have to re-negotiate a longer term than initially agreed.
Before you begin a buy to let development it is important that you schedule the project appropriately and ideally have some experience in property development and bridging loans.
Clearing or repaying a bridging loan, whether it be a first or second charge would usually be done in one of two ways. Depending on your initial strategy and business model you may want to either refinance the loan or sell the property. Selling the property is fairly straightforward, upon sale of the property the sale funds would repay the loan. If your aim is to refinance, you would normally need the buy to let mortgage decision in principle to be in place prior to a bridging lender releasing funds.