Bridge to let is the buy, refurbish, refinance strategy, sometimes called BRRR, financed properly: a bridging loan to buy a property that a buy to let lender will not touch yet, the works that make it lettable, and a buy to let loan at the end that repays the bridge and, done well, returns a large part of your cash. In Scotland it is how a lot of tired tenement flats, ex-auction houses and empty shops with flats above become let investments.
It works for investment landlords and limited companies. It is not for a home you or your family will live in.
Bridge to let calculator
Purchase, works, bridge, refinance and the cash left in, with LBTT and the 8% ADS worked out on the price. Free, no email address needed.
The buy to let loan at the end is the lower of two figures.
On modest Scottish rents the rental test is often the one that binds. A flat valued at £230,000 might support a loan of £172,500 on value, but if the rent is £950 a month, a 5.5% stress rate at 125% cover supports only about £165,800. That gap stays in the deal as your cash. Run both tests before you buy, not after.
Some term lenders will not refinance a property within six months of its purchase, or will lend only against what you paid until six months have passed. Others will use the new value as soon as the works are complete and evidenced. The difference between those two decides whether you take your cash out in month four or month seven, and how much interest the bridge costs in between. Pick the exit lender, at least in principle, before you take the bridge.
Land and Buildings Transaction Tax and the Additional Dwelling Supplement are paid in cash on completion, and no lender funds them. The supplement is 8% of the whole price on most investment purchases, so on a £150,000 flat the tax is about £12,100, almost all of it ADS. It is charged on the price you pay, not the value, and it is part of the cash that stays in until the refinance. Check it on the LBTT and ADS calculator.
The commonest way for a bridge to let to go wrong is an exit that does not work: a valuation lower than hoped, a rent that fails the stress test, a lender that will not refinance yet, or works that overran. Each one leaves you paying bridging interest for longer. Before you buy:
Most investors doing bridge to let buy through a limited company, often a special purpose vehicle set up only to hold property. Bridging and buy to let lenders both lend to companies; the directors usually give personal guarantees, and lenders look at the directors’ experience as well as the company’s. Whether a company suits you is a tax question for your accountant. The lending works either way.
If you bought at a genuine discount, a few lenders will size the bridge on the value rather than the price, which cuts the cash needed on day one. Our below market value bridging guide explains how.
Illustrative, not a completed 9ROK deal.
A two-bedroom flat bought for £150,000, with £30,000 of works and an expected value of £230,000 once finished, let at £1,350 a month.
At a rent of £950 a month the rental test drops to about £165,800, becomes the binding figure, and about £38,100 stays in instead. The bridge to let calculator runs these numbers on your own deal.
The bridge costs monthly interest, an arrangement fee, valuation, legal fees on both sides and sometimes an exit fee; the refinance has its own fees. The ranges are on our bridging finance page.
Indicative only. Property given as security may be repossessed if the loan is not repaid, and most lenders ask directors for personal guarantees.
A plan in two loans. A bridge buys a property that a term lender will not take yet, the work is done and the property is let, then a buy to let loan repays the bridge. Some lenders offer both loans as one package.
It depends on the term lender. Some will refinance on the new value as soon as the works are done and evidenced; others will not lend within six months of purchase, or will lend only against what you paid in that window. Choose the exit lender before you take the bridge.
Usually because the rental test binds. The loan is the lower of the loan to value cap and the amount the rent supports at the lender's stress rate and cover. On modest rents the rental test often gives the lower figure, whatever the valuation says.
Yes, and many investors do. The company borrows, the directors usually give personal guarantees, and on residential purchases the company normally pays the 8% Additional Dwelling Supplement. The tax treatment is a question for your accountant.
Send the purchase, the works, the expected rent and the value after the work. One working day to an honest view on the bridge and the refinance.