Is bridging finance an answer for buy to let landlords?

by Jason McClean

13:28 PM, 18th January 2017
About 2 years ago

Is bridging finance an answer for buy to let landlords?

Make Text Bigger
Is bridging finance an answer for buy to let landlords?

An increasing number of landlords are looking to unique forms of finance to continue investing in the private rental sector.bridging finance

The rise in popularity of less conventional finance options could be in response to the Bank of England’s decision to restrict buy to let lending through tighter borrowing rules and stricter affordability tests.

84% of brokers were unable to find a buy to let mortgage for some of their clients in the final quarter of 2016, a new survey by bridging loan lender MTF revealed.

27% of brokers said that affordability was the main reason.

A further 20% revealed that clients with adverse credit were struggling to get buy to let mortgages and another 20% put blame on consumer buy to let regulations.

Bridging loans are short term secured loans designed to bridge a temporary cash shortfall when buying a property and demand for these has accelerated in recent months.

After being unable to raise a buy-to-let mortgage for their clients where time was of the essence, 69% of brokers chose bridging finance, while 8% opted for secured loans.

“Despite buy to let mortgages becoming increasingly difficult for investors to secure for a range of different reasons, it is clear that he level of interest and desire to invest in the buy to let market has not dwindled,” said a spokesperson for Property 118’s landlord insurance provider Discount Insurance.

The South East experienced the greatest demand for bridging loans in the UK at 50%, an increase of 21% since quarter three.

The main reasons for why bridging loans were taken out in the fourth quarter of 2016 include to refurbish a property (31%) and for development projects (15%).

Bridging offers faster time to completion than many high street lenders and is expected to outpace traditional mortgages.

However, landlords need to be aware that bridging finance can be very expensive with the cheapest rates in the market generally 1% per month on the money borrowed. This means interest repayments are much larger compared to a long term financing product such as a mortgage.

75% of brokers experienced an increase in bridging loan volumes in 2016 compared to the previous year and 69% expect a further rise in 2017.

banner1



Comments

John Constant

9:23 AM, 20th January 2017
About 2 years ago

Jason,
I suppose that if someone is desperate enough, they will consider all types of finance that will get them to where they want to be, but really, Bridging loans are not the way to do this unless time is of the essence, or the property is un-mortgageable. In both of these cases, Bridging allows the purchaser time to put things right before replacing with a more conventional form of finance.

Whilst it is undeniably more difficult to get competitive finance since the New Year, a specialist BTL broker, such as HD Consultants, will have the specialisation and experience to place the case, if at all possible (Contact us via my member profile if needed). Incidentally, as with standard mortgages, Bridging finance rates vary and can drop to around 0.5% depending upon Loan to Value and the purpose of the funding required.

There is also "Chain-break" Bridging available, specifically for someone wanting to move home, but has been unable to sell. Rates for this are around 5.49% per annum.

Howard Reuben CeMap CeRER

10:12 AM, 21st January 2017
About 2 years ago

I have to add my tuppence worth here 🙂

Whether someone needs a bridging loan, buy to let mortgage, further advance, second charge or secured loan, overdraft, commercial finance or other, what they are actually arranging is debt.

Now, don't get me wrong, I love 'good' debt (ie the money that creates money, such as BTL funding), and some of our Clients have millions of pounds of good debt that has helped enhance their wealth enormously, however, that's all well and good whilst they are alive.

As always, a debt needs to be repaid in the event of death because of course that's when the contract between lender and borrower ends. Debts aren't transferable and so the 'oh so lovely' portfolio inheritance then becomes a huge and devastating loss and burden for those loved ones left behind when the loans are called in and assets are then to be disposed of to repay the debts - which then potentially includes having to sell at a quick reduced price, a payment towards IHT, the payment of CGT, estate agents fees, legal fees etc.

In our group of Companies we have access to all types of life cover to repay these debts quickly, efficiently and very, very cost effectively.

From the standard life cover products right through to the specialist bridging finance short term life cover products (from one month to 12 months of cover) and our Trusts facilitation service is included. And all for no professional fee being charged either because we don't charge fees for our insurance service.

Think about it, what would cost more - the total sum of all of the tax bills, fees and costs as referred to above, or a life insurance premium? In the words of Confucius, "that's a no-brainer guv!" (I'm sure he said something like that) 🙂

For the right life cover (ie DEBT REPAYMENT) planning whether you have a £10,000 debt or a £10,000,000 debt (or more!), contact us via my profile now for a free 2017 review.

Howard Reuben recently posted...Contact HD Consultants - Mortgage & Protection | Buy To Let | Colchester


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Seeking Help in 'De-bunking' MHCLG's report

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More