Adding value to your property: How can a bridge to term product help you? 

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!

Top slicing is back.. But how does it work?

Here we are again on a Friday with more positive news about products returning to the market – always good news!  Not only because it makes our life easier, but also as it’s a great sign that things are improving.  Confidence is such a big part in the future of the housing market and its important we continue with the momentum that the stamp duty holiday has created.

So what is top slicing?

It is when the lender uses your outside income on top of the rental income from your buy to let when it isn’t generating enough itself.  We can use income from your outside portfolio where it allows, or from your other earned income.  There are various stresses on the outside portfolio and your own mortgage payment so you’ve got to check it all works.

What are the benefits of top slicing?

There are many, so I’ll go through them:

  • It allows you to buy a property where the yield isn’t high enough. This allows you to take advantage of properties which may have other advantages like a potential capital growth through location, refurbishments (over time) and extending the lease as examples.
  • Where you have a property which was bought before the new higher stress tests, it may not fit on a remortgage now. This allows you to move lender, as well as potentially raise more funds without selling the property.
  • The property may fit on a 2 year fixed, but due to the increased stressed rate of these you only have the option of a 5 year. Top slicing will allow you to have the opportunity you use the 2 year fixed rate if that is a priority for you.
  • If the property is in a lettable condition, but you know that a lick of paint and change of floor coverings will ensure that you get a higher rental, this will allow you to buy it in its current state without using a bridging loan.

How does it work?

The lender will use its usual stress tests to work out what the minimum rental requirement is, based on the loan you are looking to borrow.  We can then look at what the actual rental figure is (which needs to be confirmed by the valuer) and this will give us a shortfall figure.

If you have an outside portfolio, we can use any additional income from this.  We do have to use an artificially inflated interest rate on your mortgages so its not just as case of what is left, but we can use the gross rent.

If you don’t, then we can look at additional income from other sources. Generally, this would be shown through your SA302 or payslips and then last 3 months bank statements to prove the disposable income.

As always, please give us a call if you want to run through any examples.  Have a good weekend!