Sophie Mitchell-Charman
Commercial director, LendInvest
It has been a tough few months in the buy-to-let (BTL) market, which will have left a lot of your landlord clients looking anxiously towards the future.
As mortgage rates have jumped – with few fixed options available – it is time for brokers to think creatively about how they can offer best value to their clients.
Here’s how bridging could be the answer.
What has happened to the BTL market?
For lots of specialist lenders, rates are set by a mixture of their funder’s expected margins and their own, which in short means their funding is often heavily influenced by the changes in swap rates, which are set by Sonia (Sterling Overnight Indexed Average).
Bridging is now comparably priced over a 12-month term
With swap rates, what you traditionally see is lower rates in the short term and higher rates in the medium-to-long term. However, in times of economic uncertainty this flips, and the short-term rates go up.
Since the start of August, Sonia has increased by 83% and we’ve seen some BTL lenders withdraw their short-term products and reprice their long-term products higher, to not impact their margin and to lend sustainability.
Other lenders have decided the best thing for them was to pull back from the market entirely.
Managing the short term
Bridging rates aren’t immune to the tough economic environment.
Towards the end of September we saw a surge in lenders increasing bridging rates and restricting loan-to-values.
They haven’t been impacted to the same extent as BTL rates, though, because the latter are more subject to the volatile short-term swap market and Bank of England base rate changes.
Brokers should look to BDMs to offer guidance and insight on the constantly changing landscape
What this means is that bridging, often seen as more expensive, is now comparably priced over a 12-month term, without the concern of being locked in at that higher rate for longer than necessary.
Right now, landlords are looking at a market largely withdrawing two-year fixes in favour of more secure, longer-term products. While this does offer certainty for long-term planning, in the current environment it can be an expensive gamble because we don’t know how quickly the market might balance itself out.
It is for this reason exactly that we have launched our new suite of tracker products with no early redemption charges. These allow landlords to secure themselves a suitable rate now, with flexibility to remortgage as the market normalises over the next couple of years.
Investing for the long term
If your landlord clients aren’t in the remortgage market and they are holding off on further expanding their portfolio, there are other reasons for them to start considering bridging finance.
We’ve seen some BTL lenders withdraw their short-term products and reprice their long-term products higher
New energy performance certificate requirements are looming, with new tenancies needing to be rated C and above by 2025, while existing ones will have to do the same by 2028.
Meeting these standards won’t be cheap. The UK has the oldest housing stock in Europe and different lenders have estimated landlords will be paying, on average, between £6,000 and £10,000 to improve properties. That cost can be multiplied for portfolio landlords, who maybe own a number of homes in areas with older housing stock.
Bridging the gap
Embracing the world of bridging finance, to meet the challenges many landlords are now facing, may come as a new thing to a lot of brokers who specialise in BTL mortgages.
Some lenders decided the best thing for them was to pull back from the market entirely
To best support these clients, brokers should look to business development managers to offer guidance and insight on the constantly changing landscape. Thereby they can steer their clients in the direction of lenders that have the flexible, broad product ranges necessary to meet every need.
