Key bridging questions
THE QUESTION
I'm new to the property investment world and looking to get my first buy-to-let. I have two questions:
- If I buy with bridging loan and do a full refurb, can I remortgage earlier than six months?
- If I'm buying with bridging loan can I say that I'm a cash buyer or should I just say that I’m using a bridging loan?
THE ANSWERS
Question 1: You have always been able to refinance within six months; you just don't have the full range of lenders to choose from.
Some BTL lenders invoke a six-month ownership restriction. These tend to be the mainstream BTL lenders such as Godiva etc. If you are buying in your personal name, typically, these lenders will have the keenest rates. As more investors are choosing to set up a limited company to buy property, which means preferential rates are not available, as they don't lend to limited companies.
Some brokers will tell you that, if you refinance within six months, lenders only value your property at the purchase price, and it is only after 6 months that they will look at open market value. This isn’t completely right. Yes, there are some lenders who will refinance within six months, but only lend based on the purchase price you paid.
A few will lend on purchase price paid plus whatever you have spent improving the property. Fewer still will lend on the uplifted market value. So if you want to refinance at full market value, you can certainly achieve it, but you will have a smaller choice of lenders to choose from and have to pay marginally higher rates.
Question 2: I run the UKs longest established training course in the intelligent use of bridging finance, the Ninja Investor Programme. This is an issue that we cover.
If you say you are a cash buyer, there are implications.
- ‘Cash Buyer’ is a much over used phrase that just washes over many agents these days. They pay little attention as they have found there are many permutations to what that really means when they dig down. So you are unlikely to impress an agent by uttering that statement. They will inevitably dig deeper to establish the validity of your statement
- If you have declared yourself to be a cash buyer, at some later point the agent may require you to provide proof of funds. As a cash buyer that will be in the form of a bank statement showing a balance at least enough to buy the property in question outright. Of course, you can’t do that, and you will have to backtrack and explain that you are using bridging. This will damage your credibility, which won’t help you in this or future negotiations.
Just telling an agent you are using bridging finance may not have the desired effect either, even though it is both honest and accurate. This is because many agents don't understand exactly what bridging is and think it works basically like a mortgage.
"I don’t need a mortgage" is the phrase I teach investors to use. Factually correct but will often invite the follow up question "so you are a cash buyer then?" to which you should answer honestly as I have described above.
I have been teaching investors how creatively bridging can be used for years. Stuff like
- How it can be used to buy the right property from the right seller up to 50% below market value/asking price
- How it can be used to borrow against the done up value at point of purchase, meaning you can purchase at the uplifted value without even having to wait less than six months to get you cash out
- How it can be the discount you have negotiated can be used as part of the deposit so your cash in the deal shrinks down to way less than 25%
If you are going to use bridging, you will need to alter your mind-set on how you negotiate. It’s no good negotiating in the say you would for a mortgage then tacking bridging on the back end - you will be reducing your profit on the deal. You need to negotiate like a cash buyer to reduce the purchase price further than mortgage buyers can. There is a skill to this and that is part of what I teach.
You can learn more here:
- Contact Kevin Wright over on his Facebook page.
- Browse the Recycle Your Cash online training library by clicking here.
- Attend an upcoming 1-Day Property Finance Masterclass event - Book in here.
