By Sophie Mitchell-Charman, Commercial Director
Obviously you don’t need us to tell you that it has been a tough few months in the Buy-to-Let market, which will have left a lot of your landlord clients looking anxiously toward the future.
2022 was expected to be a bumper year for Buy-to-Let remortgage business, with it estimated that half of the £45 billion in anticipated transactions would come from landlords refinancing.
After years of low rates, landlords now face difficult decisions as they look to secure the long-term future of their portfolios in a way that offers value to their tenants and yields for them.
As Buy-to-Let rates have jumped – with few fixed options available meaning landlords can only use trackers with increased risk and uncertainty – it is time for brokers to think creatively about how they can offer best value to their clients; and here’s how bridging could be the answer.
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 LTVs. They haven’t been impacted to the same extent as Buy-to-Let rates though, as these are more subject to the volatile short-term swap market and Bank of England Base Rate changes.
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 as we don’t know how quickly the market might balance itself out.
This could leave landlords trapped paying an 8% interest rate for five years long after the market corrects itself back to pre-2022 levels.
And here lies another issue, with rates as high as 8%, landlords cannot achieve the required borrowing levels when ICR stress tests are set at pay rate. This potentially locks them out of borrowing what they need now or they could end up as mortgage prisoners in the future.
That’s where the flexibility of a bridging refinance, as opposed to a Buy-to-Let mortgage, can pay dividends as it offers them options throughout the current environment, with no exit fees.
Giving your client the option to review in 12 months, rather than making a 5-, 7- or 10-year commitment at a time of high prices, is one of the solutions bridging finance provides.
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 Buy-to-Let mortgages.
To best support these clients, brokers should look to BDMs to offer guidance and insight into the constantly changing landscape and therefore be able to steer their clients in the direction of lenders who have the flexible, broad product ranges necessary to meet every need.
If brokers are equipped with the right knowledge and expert support, they can best navigate this period for their clients.