Bridging finance can provide a useful short-term funding solution when speed is important, but it is equally important to consider the longer-term exit strategy. For property investors, refinancing onto term finance can provide a more sustainable structure once the initial purchase or project has been completed.
I recently assisted a client who had used bridging finance to purchase a new-build rental property in Central London valued at approximately £1 million. With the initial bridging facility approaching its intended exit, the client needed to refinance the property onto longer-term finance.
However, there were several challenges. The rental income generated by the property was relatively low compared with its value and the level of borrowing required. This is a consideration for many London property investors, where high property values do not always translate into proportionately high rental yields.
The client had also recently established a new business, meaning there was limited evidence of established personal income. This made the application more difficult, particularly as some lenders may require borrowers to demonstrate sufficient income alongside the rental income generated by the property.
OUR SOLUTION
I approached a lender with a flexible approach to buy-to-let affordability and a product specifically suited to situations where rental income does not support the full level of borrowing required.
The lender was able to use the property's rental income to determine the maximum level of standard borrowing, with the remaining requirement structured separately over a defined period. This provided a practical route away from the existing bridging facility while accommodating the client's limited recent income history.
The resulting structure allowed the client to refinance the £1 million investment property and move away from the short-term bridging facility, providing greater certainty over the property's future financing.
The case highlights why planning the exit strategy is particularly important when using bridging finance to acquire an investment property. Where the intention is to refinance onto a buy-to-let mortgage, the property's rental income, the borrower's wider financial position and the lender's affordability criteria all need to be considered from the outset.
For investors approaching the end of a bridging term, specialist lender access can also be valuable where the property or borrower's circumstances do not fit standard buy-to-let criteria.
Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, property suitability and lender criteria. Terms, rates, LTVs and availability may vary depending on individual circumstances.
Risk Warning:
Property and other assets used as security may be repossessed if repayments are not maintained. Property values can fall as well as rise. Bridging finance is typically short-term borrowing and should only be entered into where a suitable repayment strategy is available.
Information contained in our case studies is for market and illustrative purposes only. In some cases, these may be made up of multiple cases and are for illustrative purposes only.
Some case studies are made up of enquiries that have come into the business, not all business completes, and the posting of a case study does not represent a completed piece of business.
Property values can fall as well as rise, and you may not get back the amount originally invested. Property investments can be illiquid and may take time to sell. Where borrowing is used, your property may be repossessed if you do not keep up repayments on a mortgage or other loan secured against it.
