Bridging flexibility and pricing great option for refinancing buy-to-let landlords – Sanders

While Moneyfacts data shows that average buy-to-let (BTL) rates have dropped below the averages on offer at the start of the year, as well as the same point last year, they remain far more costly than what has been the norm in recent years.

Signing up to such a product is even less enticing when you consider rates could drop in the months ahead. In my view, this dilemma simply makes the case for brokers to give a greater consideration towards bridging loans and short-term finance in general.

What the future holds

While there is no such thing as a crystal ball when it comes to mortgage rates, the prospects are good for these BTL products to be more competitively priced in the future.

Inflation is falling, and while that is happening more slowly than we would like, it is at least heading in the right direction. As a result, expectations remain for one base rate cut relatively soon, perhaps not in June during the middle of a general election campaign, but maybe in August or September.

In the lead-up to such a change, we are likely to see swap rates dip, and hopefully lead to more attractive long-term pricing for landlords and investors. The challenge becomes what they do in the meantime.

Bridging pricing not too different from traditional BTL

Bridging loans have long been recognised as a fantastic option for investors who want to move quickly on a purchase, but they also come into their own in situations like we face currently.

The pricing on these products is currently not all that different from what investors would pay for a traditional BTL deal, yet they offer far greater flexibility. The landlord is not tied into a deal for years at a time, nor being pushed to make potentially painful changes to their rent simply to pass ICR tests. Instead they can sit on a bridging loan for a year, with the ability to refinance onto more mainstream/orthodox BTL products as and when the pricing is more attractive.

Crucially, this option also allows them to restructure their portfolios without worrying about additional charges – if they want to sell an asset or two that perhaps isn’t delivering the yield they are looking for, they can do so while on that bridging loan without the threat of exit fees, as would be the case with a regular product.

We have seen a host of investors making use of bridging loans in precisely this way of late. This simply reinforces how important it is for brokers to have the full range of options at their disposal when working with investor clients, ensuring whatever the client may have planned, they have the appropriate financing at their disposal.

Equally, bridging lenders must continue to highlight the flexible ways in which these products can be utilised, so brokers have a better understanding of how they can serve their clients.