Bridging finance is an increasingly popular option for residential property, as the rates are now more competitive than ever before, meaning this is considered a viable method of purchasing residential property when speed is of the essence. However, bridging loans are only a short-term solution. Whilst it is possible to refinance off a bridging loan onto another short-term facility, such loans are still undeniably more expensive than regular term finance. As such, it’s always important to consider your longer term plan for refinancing off a bridging loan.
I was recently approached by a client who had used bridging finance to purchase a new-build rental property in Central London, valued at £1million. He now needed to refinance onto term finance, but he faced several issues. For one, the rental income was low in comparison to the value of the property and the cost of the mortgage payments. This is a common problem encountered by property investors in London, where many rental properties offer a low yield.
My client had also recently started a new business, meaning he could not show proof of income over the last few months. This is usually a major sticking point for lenders, who will typically require at least three months’ proof of income. This was especially difficult given the rental income issue; some lenders will allow borrowers to use their personal income to top up rental payments, but I knew this would be difficult to organise considering my clients’ income history situation.
Fortunately, I have an excellent relationship with a lender who offers some innovative mortgage products for buy to let property. This lender could use the rental income to provide a maximum of borrowing, with the remaining amount needed being ‘rolled up’ over a 2-year period. This was an ideal solution for my client.
When you’re refinancing off a bridging loan, finding the right solution can be very time-sensitive, particularly if the term of your bridging loan is nearly complete. A broker can be extremely useful in such a scenario, as we can speed up the process considerably.
Clients taking out mortgages should always consider the necessary insurances, even if the property is a buy to let which you will not be living it. If you require more information about insurance for your buy to let properties, the Enness Global Insurance team would be happy to advise you.