If you don’t have a big wad of cash sitting in your bank bridging finance gives you more flexibility and, with the right bridger, much better deals.
Is it more expensive than a buy-to-let mortgage? Yes, but it’s not more expensive than a joint venture where your finance partner will expect a big chunk of the profits or from using overdraft or bank loan facilities.
Also it allows you to buy properties that any mortgage lender would consider unmortgageable – even though there is considerable profit in them.
In terms of the monthly cost of finance it’s definitely higher than you would pay for a high street buy to let product but you can’t really compare the two.
The normal cost of bridging finance is typically 1% per month, but it can be cheaper, even down to 0.5%, depending on the property.
Usually you’ll agree a period for the bridging term. it’s a buy to sell where the investor is very confident of a quick sale, that term may be four months. For a property that the investor is looking to hold and re-finance onto a standard buy-to-let mortgage. lender will normally not allow the re-mortgage application to be submitted until the property has been owned for six months.
In these instances, we will normally agree a bridging term of eight months to err on the side of caution. For a commercial remortgage a four-month term would normally be sufficient.
The gross funds that are released to the investor on completion are 75% of the current value, less the arrangement fee, broker fee and the monthly costs of the bridging finance.
If a property has a current value of £100,000 and the bridge has been agreed for four months the NET ADVANCE would be £75,000 less £1,500 arrangement fee, £1,000 broker fee and £3,000 (the cost of the finance over 4 months). Because of the way the finance is structured it works best on deals that offer the potential to add serious value.
If your deal is good and you don’t want to tie up too much of your cash (perhaps you have other projects that you would lose out on if you tied up all your funds) then it’s a great way to minimise cash input into properties that need work.