The housing market in the United Kingdom is predicted to continue to decline in the coming years – the housing bubble paired with banks holding toxic debt and other economic factors will continue to take a toll.
Because of this, purchasing a home is becoming more difficult and the issues in the housing marketing are also causing problems for those who wish to obtain buy to let mortgages.
Required rental incomes are reaching 125 percent of the mortgage and include a 40 percent deposit. All of these factors have led to an increased demand for rental properties and increased interest in buy to let properties for landlords.
What is a Bridging Loan and why is it Becoming Popular?
Bridging loans are short term loans that are generally secured using property or assets owned by the loan applicant and are generally expected to be repaid within one year of the funds being dispersed. These loans are traditionally used by individuals who are in transition, meaning they wish to purchase a new home while their current home is being sold.
Once the current home is sold, the loan holder will generally pay back the loan with these funds. Bridging loans have become very popular in the buy to let industry as well – this type of financing allows a landlord to build their portfolio of properties by providing funding quickly to allow them to purchase properties at auction and secure a good deal.
What Benefits does Bridging Finance offer Buy to Let?
One of the biggest benefits of using bridging loans for buy to let finance is the speed in which funding can be available. Generally, a loan application can be processed and funds dispersed within one week of submission, making this a great choice when trying to secure good deals on properties in a short amount of time. Often funding can be secured within 48 hours.
Some circumstances where bridging finance is useful are in situations such as auctions and home repossessions. Additionally, there are also options to allow the interest on the loan to roll-over into the final repayment, meaning that loan holders will make a much larger repayment once their property is either sold or being rented and profits are coming in to the landlord.
Bridging Finance vs. Traditional Buy to Let Mortgages
More often than not, landlords will need to do some type of development on the properties they acquire in order to bring the property up to code in order for them to be able to rent to tenants. If a property needs to be refurbished or converted, it may not qualify for a traditional buy to let mortgage.
This is where bridging finance can become very useful. Bridging finance allows the landlord to fund the development period of the property and acquire that funding quickly. Additionally, bridging finance requires the loan applicant to present a credible exit strategy for when they plan to pay back the loan – this will often determine whether or not the loan will be granted for the needed repairs.
Bridging loan finance is not a long term solution to the financial needs of landlords. While this type of financing may be easier to acquire and useful for development projects, traditional buy to let mortgages are still the mainstay when it comes to purchasing property in order to rent it out.
If you are unclear about what type of financing is needed for your development or buy to let project, EuroGuide is here to help. Our knowledgeable advisors are on hand to answer all of your questions and help identify and secure the financing needed to make your project a reality.