The phrase ‘a bridge too far’ has always been used to describe something that is unrealistic or unreasonable.  Bridging finance has often fallen into that category by uneducated investors.  In most people’s minds bridging is ‘******* expensive!’

This still largely true if you’re using it for its original purpose, buying a new main residence before selling your current one but that is a small percentage of the bridging market. Commercial use is the main way bridging is now used i.e. to make money on properties you don’t actually live in. 

More than a decade ago, bridging interest rates were approx. three times higher than mortgage rates.  Back before 2010, the standard rate for bridging finance was 1.5% a month – i.e. 18% pa, At that time mortgages were running at around 5-6% annually.

The credit crunch caused mortgage interest rates to drop, and they’ve stayed low for more than a decade, sitting at around...

THE QUESTION

I am looking for advice on bridging finance (flip, not rent). 

I have cash for one property already, but the gaps between complete, sell and buy next house are proving too long. 

Does it make more sense to do bridging finance for smaller amounts/with cash deposit to allow work continuously (e.g., £150k properties straight after the other) or to mortgage against fully owned property while working on it to allow fewer, but larger, projects?

THE ANSWER

Having brokered hundreds of bridging loans stretching back over a decade and teaching many hundreds of investors how to intelligently and profitably use bridging finance I have plenty of insight on bridging as a finance vehicle.

Having the cash to buy one property gives you a really great start - zero borrowing costs on the first project.  Don’t deviate from that.

You have recognised the limitation that slows you down to a crawl - you have to kick your heels until you can sell the current property...

A smart investor is always looking for properties that are considered unmortgageable by the mainstream mortgage lenders.  Why?  Because the sellers know they can’t expect to get full market value for a property that doesn’t qualify for a mortgage. 

That means that the pool of potential buyers is MUCH smaller.  Consequently, they know they’re going to have to negotiate and bring the price down to make the sale.  We’re not talking about knocking off a couple of thousand here - but anything between 10-50% below full market value.

So how do you find these properties?

1. Any properties listed with the online websites (e.g. RightMove) that are listed as ‘Cash buyer only’ - particularly if there aren’t any internal photos. That usually means things are pretty bad!
2. Check out the property auction listings. Again look for ‘cash buyer only’ notes.
3. Keep your eyes open in your local area for properties that have been...

We have brokered hundreds of bridging loans, I also run the UK's best established (only?) training programme (the Ninja Investor Programme) to educate investors in the intelligent use of bridging.  But the minute you mention the word ‘bridging’, people who haven’t learned about it tend to say, ‘that’s expensive!’

Bridging interest rates are higher than most mortgage rates, BUT if the difference is not doing the deal or paying a little bit more and making a good profit then bridging isn’t expensive at all.  I’m always surprised that people prefer to borrow money from a Joint Venture partner rather than from a bridger - and then give away 50% or their hard-earned profits.  No bridger will take 50% of your profit.

The interest rate for your bridging loan depend on a number of factors that you don’t have much influence over.   When you find a deal, you want to bridge that specific deal.  The rate depends...

Some people think bridging finance is expensive and costs more than it’s worth.  Actually, the returns on your investment far outstrip the costs when the deal is right – and it makes it possible to do things that mortgages don’t allow you to do.  That’s where the profits are.

It is always pragmatic to keep an eye on costs, but not to the degree that you become blinkered to the profitability in a deal.  If you were looking ta a £40,000 profit to be made in a deal, but a bridging loan would cost you £10,000 in fees and interest, reducing your profit to £30,000; what would you do?  Would you walk away or, having overcome your fear of bridging, take the £30,000 profit?

Using other people’s money, joint venturing, often referred to as JV finance is one way of accelerating your property journey, but that usually comes at a cost.  JV finance predominately involves giving away 50% of your profit to the person...

THE QUESTION

I’ve heard that if you use the same lender for the refinance on a buy/refurb/refinance project you can get down-valued.  Does that mean you should always use different lenders?

THE ANSWER

There are very few lenders offering bridge-to-let products, essentially it requires a mortgage lender who is also happy to offer a bridging product and lenders like that are a rarity among mortgage lenders.

The advantage is that for a buy/refurb/refinance project, you can move seamlessly from bridge to mortgage without extra fees or needing to wait 6 months to apply to for refinance.

Bear in mind that, compared to a true bridger, the initial underwriting can take longer (massively longer with one B2L lender) because they are underwriting the mortgage at the back end to begin with, not just the bridging part. 

Also the mortgage rate at the back end may also not be as competitive, depending on the work you are doing to improve the property, as you could get by separating...

You couldn’t describe bridging rates as ‘cheap’, they are significantly higher than mortgage rates.  You could pay three or four times the interest rate that you’d expect to pay on a BTL mortgage.  BUT, that doesn’t mean you should run away from bridging as a funding strategy for your property investments.

Understanding how to make intelligent use of bridging will move you from the fog of the mortgage buyer mind-set to the clarity of a cash-buyer mind-set (and you don’t need an abundant bank account to get started).

While you’re focusing on the cost of bridging you’re missing the profit opportunity.  Sometimes such opportunities can be substantial, even massive.

If you could make a profit of £40K, but bridging finance cost you £10K, is that a deal you would do? 

These are the three biggest myths about bridging:

1. A bridger will foreclose and take your property

With a reputable bridging lender (and I only...

THE QUESTION

I viewed a property last week and negotiated from £85k to £73k, but unfortunately my funds are tied up in another deal.  HOW ANNOYING!

I was wondering if there is another way to fund this as would be ideal for the list of tenant buyers that I have.

THE ANSWER

Certainly there is another way to fund this - bridging finance.  

This is one of the aspects of bridging that I teach to investors, what I like to call 'no hard cash down' funding.

Let’s just say your cash is tied up in a property you bought for £100k.  Now you could get this second property for £73k, but you can’t do it because all your £100k cash is tied up in the first property.  So here's where bridging comes into its own

A bridger would give you one loan over both your first and second properties, often up to 75% of each property, but you won’t need to borrow that much.  They would typically lend 75% of the £73k and the balance of...

Even at property meets people run in the opposite direction if anyone suggests that bridging finance might be the solution to their financial challenges.  

Other well-meaning investors will advise you not to touch it because it’s too expensive.  They’ll warn you that you’ll lose your shirt - or try to frighten you off with other prophecies of doom.

So here’s a question for you:

Does bridging finance live in your ‘scary box’?  

If you’re an investor that’s never used bridging it probably does.

We all have a scary box and what is in mine are professional people, i.e. solicitors and mortgage advisors who advise people not to use bridging finance.  I find it amazing that people who should be knowledgeable about property don’t understand that, in the right circumstances, bridging finance should be your first choice, not your last choice.

What is it about bridging finance that’s so scary?

It’s perceived...