ADVANTAGE ONLINE | JUNE 2024 7
The rate conundrum
As brokers will know only too well , refinancing is not the most appealing option for landlords at the moment . Interest rates on traditional buy-to-let mortgages are still far more costly than investors have become used to in recent years , even as average rates have dropped below the levels seen at the start of the year and 12 months ago , according to Moneyfacts data .
Committing to years on such a rate , with the increased outgoings it would involve , is painful enough . But this is simply compounded by the fact most of us are pretty confident rates are likely to drop in the near future .
The news that inflation has fallen to more palatable levels means that it ’ s now a question of when base rate will fall , with at least one cut likely this year , perhaps as early as August / September .
This expectation of cuts will push swap rates lower , which should feed into more competitive pricing on buy-to-let deals in the future . But can clients hold off on refinancing until then ?
Making use of bridging
This is where bridging loans can offer a tremendous option , providing landlords with a little breathing space before having to commit to a longer-term deal .
Importantly , when it comes to price , they are not all that different from what landlords would need to pay on a traditional buy-tolet product currently . The selling point is the greater flexibility they deliver - the landlord is not tied in for years at a time , and they aren ’ t forced to push up rents to painful levels for their tenants simply to overcome ICR tests .
Instead , the investor is able to use the bridging loan as a stopgap , waiting until buyto-let rates fall to more acceptable levels . They can then move onto such deals without worrying about exit charges .
This latter point is also important for those considering reshaping their portfolios , selling off the odd asset that isn ’ t quite delivering the required yield / profitability . Again , the lack of exit fees means they are able to do so more freely than with a regular buy-to-let product .
Delivering a broad range of options
For bridging lenders like Tuscan Capital , it ’ s really important we work closely with brokers in highlighting just how flexible these products can be , and the different circumstances in which they can deliver for investor clients . There ’ s more to a bridging loan than simply the ability to access funds quickly .
Equally , the fact that we have seen so many investors make use of bridging loans in this fashion recently reinforces how important it is for brokers to have a wide range of options at their disposal when working with such clients . That way , they are better placed to have an appropriate option to hand no matter what needs the client may have .
Visit the Tuscan Capital website to find out more .