Being a landlord in the UK – How can you utilise Bridging Finance

– Introduction
– Current Trends in the Rental Market
– Key Advantages to be a landlord in 2025
– Introduction to bridging loans and how they differ from traditional buy-to-let mortgages
– Benefits of Using a Bridging Loan for Landlords and Investors
– Conclusion

The buy-to-let (BTL) market involves purchasing residential property to subsequently rent it out, aiming to generate rental income and, potentially, capital gain. It has been a popular investment strategy, particularly in the UK, where the property market has traditionally provided stable and attractive returns. The purpose of this article is to explore how landlords and investors can use bridging loans to expand their property portfolios.

The UK landlord market is currently navigating a complex landscape shaped by economic pressures, regulatory changes, and evolving market dynamics.

Landlords are facing significant financial challenges due to rising costs and high interest rates. These factors have led to a notable reduction in buy-to-let investments, with landlords purchasing just 10% of homes sold in the first half of 2024—the lowest share since 2010. This trend has resulted in a 43% decrease in available rental properties compared to 2015 levels, intensifying competition among tenants and driving up rents. (Brignall, 2023)

Average UK private rents increased by 9.0% in the 12 months to December 2024 (provisional estimate). Increasing to £1,369 (9.2%) in England, £777 (8.5%) in Wales and £991 (6.9%) in Scotland, in the 12 months to December 2024. The average house price for England was £306,000 in November 2024, up 3.0% (£8,000) from a year earlier. This annual rise was higher than in the 12 months to October 2024 (2.6%).

So whilst it may be a challenging time to enter the market as a landlord, there is clear potential to have a successful and thriving portfolio of occupied properties.

1. Rising Rental Yields

•   Due to a shortage of rental properties, demand remains high, pushing up rental prices.
•   The UK rental market is expected to see rents increase by nearly 20% over the next five years.
•   In some areas, rental yields exceed 6-7%, particularly in northern cities like Manchester, Liverpool, and Leeds.

2. Lower Mortgage Rates Coming

•   The Bank of England has started cutting interest rates, which could lead to cheaper buy-to-let mortgage rates.
•   Some lenders are already offering mortgage rates under 4% for landlords with a 40% deposit.

3. Increased Tenant Demand

•   House prices remain high, making it harder for first-time buyers to get on the property ladder.
•   This increases long-term demand for rental properties, ensuring landlords have a steady stream of tenants.

A bridging loan is a form of short-term lending, secured against property or land. Bridging finance can support cashflow before a more long-term arrangement can be made.  The biggest advantage of a bridging loan is the speed in which it can be arranged, allowing cash to be available within a very limited timescale. Bridging loan funds have been paid out by BIG Property Finance in a matter of days, whilst a high street lender would normally finalise a mortgage in circa 6 weeks at the fastest. Another key feature of a bridging loan is that they are only intended to be utilised in the short-term, with most loans on a term of one to eighteen months. Whilst many mortgages will now run for up to 35 or 40 years. This in turn means that there needs to be an intended repayment vehicle for a bridging loan.

Whilst a mortgage is regularly structured on a capital repayment basis, where the monthly payments pay down the added interest and gradually reduce the outstanding capital, a bridging loan would only be repaid in full at the end of the loan term. A serviced bridging loan might still be a possibility, if the monthly payments are affordable with the borrower’s current income, allowing them to clear the accrued interest each month. However, the borrower will still need to have a clear exit strategy to the loan, so that they can pay back the funds borrowed with any outstanding fees or interest.

Using a bridging loan to support the purchase of a Buy-to-Let property

Here’s the step-by-step process on how bridging loans function in the buy-to-let market.

1.     Finding a suitable investment property within budget and agree a purchase.
2.     Initial bridging loan phase: Short-term financing for property purchase or renovation.
3.     Complete refurbishment/repairs to prepare property for rental.
4.     Refinance to a term loan: Switching onto a longer-term buy-to-let mortgage once the property is ready to rent. Using the rental income to make monthly payments.

Costs associated with bridging loans:

It is important to mention that bridging loans aren’t considered to be the cheapest form of finance, as you pay for the convenience. The current average mortgage rate (February 2025) for a five-year fixed rate mortgage is 4.72%, according to the site ‘Nerd Wallet,’ with bridging rates averaging 10.56% annually! You also need to consider legal fees, valuation costs and potentially broker fees, arrangement fees or exit fees. Added fees and extra costs can be a feature of many forms of lending, but at BIG we are always transparent upfront on what is payable.

Bridging loans help in seizing time-sensitive opportunities. Such as purchasing a property at auction where there are normally only 28 days to complete.

Flexibility in property investments:

Funding renovations, refurbishments, or conversions. The funds raised from a bridging loan can normally be utilised for multiple purposes, whether it’s the capital required to purchase a property, money to fund refurbishments or extra cash to extend the lease or apply for planning permission.

Expanding property portfolios:

Using bridging loans to acquire undervalued or distressed properties. Sometimes multiple properties may be sold together or un-mortgageable properties requiring extensive renovations.

Market competitiveness:

Staying ahead of other buyers by securing properties faster. If you can act quickly in a property transaction it can help you secure a property at a competitive price without the delays of a traditional mortgage. Allowing you to compete against cash buyers with immediate funds.

In conclusion, the benefits of using bridging loans in the buy-to-let market is that it can give you an advantage over the competition by allowing you to act quickly in a property transaction. A bridging loan can also buy you time to find a more long-term solution to a temporary financing issue which facilitating the growth of your business or property empire.

So if you are a landlord or property investor, will you consider bridge-to-let loans as a strategic tool for portfolio expansion?

Seek professional advice to explore bridging loan options that align with your investment goals.

For more information about what bridging finance options we can offer, contact BIG Property Finance on; info@bigpropertyfinance.co.uk – 0121 348 7830.

References

Brignall, M. (2023, 11 13). Landlords sell up in Great Britain as buy-to-let market sours. Retrieved 02 24, 2025, from The Guardian: https://amp.theguardian.com/money/2023/nov/13/landlords-sell-up-in-great-britain-as-buy-to-let-market-sours?utm_source=chatgpt.com

Private rent and house prices, UK: January 2025. (2025, 01 15). Retrieved 02 24, 2025, from Office for National Statistics: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/privaterentandhousepricesuk/january2025#:~:text=and%20house%20prices-,Average%20UK%20private%20rents%20increased%20by%209.0%25%20in%20the%2012,of%209.2%25%20in%20March%202024.