A loan that one or more persons receive in order to buy a house or other residential property in which they will live. The loan is secured by a charge on the property; the borrowers repay it over a specified period of time.

A buy-to-let mortgage is a mortgage arrangement in which an investor borrows money to purchase property in the private rented sector in order to let it out to tenants. Buy-to-let mortgages have been on offer in the UK since 1996.

Lenders calculate how much they are willing to lend using a different formula than for an owner-occupied property. They tend to look at the expected monthly rental income to determine the maximum loan available. Depending on the lender, borrowers might also be allowed to include their own personal income in the calculation of the maximum amount that they can borrow. First-time landlords might also be required to have a separate annual income of at least £25,000. For an owner-occupied property, the calculation is typically a multiple of the owner’s annual income.

There are some situations where borrowers do not seem to be acting in a business capacity. Examples of this may be where the property has been inherited or where a borrower has previously lived in a property, but is unable to sell it so resorts to a buy to let arrangement. 

In these cases, the borrower is a landlord as a result of circumstance rather than through their own active business decision. The government’s view is that such borrowers are consumers and would need to be covered by an appropriate framework.

Bridging loans are a short-term funding option. They are used to ‘bridge’ a gap between a debt coming due – and we’re talking primarily about property transactions here, and the main line of credit becoming available. Or they can simply act as a short-term loan in pressing circumstances.

How does a bridge loan work?

A “bridge loan” is a short term loan taken out by a borrower against their current property to finance the purchase of a new property. Also known as a swing loan, gap financing, or interim financing, a bridge loan is typically good for a six month period, but can extend up to 12 months.

The biggest difference with other types of mortgages such as a residential mortgage, is the type of property for which funding is required; in this case it would be an office, industrial unit or a shop for your business to use. The property might actually be an investment to you, where tenants pay rent you use, in turn, to pay the mortgage.

The standard process is that an application is submitted by the customer, the property is valued and if approved, a mortgage offer is issued by the bank and the transaction is completed.

Second charge mortgages are often called second mortgages because they are a secured loan used to raise extra money, instead of remortgaging or taking out a personal loan. Second charge mortgages use the borrower’s home as security. Many people use them to raise money instead of remortgaging, the borrower needs to also understand that they are still paid off alongside your first mortgage. A remortgage deal allows you to pay off your existing mortgage and switch to a new mortgage provider, so you still have one mortgage to pay. However, you might consider remortgaging or getting a second charge mortgage for the same reason: to raise extra cash.