So you’re looking to buy an investment property which needs some work and you want to know which product is the right one to use? Well read on.

So which product to use really depends on what your plan is with the property.

If you are looking to buy a property to either rent out straight away or the property needs minor works, like a new kitchen, bathroom or redecoration etc. then a BTL mortgage is likely going to be the right option for you.

If the property needs major works, like an extension or structural work or the property isn’t currently mortgageable due to having no kitchen or structural issues for example, then a bridging loan will likely be the best option.

Standard BTL lender’s won’t allow you to start heavy refurbishment works using a standard BTL mortgage without you obtaining their permission first (and the likelihood is they’ll say no because they want the property to be let out as soon as possible and don’t want the property sat empty for months while you do the works required). Bridging loans on the other hand are short term loans and so they have no problem with you doing heavier refurbishment works.

Bridging loans aren’t cheap though!

Because of their short term nature, bridging loans do carry some hefty fees, so you have to make sure you do your sums and be sure that the work you are going to carry out will be worth the higher borrowing costs and the increased risk.

However, the upshot of using bridging finance is bridging lenders tend to be very flexible in their approach and normally very quick to release the funds to your solicitor.

There are also a few different types of bridging options which allow you to either bridge the property you’re buying or bridge existing properties and use the equity in them to raise the funds needed for example.

You can normally take a bridging loan for between 6 months and 2 years, but the longer you keep the loan for, the more it’ll cost as bridging lenders charge interest monthly and either deduct the whole amount of interest from the net proceeds they send to your solicitor (and refund the difference when you come to pay the bridge off) or charge you each month, just like a mortgage payment.

So for example if you borrow £100,000 on a 12 month bridging loan at say 0.5%, with a booking fee of £3,000, the actual amount you will be borrowing initially will look like this:

£100,000 x 0.5% = £500 x 12 = £6,000 + £3,000 = £9,000 in fees and interest

£100,000 – £9,000 = £91,000 net proceeds to your solicitor.

If you pay the loan off after 6 months, then in this example, they’ll take £3,000 off the redemption figure (6 months’ worth of £500).

Bridging loans are also great if you buy a property at auction and need a fast turnaround to complete in the auction house’s timescales, whereas a mortgage will normally take a good few weeks.

Bridging is a higher risk strategy than using standard BTL mortgages as you have a relatively short period of time to buy the property, renovate it and then either sell on or remortgage and if you go over the term you choose initially, there can be large fines or worst case, you could loose the property (although that is extreme).

Bridging loans can be a very useful product to use when you need either a quick completion or need a short term loan to renovate a property to increase the value and then remortgage onto a BTL mortgage and possibly pull some money out and start again.

But make sure you do your sums and have a proper plan in place to make sure that as soon as you complete on the purchase, you can start the renovation work as soon as possible so you can move on to a standard BTL mortgage quickly.

If you need any help with BTL mortgages or bridging finance, then feel free to get in touch.

Mortgage brokers based in Nottingham.