The industry just celebrated 25 years of Rental Mortgage (BTL), but you’d be forgiven for thinking it’s been around much longer. It seems to have always been there but, like all mortgages, it was introduced for a reason: to fill a gap.
We all know BTL is a big part in the transition industry. Much of our day-to-day business relies on this product as a way out. What would the industry look like if the BTL mortgage had not been introduced and evolved?
A large portion of the loans we guarantee are for the renovation or conversion of property, for sale or for rent. If there was no BTL mortgage, homeowners and investors would rely heavily on the sale of the renovated property to pay off the bridging loan.
Much of our business relies on BTL for output
The journey from bridging finance, or development finance or a hybrid of the two, to longer term BTL finance is a critical part of today’s market. The BTL mortgage has helped shape the rental industry and led more homeowners to start real estate businesses.
Gateway for owners
Think about this scenario: an investor or owner sees a high-value property at auction; bridging credit is the first and most obvious financing option. For homeowners who invest in property that is uninhabitable, and therefore not hypothetical, short-term financing can pay to bring the property to a habitable and rental level. However, the exit strategy is usually to shift the funding to a BTL mortgage.
It is always a good idea for investors to research their BTL mortgage before or at the same time as the bridge financing.
We are seeing a lot more of this type of business as well as a continued increase in investment in multiple occupancy homes (HMOs). The ever-changing real estate market, coupled with higher returns on HMOs, is proving attractive to homeowners. Even if there are vacant rooms in a property, rents continue to be paid by other occupants.
We know that there are often additional compliance measures that need to be put in place or reconfigured in order to qualify for BTL loans. However, if the property is properly purchased, the increase in value when completed will offset the cost of the transition financing.
Since the slowdown resulting from the first lockdown in 2020, the pace of the gateway market has really accelerated. Lenders have become price aggressive and there is a good appetite for lending. Finding the balance between price and service remains important, and overall rates, while attractive, are not the ultimate solution.
Speed is a key factor in the transition and more and more lenders have introduced the fast track process, without any physical assessment being necessary if automatic assessment models can be used. Technology is helping advancements like biometric identity verification for faster integration, and some lenders are expanding their criteria.
As most bridging loans are intermediated, the role of the broker is to ensure that all options are taken into account; be transparent with the customer about the products available and why some may have been reduced.
If there was no BTL mortgage, homeowners and investors would rely heavily on the sale of the renovated property to pay off the bridging loan.
It is always a good idea for investors to research their BTL mortgage before or at the same time as the bridging financing. Bridge lenders usually need evidence of an exit strategy, or at least a common sense check.
Given the ever-changing real estate landscape, the transition as we know it would be very different without the impact of BTL and the reach it offers to investors, homeowners and borrowers. With so much choice and competitive pricing coupled with real estate development opportunities, current demand for bridging finance is expected to remain on a healthy path for the remainder of 2021.
Lucy Barrett is Managing Director of Vantage Finance