By Matthew Dilks, bridging and commercial specialist, Clever Lending
In the current economic climate of rising interest rates and ongoing uncertainty in the mortgage market, many buy-to-let (BTL) landlords are facing numerous challenges when it comes to trying to secure a fixed rate mortgage deal.
The days of plentiful fixed rate products are now a thing of the past and many mortgage offerings are becoming increasingly short-lived as lenders pull rates at an alarmingly rapid rate as they struggle to keep up with the constant fluctuations in the mortgage market.
According to financial data firm Moneyfactscompare, nearly 10 per cent of UK residential and buy-to-let mortgage deals totalling 800 products, were pulled from the market in the last week of May, with the number of BTL mortgages falling by 403 to 2,343 in seven days. Although latest figures are yet to be announced, this trend will only be continuing.
Meanwhile, the average rate on a five-year fixed rate BTL deal is now hitting 6.29%, as lenders try to curb the impact of inflation on escalating mortgage costs, with predictions for higher rates ahead following the Bank of England’s recent decision to increase the base rate to 5% in mid-June.
What is the impact for landlords?
For BTL landlords, this is causing a real squeeze on margins as affordability constraints leave many struggling to secure finance or remortgage onto a cheaper fixed rate deal and therefore face the prospect of having to move onto a product transfer with a higher standard variable rate of interest.
With yields already dropping and other factors such as the forthcoming Energy Performance Certificate (EPC) requirements deadline in 2025 also on the horizon, higher monthly mortgage repayments are not ideal. Many landlords are already facing increased mortgage and maintenance costs, so seeking out ways to maximise returns and move quickly in a volatile market is key.
For brokers with BTL landlords as clients, now is the time to ask your clients to take stock of their portfolios and consider the ways in which under-performing assets can be repurposed for maximum returns through the use of a bridging loan.
Bridging loan
Bridging loans can serve as a useful financial tool for landlords looking to quickly raise capital to purchase an additional property or carry out improvements to an existing one. This could be through simple changes such as painting or decorating through to extensive repairs and renovations to existing stock.
Bridging loans can also be used for a variety of other purposes, including to buy another property quickly or at auction; to extend the lease on an existing property or to carry out maintenance to improve a property’s overall value. Once the work has been completed, the client can then exit the loan by refinancing onto a standard mortgage.
As the funds are released quickly, the chances of missing out on a property purchase because a deal has been withdrawn are also reduced, which provides greater peace of mind for the borrower and can prove vital for landlords in an uncertain market.
Bridging loans can also be used for residential purchases, and are particularly useful in situations where a client is looking to downsize and needs to break a chain in order to purchase another property before selling their existing asset.
As the maximum term on bridging loans is 12 months for residential purchases and up to 24 months for BTL or commercial properties, they are ideal for BTL landlords as they enable them to gain swift access to cash and move quickly on a purchase or project – an essential ability in a rapidly changing market.
Given the current challenges within the mortgage sector, the ability to move quickly and with ease is an important advantage for BTL clients. Bridging loans offer the means to achieve this by enabling them to expand their portfolio or carry out the work required to update under-performing assets so they can ensure they maximise returns and get the most out of their investments.
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