What an amazing week we’ve had – we are still flying high from Wednesday night!! Roll on Sunday now…
This week I want to talk about bridge to term products specifically. Last week we covered bridging and why it is so important to add value to your property, but there is more to it – and there are ways to reduce your overall cost and this is a big one!
What is bridge to term?
It is a product which allows you to use the same lender for the bridge to purchase the property and then use it as an exit onto a term mortgage as well.
How does it work?
There are two types:
- You can have it as ONE product, which means that you have two offers at the beginning (one for the bridge and one for the term) and the valuation with cover both products too, so you have certainly over the end value and what you can work towards.
- You can have it as 2 products, so you apply for them separately and have two valuations and offers (the term gets started once works have been finished). This allows a valuation to take place once works are completed so you often get a more favourable figure, it can also take into consideration the finished property, which really can help. As with the same lender it has the advantage of lower arrangement and legal fees.
What are differences between this and a standard bridge?
From a cost point of view, you can save on valuation costs (in some instances), legal fees and arrangement fees. This will help to reduce your finance costs and increase your ROI. As bridging can be very expensive, this is a good way to bring it down.
It also offers you some certainty around the exit for your bridge. The lender will underwrite the case for the exit as well as your initial loan, so any issues with the property should be picked up on before you buy the property. There’s never a guarantee with these things, but it does mitigate some of the risk.
How much can I borrow and what works can be carried out?
This depends on the type of product.
We have a lender who will look at both parts as one product, as mentioned earlier. This is ideal for light refurbishments before letting out as a single let. For example where the EPC isn’t good enough, or it needs a new kitchen or bathroom. We will know the end value from the schedule of works and the valuer will confirm this. You can borrow up to 65% for the purchase, and then 75% for the refinance. This is a low cost option and offers some security but does mean you are putting more in up front. The 2nd valuation is only a revisit, to confirm the works have finished – it cannot change the GDV. You have to complete and refinance by 6 months maximum.
For more complex refurbishments, ie conversions from commercial to residential or to HMOs we have another product. This is set up as two products, a bridge to start and moving to a term facility when it’s finished. The initial valuation will include GDV expectations from the valuer. For light refurbishment projects we can lend up to 85% of the purchase price (subject to some restrictions) and for heavy refurbishments we can go up to 75%. Heavy refurbishment would also include anything requiring planning or building regulations. You also have up to 18 months to do the works.
For the term exit we can generally lend up to 75% of the new value.
For both options we do not need to wait 6 months from the purchase.
As always, give me a call to discuss individual cases and how we can make it work. Have a fantastic weekend and come on England!