Skip the bridging loan and go straight for the buy to let mortgage
For property investors looking to buy at auction or snap up a quick bargain a quick completion of a property purchase is often required. To help facilitate this bridging loans are often required because they can be put in place quickly.
A bridging loan is a useful finance option that can be put in place quickly and used as a short term method of raising money. Since they are only a short term method of finance they need to be repaid, typically within a 6 or 12 month period.
Property investors will usually either repay the bridging loan through selling the property quickly for a profit, also known as flipping it, or they may refinance it using a long term finance facility such as a buy to let mortgage. It is important to realise that bridging loans can be quite costly, so when calculating the profit that can be made from buying and selling property quickly, a bridging loan can significantly eat into this.
The typical costs associated with bridging loans would be the initial lenders arrangement fees, solicitor and legal costs, a valuation fee, the monthly interest charges and sometimes there may be an exit or redemption fee. These costs can be quite significant so it is always worth considering what other options are available and are any of these options a cheaper alternative.
When buying a property at auction that is going to be used as an investment property and rented out, a buy to let mortgage is usually the best method of providing a long term finance facility. However, when buying at auction the property investor normally only has a period of 28 days in which to complete the purchase. Many investors consider buy to let mortgages to take too long to set up and therefore in order to reduce the risk of losing their auction deposit they opt for a bridging loan. Once purchased investors who intend to keep the property will often repay the bridging loan by replacing it with a buy to let mortgage. Due to a 6 month rule in which most buy to let mortgage lenders will not refinance until the property has been owned for 6 months, the property investor has to pay 6 months interest payments for the bridging loan.
Clearly if a buy to let mortgage can be put in place quickly then huge savings can be made by avoiding having to use a bridging loan. This is why we offer a rapid buy to let mortgage that can be put in place in as little as 2 weeks from the initial application.
Our specialist 2 week application to completion plans can only be used for property purchases and remortgages where the property being mortgaged is in a good state of repair and does not require any work. In addition a clean credit history for all applicants is also required for these plans, which although specialist, are provided by the main buy to let mortgage providers and do offer a choice of the most competitive deals available.