The Prudential Regulation Authority has made it difficult to get a commercial mortgage on low yield buy-to-let properties, but a bridging loan is an alternative way to raise finance.
As discussed in a June 2017 BridgingAndCommercial.co.uk article, The Bank of England’s Prudential Regulation Authority has recently introduced more stringent lending criteria for buy-to-let properties. Many lenders are expecting rents to cover at least 145% of the mortgage repayments, even if interest rates were to rise above 5%. Property in low-rent areas may not provide enough income to satisfy these lending requirements.
An example of this is rented property in Southampton, where rental yields are at a low rate of 4.08%. However, capital growth on Southampton residential properties is about 5.47%. This makes investing in these properties profitable, but it is difficult to obtain a commercial buy-to-let mortgage for properties with rental yields of around 4%.
Some lenders offer a three-year bridging loan for low-rent properties. Provided the landlords can afford to repay the bridging loan and the deposit, bridging finance is a viable alternative to buy-to-let mortgages.
This is an example of bridging lenders targeting specific uses. One of the many advantages of bridging loans is their flexibility. Bridging loans are available for auction purchases, property development, pre-construction loans and various other uses.
For borrowers unable to obtain a standard loan or mortgage for their property deals, a broker may be able to find a bridging lender to provide a short-term alternative.