Applying for a buy-to-let (BTL) mortgage is the most common and traditional way of financing investment properties in the UK. However, when lenders aren’t willing to lend or you do not meet their BTL lending criteria; there are alternative methods which are more readily available (but more expensive) to property investors. These alternative financing methods consist of 1.) bridging finance and 2.) joint venture arrangements.
- Bridging finance: short-term loans (usually 6 to 36 months) which charge very high rates of interest which rolls on every month. This type of financing is riskier than conventional mortgage loans and predominantly only used to fill a gap in funding for large projects or properties which are unmortgageable.
- Joint ventures: a partnership where two or more people pool their skills and resources into carrying out an assigned project (one or several investment properties).
Clearly, the alternative methods of financing investment property are usually more expensive (bridging finance – higher rates of interest) and complicated (joint ventures – more people are involved and you will typically have to split the equity within the investment properties).