What Is the Bridge-to-Let Strategy?
The **bridge-to-let** strategy is a two-stage financing approach that allows property investors to acquire and improve commercial property quickly, then transition to long-term, low-cost finance.
In its simplest form:
- Bridge: Use a short-term bridging loan to purchase a property that does not currently qualify for a standard mortgage
- Improve: Refurbish, convert, or stabilise the property to increase its value and make it mortgageable
- Let: Secure tenants at market rents
- Refinance: Move onto a long-term commercial mortgage at significantly lower interest rates
This strategy **enables** investors to access properties that conventional buyers cannot finance, creating a competitive advantage. Properties that need work, lack tenants, or have other issues are often available at discounts of 20% to 40% below their potential market value.
Why the Strategy Works
The bridge-to-let approach is effective because it exploits the gap between what a property is worth today and what it could be worth after improvement. This value gap exists because:
- Most buyers need mortgages, and mortgage lenders will not fund properties in poor condition or without income
- Cash buyers demand steep discounts because they are using their own capital
- Time-pressured sellers (receivers, estates, relocating businesses) accept lower prices for speed and certainty
- Inefficient markets: Many commercial properties are poorly marketed or overlooked by mainstream investors
By using bridging finance, you can act like a cash buyer — offering speed and certainty — while leveraging borrowed funds. You pay more for the short-term bridge, but the value you create through improvement far exceeds the additional cost.
**Key Takeaway:** The bridge-to-let strategy works best when the value uplift from improvement significantly exceeds the cost of the bridge. Aim for a minimum 20% uplift to ensure the numbers are compelling after all costs.
Step-by-Step: Executing a Bridge-to-Let
Step 1: Source the Right Property
Look for commercial properties where you can add value through one or more of:
- Refurbishment: Dated properties in good locations that need modernising
- Conversion: Change of use from one commercial category to another (or commercial to residential under permitted development)
- Letting up: Vacant properties that could attract tenants at market rents with improvements
- Management improvement: Properties with below-market rents where lease renegotiation or better management could increase income
- Planning gain: Properties where securing planning permission unlocks additional value
Sources for suitable properties include:
- Commercial property auctions (Allsop, Savills, SDL)
- Receivers and administrators selling distressed assets
- Estate agents marketing properties as "requiring modernisation"
- Off-market deals through commercial agents and professional networks
- Probate and estate sales
Step 2: Run the Numbers
Before committing to a purchase, model the full financial picture:
**Acquisition costs:**
- Purchase price
- SDLT (Stamp Duty Land Tax)
- Bridging loan arrangement fee
- Legal fees (purchase and bridge)
- Valuation fees
- Survey costs
**Improvement costs:**
- Refurbishment budget (with 10-15% contingency)
- Professional fees (architect, project manager, planning consultant)
- Building Regulations and compliance costs
**Holding costs during the bridge:**
- Bridging interest (monthly rate x loan amount x months)
- Insurance
- Business rates or council tax
- Utilities and security
**Refinance assumptions:**
- Post-works value (supported by comparable evidence)
- Expected commercial mortgage LTV (typically 70-75%)
- Expected commercial mortgage rate
- Arrangement and legal fees for the refinance
**Income projections:**
- Market rent for the improved property
- Void allowance (budget for empty periods)
- Management and maintenance costs
- Net yield target
Step 3: Arrange the Bridging Finance
With your numbers confirmed, approach a specialist broker to arrange the bridge. You will need:
- Full property details and purchase price
- Schedule of works with costs
- Post-works valuation evidence (comparables)
- Your experience and track record
- Exit strategy details (the refinance plan)
At Commercial Mortgages Broker, we arrange bridge-to-let finance regularly and can often secure a DIP within 24 hours. [Contact us](/contact) to discuss your project.
Step 4: Purchase and Improve
Complete the purchase using the bridging loan. Then execute your improvement plan:
- Manage the project actively: Delays cost money when you are paying bridging rates
- Stay within budget: Cost overruns reduce your profit margin
- Document everything: Photographs, receipts, and sign-offs. Your refinance lender will want evidence
- Start marketing early: Begin advertising for tenants before the works are complete (where appropriate)
Step 5: Secure Tenants
Once the property is improved, let it at market rents. For the refinance:
- Commercial mortgage lenders want to see signed leases or at minimum agreements for lease
- The stronger the tenant covenant, the better your mortgage terms
- Longer leases (3-5 years minimum) are preferred by lenders
- Consider professional letting agents if you are not experienced in commercial lettings
Step 6: Refinance to a Commercial Mortgage
With the property improved and tenanted, apply for a long-term [commercial mortgage](/services/commercial-mortgages). The refinance is based on:
- The new, higher property value — confirmed by a RICS valuation
- The rental income — demonstrating the property can service the mortgage
- Your track record — showing you are a competent landlord and investor
The commercial mortgage repays your bridging loan, and ideally returns a significant portion of your initial cash investment.
A Detailed Worked Example
Here is a realistic bridge-to-let scenario:
The Property
A dated office building in a commuter town, currently vacant and in need of modernisation. Purchased at auction.
