To Bridge or Not to Bridge? Let to Buy Might Be the Answer
Written on 29 June 2022 by
The latest bridging trends over the last 2 years have shown a growing number of homeowners moving to what was seen previously as a niche specialist form of borrowing.
The growing competition in the UK housing market and continuing shortage of available homes has opened a new area of consideration. For those not only to have an offer accepted, but to take the property off the market and complete in the shortest period.
What Are the Benefits of a Bridge?
- Flexibility – bridging lenders will have a more relaxed approach to adverse, property types.
- Speed – loans typically take weeks rather than months from application to release of funds.
- Reliability – due to lenders typical requirements and how they process applications, you’re unlikely to face delays based on surveys, solicitors, and underwriting.
- Increase in property value – properties may need several improvements to make them habitable. Bridging will allow you to purchase, complete the remedial work and remortgage out of the bridge, as a result being able to use the uplifted value from the completion of the works.
Things to Consider with Bridging
- Exit – lenders will want to ensure a feasible exit is plausible. Typically, this could either be sale of property, or remortgage on to either a residential or BTL product.
- Costs – typically costs associated with a bridge are arrangement fees in the region of 1.5-2%, solicitors costs, valuations, broker fee and interest rolled up each month.
- Scenario – bridging will be needed in several scenarios. As mentioned, property may not meet high street lenders requirement due to serious damp issues or you plan to sell in a short period of time, this is considered short term lending.
But, if the plan is to hold on to the property for a longer period, or if you haven’t found a buyer and are worried about the risks of bridging and not being able to repay within the agreed time, there may be an alternative – Let to Buy.
What is Let to Buy?
Let to Buy involves renting out the home you currently live in and using the equity to put towards a deposit on a home elsewhere. This is a simultaneous completion, and usual involves two different lenders.
Your current residential mortgage will change to a let to buy, typically releasing up to 75% LTV, of which the funds will clear the current 1st charge and remaining funds can then be put towards the deposit of the onward purchase. The new residential lender (onward purchase property) will then use the surplus funds from the Let to Buy application to act as your deposit contribution (plus anything else you’ve chosen to contribute) and release the remaining funds to complete on the transaction.
A benefit for Let to Buy is that you can remortgage your current home and take out a new mortgage to live in, and benefit from being a landlord. You’ll have avoided the costs of a bridge and have more options for when you want to sell the property.
The Let to Buy mortgage is based on expected rental you would achieve rather than personal income. You could be finding it difficult to sell your property and want to complete on the onward purchase.
Things to Consider with Let to Buy
- Rates – let to buy rates are typically higher than residential
- Financial commitments – having two mortgages, balancing & managing rental voids could distress some individuals.
- Stamp duty – you’ll be an additional homeowner meaning an additional 3% stamp duty costs to consider.
Get in contact with one of our brokers to discuss your options today. Call us on 0330 433 2927 or enquire online.
Category: Nick Mendes