By Lucy Barrett, Managing Director, Aria Finance
Although the industry celebrated 25 years of buy-to-let mortgages in September 2021, you would be forgiven for thinking they had been around for a lot longer. It just seems to have always been there but of course, like all mortgages, it was introduced for a reason, which was to fill a gap in the market.
BTL is an important element within the bridging industry, which relies on this product as one of the popular routes to exit. What would the bridging sector look like if BTL mortgage had not been introduced and evolved in the way it has? A difficult question to answer but a BLT mortgage, or equivalent with a different name, would have cropped up at some point because it was needed.
Much bridging lending is for refurbishment or conversion of property either to sell or let. But if there was no BTL mortgage, investors would be heavily reliant on selling the refurbished property to repay the bridging loan. The journey of bridging finance or indeed development finance or a hybrid of the two, through to longer-term BTL finance is a critical component of today's market. The BTL mortgage has helped to shape the rental sector and brought in more landlords to build property businesses.
For landlords investing in uninhabitable property, and therefore unmortgageable property, short-term finance can pay for bridging the property up to a liveable and lettable standard. Usually, the exit strategy is to move the finance to a BTL mortgage.
We are seeing a lot of this type of business as well as a continued rise in HMO investment. The higher yields on HMOs are proving attractive to landlords plus if there are vacant rooms, rental payments are still coming in from the other occupants. Often there are additional compliance measures to be put in place or reconfiguration in order to qualify for BTL lending. But if property is bought well, the rise in value once complete offsets the cost of the bridging finance.
Whatever the reason for the bridging loan, it is always a good idea for property investors to source their BTL mortgage before or at the same time as securing the bridging finance. Bridging lenders usually need evidence of an exit strategy, or at least a sense check. If investors intend to let the property, they will want to see that a BTL mortgage has been sourced and is viable or approved.
Following the slowdown resulting from the pandemic lockdown in 2020, the pace of the bridging market has really picked up. We have seen lenders becoming very aggressive on price and there is a good appetite to lend.
Getting the balance right between price and service remains as important as ever and headline rates, although enticing, are not the be all and end all. Speed is a prime factor in bridging and more lenders have been introducing fast track with no physical valuation needed if AVMs can be used. Technology is certainly helping with advances such as biometric ID verification for quicker onboarding and some lenders are also widening their criteria.
A competitive market is great for clients and with the majority of bridging loans being intermediate the role of the broker is to make sure that all options are considered. It is important to be completely transparent with the customer about what products are out there and why some may have been discounted.
With so much choice and competitive pricing coupled with property development opportunities, I anticipate the current demand for bridging finance will continue on a healthy trajectory.