The industry has just celebrated 25 years of the buy-to-let (BTL) mortgage, but you would be forgiven for thinking it had been around for a lot longer. It seems always to have been there but, like all mortgages, it was introduced for a reason: to fill a gap.
We all know BTL is an important element in the bridging industry. A large proportion of our daily business relies on this product as a route to exit. What would the sector look like if the BTL mortgage had not been introduced and evolved?
Much of the lending we secure is for refurbishment or conversion of property, either to sell or let. If there was no BTL mortgage, landlords and investors would be heavily reliant on selling the refurbished property to repay the bridging loan.
A large proportion of our business relies on BTL for an exit
The journey of bridging finance, or indeed development finance or a hybrid of the two, through to longer-term BTL finance is a critical component of today’s market. The BTL mortgage has helped to shape the rental sector and brought in more landlords to build property businesses.
Bridging for landlords
Think about this scenario: an investor or landlord sees a great-value property at auction; the bridging loan is the first and most obvious option for finance. For landlords investing in uninhabitable, and therefore unmortgageable, property, short-term finance can pay for bringing the property up to a liveable and lettable standard. However, usually the exit strategy is to move the finance to a BTL mortgage.
It is always a good idea for investors to source their BTL mortgage before or at the same time as the bridging finance
We are seeing a lot more of this type of business as well as a continued rise in houses in multiple occupation (HMO) investment. The ever-changing property market, coupled with higher yields on HMOs, is proving attractive to landlords. Even if there are some vacant rooms in a property, rental payments are still coming in from the other occupants.
Compliance measures
We know there are often additional compliance measures to put in place or reconfigure in order to qualify for BTL lending. However, if property is bought well, the rise in value once complete offsets the cost of the bridging finance.
Since the slowdown resulting from the first lockdown in 2020, the pace of the bridging market has really picked up. Lenders have become aggressive on price and there is a good appetite to lend. Finding the balance between price and service remains important, and headline rates, although enticing, are not the be-all and end-all.
Speed is a prime factor in bridging and more lenders have introduced fast track, with no physical valuation needed if automatic valuation models can be used. Technology is helping with advances such as biometric ID verification for quicker onboarding, and some lenders are widening their criteria.
Role of broker
With most bridging loans being intermediated, the role of the broker is to ensure all options are considered; be transparent with the customer about what products are out there and why some may have been discounted.
If there was no BTL mortgage, landlords and investors would be heavily reliant on selling the refurbished property to repay the bridging loan
It is always a good idea for investors to source their BTL mortgage before or at the same time as the bridging finance. Bridging lenders usually need evidence of an exit strategy, or at least a sense check.
Given the ever-changing property landscape, bridging as we know it would be very different without the impact of BTL and the scope it offers investors, landlords and borrowers. With so much choice and competitive pricing coupled with property development opportunities, the current demand for bridging finance is set to stay on a healthy trajectory for the rest of 2021.
Lucy Barrett is managing director of Vantage Finance
