There are two main methods of financing a buy-to-let property purchase: a buy-to-let mortgage and a bridging loan. Buy-to-let landlords need to know when it is best to use each type of loan.
Bridging loans are short term loans that usually need to be repaid in a year or less. They are traditionally used by people buying a new house but who have not yet sold their existing home.
Bridging loans can be arranged quickly, often in 48 hours. They are often used in the buy-to-let market to complete the sale of property bought at auction whilst waiting for a buy-to-let mortgage application to be completed.
If the property purchased is not fit to live in until renovations and refurbishment work has been completed, then it will not qualify for a buy-to-let mortgage. A bridging loan can be used to purchase the property and provide funds to complete the renovations. After renovations are complete and the property is ready to be let then longer term finance can be arranged.
The recent measures by the government to increase stamp duty on the purchase of a second home and reductions in the tax benefits for some buy-to-let landlords have created financial challenges in the buy-to-let market.
According to Property Wire, there is still a high demand for both private and commercial rental accommodation which increased in the first quarter of this year. Using a combination of bridging loans and traditional buy-to-let mortgages buy-to-let landlords are continuing to fulfil this demand.