Bridging Loan or Standard Mortgages – What is More Affordable

 

When assessing property financing options, understanding the differences between loan types and their associated rates is crucial. Bridging loans, with the current lowest annual rate starting from 6.72%, are often compared to buy-to-let (BTL) mortgages, which currently average 5.22%. While the rate difference may initially seem significant, the benefits and flexibility of bridging loans can make them a highly practical solution for certain scenarios. Let’s explore how bridging loans stack up and why they might be the right choice for your next property project.

The Rate Difference: A Closer Look

At first glance, bridging loans starting at the lowest annual rate of 6.72% may appear higher than the average BTL mortgage rate of 5.22%. However, bridging loans serve a different purpose and are designed for short-term use. The slightly higher rate reflects the flexibility and speed they offer, allowing investors to act quickly in competitive markets.

In contrast, Buy-to-Let mortgages, while offering lower rates, come with stricter lending criteria and longer processing times, which can limit their usability in time-sensitive scenarios.

Advantages of Bridging Loans

Speed of Completion: Perfect for Auctions

Bridging loans are ideal for securing properties at auction, where quick completion is essential. Traditional mortgage products often cannot match the speed required to meet auction deadlines, leaving bridging finance as the go-to option for investors.

Unlocking Unmortgageable Properties

Many properties require improvements before they become mortgageable. Bridging loans allow you to purchase these properties, complete the necessary refurbishments, and increase their value and rental income.

For example, a vacant property needing extensive repairs may not meet the criteria for a standard Buy-to-Let mortgage. With bridging finance, you can secure funding quickly, carry out improvements, and either sell at a profit or refinance onto a long-term mortgage.

Flexibility for Unique Purchases

Bridging loans cater to scenarios like purchasing vacant units or commercial-to-residential conversions. They also provide the flexibility to arrange appropriate tenancies, ensuring the property meets lender requirements before refinancing or letting.

Reduced Rate Gap Over Time

As the property finance market evolves, the rate gap between bridging loans and standard mortgage products continues to narrow. This trend reflects increased competition and innovation in bridging finance, making these products more accessible and affordable for property investors.

Why Choose Bridging Finance Over BTL Mortgages?

Short-Term Objectives: Bridging loans are purpose-built for investors with short-term goals, such as flipping properties or completing refurbishments.

Fewer Restrictions: Unlike Buy-to-Let mortgages, bridging loans are less constrained by stringent lending criteria, enabling borrowers to access funds more easily.

Adaptability: Whether you’re addressing structural issues, resolving tenancy agreements, or converting commercial spaces, bridging finance provides the flexibility you need to succeed.

Case Study: Bridging Loan in Action

Imagine you’ve won an auction for a property priced below market value, but it needs substantial renovation to become habitable. A Buy-to-Let mortgage won’t cover the purchase due to the property’s condition. Here’s where a bridging loan at 6.72% proves invaluable.

You secure the loan quickly, allowing you to meet the auction’s tight deadline.

After completing renovations, the property’s value increases significantly, enhancing its rental appeal.

You refinance onto a standard Buy-to-Let mortgage at 5.22%, locking in a lower rate for the long term while enjoying the higher rental income.

This scenario highlights how the flexibility and speed of bridging loans can lead to profitable opportunities, even when compared to lower-rate BTL products.

What to consider

As bridging finance is a short term product, it is important that you have a suitable repayment strategy to clear the loan before the end of the term (6-18 months). These can include:

  • Sale of Property
  • Refinance
  • Pension lump sum
  • Maturing investments (defined date)
  • Sale of a Business/assets
  • Inheritance (probate granted)

Conclusion

While bridging loans with the lowest rates starting at 6.72% may exceed the average Buy-to-Let mortgage rate of 5.22%, the added flexibility, speed, and adaptability of bridging finance can make it the superior choice in many circumstances. Whether you’re securing an auction property, unlocking the potential of an unmortgageable unit, or preparing a vacant property for tenancy, bridging loans help investors to achieve their goals with confidence.

If you’re considering your next property investment and want to explore whether bridging finance is right for you, get in touch with us. Our expert team will guide you through the options to find the perfect solution for your needs.