As the general election draws closer, Jaxon Stevens, sales director at Tuscan Capital, argues how short-term finance can provide flexibility to landlords over traditional BTL mortgages.

By Jaxon Stevens, Sales Director, Tuscan Capital Limited.

While it would be difficult to say that the nation is in ‘election fever’, it’s definitely the big news story at the moment, and not just across the political pages.

The calling of a general election undoubtedly has an impact on the mortgage market. There will of course be some potential buyers who put their plans on hold, wanting to see how things shake out, and are perhaps shaken up by the result, before pushing on with their purchases.

But there is an effect on pricing too. Realistically the Bank of England is incredibly unlikely to opt to cut rates in the middle of an election campaign, given the way this could be seized upon, even if the circumstances appear to be right.

That’s not great news for landlords and property investors who are looking at the pricing of BTL mortgages right now and have seen a significant bump in costs while trying to refinance their existing loans.

Wait and see

An alternative route that we have seen a host of investors opt for of late has been to make use of flexible short-term finance.

The rates on offer are not all that different from what these borrowers would pay on a traditional BTL mortgage, but crucially they offer far more flexibility.

For example, the investor may be considering rearranging their portfolio, selling off certain properties which are perhaps not delivering the desired yields. Recent research from the National Residential Landlords Association suggested around one-in-three investors were looking to reduce the size of their portfolio, despite the strong levels of demand from tenants being seen.

If they do so while on a regular BTL mortgage, then this could easily incur exit fees, making a sizeable dent into the returns from the sale.

There’s no such risk if the investor is instead using a bridging loan — instead they can sell off assets as and when they please, with no fees levied in the process.

This flexibility extends to when they opt to move onto more long-term finance. Ultimately it makes little difference whether the Bank of England starts to reduce BBR in the next couple of months or a year down the line — if the investor is using bridging finance, they can move onto a more competitively priced BTL product when the sums make sense, again without having to worry about exit fees.

Compare that with the cost the landlord would face if they signed up to a regular long-term BTL product today, and then tried to refinance 12-18 months down the line if and when rates have dropped to more attractive levels, and it’s clear that making use of a bridging loan in this way is a potentially smart move.

Why lenders need to be flexible

Clearly this is a great option for plenty of refinancing investors to consider at the moment, giving them far greater control and flexibility.

That flexibility needs to extend to the lenders providing the funds, however. No one has a crystal ball, and while it seems almost certain BBR will begin to come down at some point during 2024 — perhaps as early as August/September — the past few years should have made clear to us all that events can easily knock such expectations off course.

While the investor may go into the bridging loan thinking they will refinance onto a BTL deal within 12 months or so, the reality may mean they need to hold on for longer than that. But with many lenders in this space capping their terms at 18 months, doing so may not be possible.

The feedback we have had from brokers and their clients has been that the 24-month term employed by Tuscan is particularly welcome; while few investors expect to need the facility for that long, they like the fact they have that longer period of time to wait for rates to drop to more acceptable levels.

They don’t want to worry about the prospect of having to re-bridge 12 months or so down the line, should rates on regular BTL deals have failed to fall to desired levels.

Working with lenders that understand the market

This simply highlights the importance of working with lenders who understand this market, and what landlords actually need.

This doesn’t happen by accident - it’s the product of a long history in the sector, working closely with brokers and their investor clients, meaning there is a more informed perspective over the products and processes that are most likely to deliver.

Bridging the gap until BTL rates fall is only going to become more appealing as we move through 2024, so it’s important for brokers to pinpoint the lenders best placed to deliver that long-term flexibility for their clients.

Read the full article on Bridging and Commercial.

For more information or to get in touch with the team, please contact us: 

Call Us: 020 7846 9030

Email info@tuscancapital.co.uk

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