There are three types of loans that landlords can use to purchase a property at auction and do any necessary works. These are:
- Standard bridging loans – to assist with the purchase
- Refurbishment loans – to assist with the purchase and enable light or heavy works depending on the extent of the works
- Development loans – when starting with land or a major change of use such as an office block to residential housing.
There are various different facilities are available within these loan types, such as:
- Retained payments: This means that repayments come out of the advance, so you receive a lower net advance on day one but have no payments to make for the period of the loan.
- Rolled payments: Here, repayments are added to the balance on a monthly basis and this total amount is paid by the borrower at the end of the term of the loan.
- Service payments: The borrower would make service payments on a monthly basis and so lenders would need to look further into the affordability of the loan to ensure that the borrower can make the monthly payments.
With standard bridging and refurbishment loans there is not usually an early redemption charge, but with some development loans there are. All of this needs to be taken into account for the final figure to be repaid, either through the sale of the property or moving across to a term buy-to-let loan.
If you’d like to find out more about how lenders are approaching short term loans post-pandemic, see our July landlord update.