How to remortgage your buy to let property after you have bought it with bridging finance
Bridging Finance has its place but most that use it cannot wait until the day it is repaid. It burns a whole in the deepest of pockets with crippling monthly fees repayments or the roll up of interest. The natural way to repay the loan is by effectively transferring the debt into a traditional secured finance: ‘a remortgage’. The remortgage could be on a residential or buy-to-let basis but how do you go about this?
Rules on the conversion of bridging finance into a remortgage
The majority of the lenders will only allow you to remortgage a property bought by bridging finance after an ownership period of 6 to 12 months. This rule is generally relaxed if the property in question is one that you live in. Why? Well it falls under greater consumer protection and lender regulation so the lenders are more amenable.
Why does the 6 to 12 months rule on bridging finance exist?
This could be a whole article by itself but to keep things short it’s basically there to prevent fraud. It enables the lender to reflect on the ‘true value’ of the property when it bought and sold and gives ample time to reflect on market conditions before adjustments can be made to price. Historically there was a lot of dubious activity before the last crash which involved people and property clubs buying properties and remortgaging the next day: I’ll leave the rest of it to your imagination.
What are my solutions?
As you have come to expect from Niche Advice, we do have remortgage lenders that do not apply the 6 to 12 month rule. This allows the release of the bridge much quicker and thus inevitably reducing the monthly costs.
To protect my remortgage lenders from this extra risk exposure there is a caveat that the property must be revalued at the purchase price, and any home improvements carried out post purchase will not be taken into account from a value perspective. To be clear you brought the property at £250,000 in January using bridging finance. You have refitted the kitchen and bathroom. The remortgage will still apply a value of £250,000 when determining the maximum loan permitted.
Examples of the Re-Mortgage Products that allow to remortgage immediately after purchase
Example 1: Owner Occupied Property
Based on a property value of £250,000 and a repayment mortgage of £175,000 over 25 years.
The product below is current as at 7 April 2014:
2 Year Fixed
Initial pay rate 2.04% (APR 4.4)
Valuation Fee £Free / Arrangement fee £995 / Free basic legal service
Fixed at £749.39 per month until 02/07/2016. After this period the mortgage will revert to the lender’s variable rate at the time. Based on today’s prices this would be £981.05 per month.
There is mortgage discharge fee of £225 on full redemption. The main early repayment charges are 3% of the amount repaid in the fixed period plus £200.
Example 2: Buy to let Property
Based on a property value of £250,000 and an interest only mortgage of £175,000 over 25 years.
The product below is current as at 7 April 2014:
2 Year Fixed
Initial pay rate 3.45% (APR 5.0)
Valuation Fee £214 / Arrangement fee £1995 / £99 Application Fee / £750 cashback
Fixed at £508.86 per month until 01/06/2016. After this period the mortgage will revert to the lender’s variable rate at the time. Based on today’s prices this would be £736.00 per month.
The main early repayment charges are 2.5% of the amount repaid in the fixed period.
For more information on our range of residential or buy to let remortgages please contact us on 0207932044 or alternatively complete the online enquiry form on the right-hand side of this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
