Bridging Loans for Landlords
Bridging loans are a type of short term finance, often used by landlords to purchase property or to pay for improvements to property they already own.
Bridging loans can be accessed fast, often in just days, allow you to borrow comparable amounts to a mortgage and can be secured on property not considered mortgageable by lenders. This makes bridging finance a fast, flexible way to borrow.
Why you should consider a bridging loan for buy-to-let property
Bridging loans are commonly used for buying property at auction, where there is not time to apply for a mortgage before the 28-day deadline to complete the sale. They are also often used for properties that need significant renovation work before they will be habitable and are thus considered unmortgageable in their current state.
However, bridging loans are becoming particularly popular at the moment due to changes in tax relief for UK landlords.
Landlord tax relief and bridging loans
Previously, landlords only had to pay tax on the profit they made on their rental properties, i.e. their rental income minus whatever they paid for their buy-to-let mortgage (assuming they had one).
From April 2017, however, the amount of mortgage payments that landlords can deduct from their rental earnings for tax relief purposes is changing. They will only be able to deduct 75% of their costs for the 2017/18 tax year, with a further 25% reduction each year until April 2020, after which landlords will be paying tax on their full rental income.
Many landlords are thus expecting that renting out their buy-to-let properties will no longer be financially viable and are therefore looking to sell in the near future. To maximise their profit on selling the property (or create one where the house has not appreciated in value since being purchase) many landlords choose to improve their current but-to-let properties before selling.
Bridging loans are ideal for these purposes as allows the landlord to quickly raise the money to carry out the necessary improvements. The landlord can then repay the bridging loan once the property is sold. This offers a fast, simple way to get the renovations completed and the property off the landlord’s hands.
It’s also worth remembering that if you choose to live in your property, or leave it vacant for an extended period while renovations take place, you may find you are no longer eligible for your buy-to-let mortgage and your bank may require you to repay it. A bridging loan can allow you to cover this cost, plus the renovation costs until the work can be completed and the property sold.
How to apply for a landlord bridging loan
To apply for bridging finance, you will normally need to go through a bridging loan broker. This is because bridging loans are normally only offered by private banks and lenders and separate subsidiaries of high street banks, none of which typically deal direct with borrowers.
It is highly recommended to apply through an independent broker with whole of market access, such as Fair Mortgages, as that way you will have access to all the most attractive rates and fees from across the market.
Compare bridging loans for landlords
If you are a landlord looking for bridging finance, our free bridging loan calculator makes it quick and simple to find the best deals on the money you need.
Just share some basic information about your borrowing needs and financial circumstances and we will show you the top matching deals from across the market. That way you can find the short term borrowing you need at the most affordable rate.
Looking for bridging loans for landlords? Get in touch with our friendly expert team of loan brokers using the contact form on the right or by calling 0117 313 6058.