20th
Jan 2017
The Bank of England's punitive measures on buy-to-let mortgage borrowing rules is causing many landlords to look elsewhere for investment into new and private rental properties.
A bridging loan lender carried out a recent 'broker sentiment survey' finding out that 84% of brokers were unable to find a suitable buy-to-let mortgage for their clients during last year's October to December period and 27% said it was because of the new affordability criteria that the Bank of England has imposed on lenders.
A fifth of the brokers that took part in the survey said that their clients were refused buy-to-let mortgages with adverse credit (understandable of course) and another 20% put the blame onto the consumer buy-to-let's tougher regulations.
However some landlords are now causing a surge in the use of bridging loans,(short term secured loans).
The survey claims that 69% of brokers took up these type of loans for their clients when refused buy-to-let mortgages, and they know that bridging loans are becoming increasingly popular when time is an important factor, 8% of brokers took up the option of secured loans.
Historically bridging loans were 'tarred' as a 'last resort’ but with more people wishing to secure finance they are becoming increasingly popular as the finance providers offer much more flexibility that includes the very attractive options of no minimum term and no exit fees. 31% of brokers are aware that in last year's fourth quarter, bridging loans had increased by 13% above the preceding quarter.
The highest demand for bridging loans in the UK came from the South East in Q4 at 50% having risen from 29% in Q3 of 2016.
31% (the highest)of borrowers took out bridging loans in Q4 to refurbish a property followed by 15% to finance development projects. The demand demonstrates that the loans are being taken out to raise rental income because of the interest cover ratio increasing from 125% to 145%.
Bridging loan applications and processes are far quicker to conclude than arranging finance with high street lenders and it is no real wonder that the short term finance is becoming preferable to buy-to-let mortgages, with three quarters of brokers seeing an increase in numbers of bridging loans from 2015 to 2016. 69% of brokers said that the trend will continue upwards in 2017.
Tomer Aboody, director of the mortgage broker responsible for the survey, said: “The results from our Q4 survey reflect the adverse impact of stricter affordability and stress testing from mainstream lenders on professional property investors’ ability to obtain buy to let mortgages.
“Despite uncertainty in the wider markets, we expect strong demand for bridging loans to continue in 2017.”
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