It is very important that you plan an exit strategy in advance where you can show the lender how you intend to pay back the bridging loan. It is to be noted that bridging loans can have high rates of monthly interest attached to them. Also, lenders will charge additional renewal fees if you go over the renewed bridging loan term.
One exit strategy could be that you sell a property. Another strategy could be re-financing. Please remember that if you intend to clear the bridging loan via re-financing then it is essential that you ensure that you are able to obtain the required finance facility.
What is an open or closed bridging loans?
An open bridging loan is one where no clear exit strategy is in place or where there is uncertainty as to when an exit strategy will kick in. This will make it riskier for the lender and so again this may be reflected in a slightly higher interest rate charge.
On the other hand, a closed bridging loan is where you have a clear plan for an exit route and the lender is fully aware of how the loan will be repaid at the end of the term. An example would be where you are planning to refinance with a new lender or where there is a sale of property.
As this is considered more of a reduced risk, lenders will offer lower interest rates and the application process will be smoother.
How can you increase your property Investment Returns?
It is a well-known fact that as a result of changes to Buy to Lets, the returns are dwindling. The main causes for this are due to:
- Tax changes
- Stamp duty changes
- Prudential measures
Understandably, demand for this type of property has dropped. By using Property Refurbishment Finance you can reverse this and try and increase your rent.
You can do this by taking out a bridging loan to complete the refurbishment work and then refinancing it onto a buy to let mortgage. With more and more lenders on the market, we can secure you a deal with a low rate of interest which will make what previously may have seemed costly, a worthwhile pursuit. Altogether the reduction in charges and fees makes this option a viable one.
What do lenders look at when calculating your maximum Loan?
There are 2 ways that a lender will look at this:
1) Day 1 Loan to Value: Lenders in this category are cheaper. But please note that they typically lend less. Many of these lenders will allow you to borrow up to 75% of the property value, leaving you to fund the cost of works.
2) Day 1 Loan to Value plus cost of works. The lenders in this category will allow you to borrow as above, but will also fund some or all of the costs of the work. However, the rates tend to be higher but can help where you could not otherwise pay for the work.
You will be happy to know that such bridging loans can take up to 2 weeks to complete.
What you can use Property Refurbishment for?
This can be used for many things and can allow you to perform signifigant works on a property which will definitely add value. Common works this finance is used for include but are not limited to the following:
- Full decoration
- Loft conversions
- Change of Use
- Removal of internal walls
- Changing internal layout of property
- New boilers/central heating system
- Re-wiring the property
Overall, our view is that there is a real opportunity here. To purchase a property in need of refurbishment, obtaining a cost effective bridging loan to finance that refurbishment and with lower prices for completion of works will ultimately mean greater returns on your property. This in turn means an increase in value and rents.