London buy-to-let rental property secured with £400,000 bridging loan

Finance: £400,000 | Location: Abbey Wood, London

Rental yields can vary across London, but when a property with an attractive yield arrives on the market in an area close to a tube line, many investors will be looking to secure finance quickly to ensure they take advantage of the potential for a healthy return.

Luxury apartment in Knightsbridge London

An investor in London recently found himself in this position when a run-down semi-detached house arrived on the market in Abbey Wood, Bexley, with the potential for a healthy 4.3% rental yield once a light refurbishment was complete.

As a serial London property investor, his money was tied up in his property portfolio, with minimal available cash to complete the transaction. He needed to find a fast financing option that would allow him to both complete the purchase and quickly renovate. 

The finance he required was a bridging loan for £400,000 that would be used to secure the two-bedroom property, fund the refurbishment - the exit would be in the form of refinancing  the loan onto a buy-to-let (BTL) mortgage at the same time as placing it on the rental market. 

Investor needs to secure a £400,000 bridging loan to purchase a potentially lucrative buy-to-let investment

The investor was already well-established in the buy-to-let market having eight properties already rented out in various suburbs in London. 

With his knowledge of the local area, he knew that properties in Abbey Wood were most often rented by families or working professionals and were reasonably sought after due to the lower rental prices compared to other suburbs in London. In his experience, easy access to the tube allowed a premium rent for previous properties, and was one of the desirable traits of this particular 2 bed property.

The 1900’s semi-detached property was on the market for £350,000 and would need around £50,000 worth of refurbishment to bring it back to a habitable state which included a new kitchen, bathroom and garden room office. The investor also decided to furnish the property ensuring he could quickly increase his rent by a further £600 per month.

The investor had a total budget of between £400-£500k, making this property a really good investment in the long-term considering the likely capital growth plus the rental income.

Based on research, there were 791 properties sold in the Bexley area in 2022, within the investor's desired price bracket of £400k-£500k. Four hundred of these were semi-detached properties, which is the most common type of property for sale across the whole of Bexley in 2022. 

With a sought-after property available at a 4.3% yield in the area and the potential for that rental yield to increase with its proximity to the tube, the investor was confident this property would be a great addition to his growing investment portfolio. 

Potential challenges with BTL mortgages

When properties are deemed uninhabitable, as was the case of this semi-detached house due to the lack of both a kitchen and a bathroom, traditional high street lenders simply aren’t interested in offering mortgages as it doesn’t meet their criteria. 

A further downside to using traditional mortgage finance is the limitations when it comes to the flexibility of the lender. 

The more BTL mortgages you have, the higher the perceived risk of defaulting on repayments, especially if the rental yield drops or expenses to maintain the property increase. This combined with recent higher volatility in house valuations in London compared to other areas of the UK all lead to further potential challenges that can prevent mortgage applications from getting across the line.

With only 119 semi-detached properties sold last year for between £300k-£400k (Data source: HM Land Registry), the investor believed the potential financials stacked up and was keen to secure the property. The investor decided to use  a bridging loan to resolve his immediate funding requirements, and was confident his existing mortgage broker would again help him secure a BTL mortgage as an exit strategy.

How was the property secured with a BTL mortgage?

Due to the investor's extensive portfolio, he had a first charge placed against an unencumbered apartment as security and could borrow the £400,000 needed to purchase and renovate his new property. 

Partnered with an extensive range of lenders across the UK, we found two suitable BTL mortgage lenders that would accept his application, but only after the refurb was completed. Once the lenders were happy with the work, they would release the total funding for the mortgage which would then be used to repay the bridging finance. 

With the help of our team  we helped the investor secure both the bridging finance and the BTL mortgage  and quickly borrow the £400,000 to purchase , and refurbish the property. After successfully exiting the bridging facility and refinancing onto the longer-term buy-to-let mortgage the investor is now successfully renting the property in Abbey Wood, London. 

The benefits of using a bridging loan for BTL investments in London

A bridging loan can be valuable to secure a property quickly, and the connections and expertise that most lenders should have will make potentially complicated loan applications easier. 

One of the main advantages of using a bridging loan for BTL investments is that you can finance your purchase quickly. A bridging loan helps to bridge the gap between the purchase and sale of a property, providing access to funds within days or even hours instead of weeks or months with traditional lending. This speed of funding makes bridging loans particularly useful when time is of the essence, such as when you have found a great investment property and need to move fast before another buyer steps in.

Another key benefit of using a bridging loan for BTL investments in London is their flexibility. You can choose the type of security you want to use, including residential, commercial or buy-to-let properties, and you can also choose the amount of time you wish to borrow with an upper limit typically of 24 months. 

Financial insights from experts on bridging loans for buy-to-lets in London

If you want to use a bridging loan for a BTL purchase in London, speaking to a bridging loan broker specialising in property investments can be financially beneficial to the borrower. Good brokers can often obtain far better rates than negotiating directly through presenting the application in addition to creating a competitive market place for the deal. 

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