BRIDGING LOANS ARE FLEXIBLE TOOL AHEAD OF EXPECTED RATE FALLS
02.07.24
It’s an extremely positive time for the bridging loan market.
By Colins Sanders, CEO, Tuscan Capital
Record numbers of borrowers are benefitting from the flexibility on offer from these products, with the latest figures from the Association of Short-Term Lenders showing loan books have jumped to a new high of £7.6 billion for the final quarter of 2023, up by more than 16% on the same period of 2022. Completions have also risen noticeably, demonstrating the heightened activity levels within the sector currently.
These products have long been recognised as a great option for investors who need to move quickly, for example when purchasing at auction, or if a property needs some work before being sold for a profit. However, that certainly isn’t the limit to the flexibility of bridging loans, with short-term deals becoming an increasingly compelling option for landlords facing a refinancing dilemma.
The rate conundrum
As brokers will know only too well, refinancing is not the most appealing option for landlords at the moment. Interest rates on traditional buy-to-let mortgages are still far more costly than investors have become used to in recent years, even as average rates have dropped below the levels seen at the start of the year and 12 months ago, according to Moneyfacts data. Committing to years on such a rate, with the increased outgoings it would involve, is painful enough. But this is simply compounded by the fact most of us are pretty confident rates are likely to drop in the near future.
The news that inflation has fallen to more palatable levels means that it’s now a question of when base rate will fall, with at least one cut likely this year, perhaps as early as August/September. This expectation of cuts will push swap rates lower, which should feed into more competitive pricing on buy-to-let deals in the future. But can clients hold off on refinancing until then?
Making use of bridging
This is where bridging loans can offer a tremendous option, providing landlords with a little breathing space before having to commit to a longer-term deal. Importantly, when it comes to price, they are not all that different from what landlords would need to pay on a traditional buy-to-let product currently.
The selling point is the greater flexibility they deliver - the landlord is not tied in for years at a time, and they aren’t forced to push up rents to painful levels for their tenants simply to overcome ICR tests. Instead, the investor is able to use the bridging loan as a stopgap, waiting until buy-to-let rates fall to more acceptable levels. They can then move onto such deals without worrying about exit charges.
This latter point is also important for those considering reshaping their portfolios, selling off the odd asset that isn’t quite delivering the required yield/profitability. Again, the lack of exit fees means they are able to do so more freely than with a regular buy-to-let product.
Delivering a broad range of options
For bridging lenders like Tuscan Capital, it’s really important we work closely with brokers in highlighting just how flexible these products can be, and the different circumstances in which they can deliver for investor clients.
There’s more to a bridging loan than simply the ability to access funds quickly. Equally, the fact that we have seen so many investors make use of bridging loans in this fashion recently reinforces how important it is for brokers to have a wide range of options at their disposal when working with such clients. That way, they are better placed to have an appropriate option to hand no matter what needs the client may have.
Read the full article on Advantage Online.
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