"As all investors will know, arranging a traditional buy-to-let mortgage can take weeks if not months, which is hardly ideal if time is of the essence"
For all of the apparent doom and gloom around the rental market, the truth is that a great deal of investors still want to put their money into bricks and mortar.
A recent study conducted by Landbay found that around 42% of landlords are planning to add to their portfolio in the coming 12 months, with this figure growing among investors with larger portfolios.
The appeal of property is well known, given the ongoing imbalance between supply and demand providing a solid base for both capital gains and a healthy rental income.
But a crucial question for any would-be investor is how to fund those property purchases, and while regular buy-to-let products will always be important, short-term bridging loans can be a vital, complementary form of finance.
Bridging loans are short-term loans, and so work rather differently from a traditional mortgage. The interest is priced on a monthly basis, with bridging loans allowing you to ‘bridge’ between the initial purchase and moving to a more long-term option, such as selling the property or remortgaging.
Speed and flexibility of bridging loans
One big selling point for using bridging finance is the speed of the process. As all investors will know, arranging a traditional buy-to-let mortgage can take weeks if not months, which is hardly ideal if time is of the essence.
After all, if you have spotted a great investment opportunity you will want to snap it up as soon as possible, before competition from other interested parties drives up the price.
Bridging lenders however pride themselves on delivering the required funding much more quickly, within a matter of days in many cases. This is why they are such a useful form of funding purchases when there is a tight deadline, for example, if a property has been picked up at auction.
Another perk of bridging loans is that they can be secured against properties against which you would not be able to take out a regular mortgage.
For example, if the property is lacking some crucial element, such as a working bathroom or kitchen, then you may not be able to secure a buy-to-let mortgage.
However, these issues do not act as a barrier with a bridging loan, allowing you to secure the funds needed not only for the purchase but for the necessary refurbishment work too.
As a result, when you need to move quickly or want to invest in a ‘doer upper’ then a bridging loan may be the right option.
A change of plans
It’s worth remembering that it’s vital for investors to have at least a plan B, if not a plan C, over their bridging loan exit plans. After all, as recent years have shown, circumstances can rapidly change, meaning that your planned exit route is no longer appropriate.
For example, you might have picked up a property cheaply, with the intention of carrying out refurbishments and then selling it on for a profit. However, the health of the market may have dropped since the purchase was made, meaning that selling that property and making money on it is more challenging.
In these instances, it might be appropriate to retain the property as a buy-to-let for a period until the market picks up. Refinancing onto a buy-to-let can then allow you to pay off the bridging loan finance.
Just as bridging loans can offer investors flexibility, it’s important for investors to have some element of flexibility around how they will clear that loan.
Finding the right bridging loan for you
Bridging loans are a specialist area of the property market - you won’t find them on offer from your typical high street bank or building society.
As a result, accessing one is not necessarily straightforward. It’s because of that challenge that we built the Provide Finance platform, allowing borrowers hunting for all sorts of specialist finance products to be immediately matched with hundreds of lenders who match the case’s specific criteria.
Investors can then determine which product to go for, with comprehensive support on offer every step of the way.
Bridging loans will continue to be a crucial tool for all sorts of different property investors, and making use of technology like the Provide Finance platform can help you find the right finance for your case.
