Flexible and Affordable Bridging Loans: An Ideal Refinancing Solution for Buy-to-Let Landlords

Residential Loan

Landlords thinking about refinancing right now face a challenging scenario, as current interest rates on buy-to-let (BTL) products are not particularly attractive to many property investors.

Despite Moneyfacts data indicating that average BTL rates have decreased compared to the beginning of the year and the same time last year, they are still significantly higher than the historically low rates seen in recent years.

The prospect of locking in these rates becomes even less appealing when considering the potential for rates to drop in the coming months. In our opinion, this situation underscores the importance of brokers placing greater emphasis on bridging loans and short-term finance options.

What the future may hold

While predicting mortgage rates with certainty is impossible, the outlook for buy-to-let (BTL) products becoming more competitively priced is promising. Inflation is gradually decreasing, albeit slower than desired, but it is moving in the right direction. Consequently, there is an expectation for a base rate cut in the near future, likely not in June during the general election campaign but possibly in August or September.

As we approach this potential shift, swap rates are anticipated to decline, which should lead to more attractive long-term pricing for landlords and investors. The main challenge is determining the best course of action in the interim.

Bridging loans offer competitive pricing and flexibility compared to traditional BTL

Bridging loans have long been valued by investors needing to act swiftly on purchases, but they are especially advantageous in today’s market conditions.

Currently, the pricing of bridging loans is comparable to traditional buy-to-let (BTL) deals, yet they provide significantly more flexibility. Landlords are not locked into long-term agreements or pressured to adjust rents to meet Interest Coverage Ratio (ICR) tests. Instead, they can utilise a bridging loan for up to a year, with the option to refinance into standard BTL products when more favourable rates are available.

Moreover, this approach allows landlords to restructure their portfolios without incurring additional charges. They can sell underperforming assets while on a bridging loan without facing exit fees, a common issue with regular BTL products.

Recently, many investors have been leveraging bridging loans in this manner. This trend underscores the necessity for brokers to have a comprehensive array of financing options available for their investor clients, ensuring they can support any planned endeavours with suitable financial solutions.

Additionally, bridging lenders should consistently emphasise the versatility of these products, helping brokers fully understand how they can best meet their clients’ needs.