Is decking the short-term fix homeowners need?

Sophie Mitchell-Charman
Commercial director, LoanInvest

The past few months have been difficult in the buy-to-let (BTL) market, which will have left many of your landlord clients looking anxiously ahead.

As mortgage rates have surged – with few fixed options available – it’s time for brokers to think creatively about how they can deliver the best value to their clients.

Here’s how bridging could be the answer.

What happened to the BTL market?

For many specialist lenders, rates are set by a mixture of their lender’s and their expected margins, which in short means that their funding is often heavily influenced by changes in swap rates, which are set by Sonia (Sterling Overnight Indexed Average).

Bypass is now comparable in price over a 12 month term

With swap rates, what you traditionally see are lower rates in the short term and higher rates in the medium to long term. However, in times of economic uncertainty, this reverses and short-term rates rise.

Since early August, Sonia is up 83% and we have seen some BTL lenders pull their short term products and reprice their long term products on the upside, to not impact their margin and ensure sustainability.

Other lenders decided the best thing for them to do was to exit the market altogether.

Manage the short term

Transition rates are not immune to a difficult economic environment.

Towards the end of September, we saw an increase in the number of lenders raising bridging rates and restricting the loan-to-value ratio.

However, they were not affected to the same extent as BTL rates, as the latter are more subject to volatility in the short-term swap market and changes in Bank of England base rates.

Brokers should look to BDMs to offer advice and information on the ever-changing landscape

This means that the transition, often seen as more expensive, is now priced comparably over a 12-month term, without fear of being locked into that higher rate for longer than necessary.

Right now, owners are eyeing a market that largely moves away from two-year patches in favor of safer, longer-lasting products. While this provides certainty for long-term planning, in the current environment it can be a costly gamble as we don’t know how quickly the market might clear.

It is precisely for this reason that we have launched our new line of follow-up products with no prepayment fees. These allow homeowners to secure an appropriate rate now, with the option to re-mortgage as the market normalizes over the next two years.

Invest for the long term

If your homeowner clients aren’t in the mortgage market and are slow to expand their portfolio further, there are other reasons for them to start considering bridge financing.

We have seen some BTL lenders withdraw their short-term products and reprice their long-term products on the rise

New requirements for energy performance certificates are looming, with new rentals to be rated C and above by 2025, while existing ones will have to do the same by 2028.

Meeting these standards will not come cheap. The UK has the oldest housing stock in Europe and various lenders have estimated that owners will pay, on average, between £6,000 and £10,000 to improve properties. This cost can be multiplied for portfolio owners, who may own a number of homes in areas with older housing stock.

Bridging the gap

Embracing the world of bridge financing, to address the challenges many homeowners currently face, may be new to many BTL mortgage brokers.

Some lenders decided the best thing for them was to get out of the market altogether

To better support these clients, brokers should look to business development managers to offer guidance and insight into the ever-changing landscape. They can thus refer their clients to lenders who have the flexible and wide product ranges necessary to meet all needs.

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