- Purchase price: £325,000
- Current condition value: £325,000
- Post-refurbishment value: £500,000
- Refurbishment cost: £85,000
The Bridge
- Loan amount: £243,750 (75% of current value)
- Monthly rate: 0.75%
- Term: 12 months
- Arrangement fee: 2% = £4,875
- Interest over 9 months (actual time needed): £243,750 x 0.75% x 9 = £16,453
- Valuation and legal fees: £3,500
- Total bridge cost: £24,828
Cash Required
- Deposit: £81,250 (purchase price minus bridge loan)
- SDLT: £6,250
- Refurbishment: £85,000
- Bridging costs: £24,828
- Total cash in: £197,328
The Refinance
- Post-works value: £500,000
- Commercial mortgage at 75% LTV: £375,000
- Annual rate: 5.5%
- Arrangement fee: 1% = £3,750
- Legal fees: £2,000
The Result
- Bridge repayment: £243,750 + retained interest
- Cash returned from refinance: £375,000 - £243,750 - outstanding costs = approximately £125,000
- Cash left in the deal: £197,328 - £125,000 = approximately £72,328
- Property value: £500,000
- Equity: £125,000
- Annual rental income: £35,000 (7% gross yield on value)
- Mortgage payments: Approximately £22,000 per annum
- Net income after mortgage: £13,000 per annum
- Return on cash invested: 18% per annum
This is a strong return, and the investor still holds £125,000 of equity in a property that generates positive cash flow.
Which Properties Work Best for Bridge-to-Let?
Office Buildings
Dated offices in good locations respond well to refurbishment. Modern fit-outs with air conditioning, LED lighting, and flexible floor plans command premium rents.
Retail Units
High street units requiring modernisation can be improved and let to quality tenants. Focus on locations with strong footfall and limited vacancy.
Industrial and Warehouse Units
Industrial property is in high demand across the UK. Even basic improvements — new roller shutters, LED lighting, resurfaced yards — can justify significant rent increases.
Mixed-Use Properties
Commercial ground floor with residential above. These are particularly attractive because you can refinance the residential element onto a buy-to-let mortgage, often at better rates.
Conversion Projects
Converting from one use to another (e.g., office to residential under **Class MA permitted development**) can unlock the biggest value uplifts but requires more expertise and planning.
Risks and How to Manage Them
Refurbishment Overruns
**Risk**: Works cost more or take longer than planned. **Mitigation**: Use fixed-price contracts, include 10-15% contingency in your budget, and choose a bridge term with buffer.
Post-Works Value Below Expectations
**Risk**: The property values at less than you projected. **Mitigation**: Research comparables thoroughly. Get an informal valuation before committing. Be conservative in your projections.
Inability to Let the Property
**Risk**: You cannot find tenants at the expected rent. **Mitigation**: Research the local letting market. Speak to commercial agents before purchasing. Consider whether the property type is in demand.
Refinance Difficulties
**Risk**: The commercial mortgage lender declines your application. **Mitigation**: Arrange a DIP from your refinance lender before starting. Use a broker who can access multiple lenders.
Market Downturn
**Risk**: Property values or rents fall during your bridge period. **Mitigation**: Buy at a genuine discount. Do not rely on market growth for your numbers to work. The profit should come from the improvement, not market movement.
**Key Takeaway:** The bridge-to-let strategy is not risk-free. The key risk mitigant is buying well — acquiring at a price that leaves room for costs, contingencies, and market fluctuations while still generating a worthwhile return.
Tax Considerations
Bridge-to-let investors should consider:
- SDLT: Commercial property rates apply. Non-residential SDLT is generally lower than residential, but the 5% surcharge may apply to mixed-use properties with residential elements
- Corporation Tax: If purchasing through a limited company, profits are subject to corporation tax at 25%
- Income Tax: If purchasing personally, rental income is taxable at your marginal rate
- Capital Gains Tax: On eventual sale, gains are taxable (entrepreneurs' relief may apply in some cases)
- VAT: Some commercial properties are opted to tax. If so, VAT at 20% applies to the purchase price (reclaimable if you also opt to tax)
Always take professional tax advice before committing to a bridge-to-let strategy. The correct ownership structure can significantly affect your returns.
Getting Started
If you are considering a bridge-to-let project, here is your action plan:
- Identify a suitable property with clear value-add potential
- Model the full financial picture including all costs and contingencies
- Speak to a specialist broker to arrange bridging finance and line up the refinance
- Engage your professional team — solicitor, surveyor, contractor, accountant
- Execute the plan — purchase, improve, let, refinance
[Contact Commercial Mortgages Broker](/contact) to discuss your bridge-to-let project. We arrange both the bridging and the commercial mortgage, ensuring a seamless transition from short-term to long-term finance.
Frequently Asked Questions
How much deposit do I need for a bridge-to-let?
Typically 25% of the purchase price for the bridging loan, plus your refurbishment budget and all associated costs. In total, expect to need 35% to 50% of the purchase price in cash, depending on the scale of works required.
Can I refinance before the works are complete?
Generally no. Commercial mortgage lenders want to see the property in its improved condition before advancing funds. Some lenders will refinance once 80% or more of the works are complete, but this is not standard.
How long should the bridge term be?
Allow enough time for works, letting, and refinance with contingency. If your works plan is 6 months, take a 12-month bridge. The cost of unused months is far less than the cost of needing an extension.
Is bridge-to-let suitable for first-time investors?
It can be, but experience helps. First-time investors should start with a straightforward light refurbishment project, work with experienced professionals, and ensure they have adequate cash reserves for contingencies.
What returns should I target?
As a rule of thumb, aim for a minimum 15% return on cash invested annually, or a gross yield of 7%+ on the post-works value. If the numbers do not achieve this after all costs, the project may not justify the risk and effort.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*