Guest Blog // Specialist Property Finance – Open for Business?
The last few months have been challenging for landlords and property investors. With new legislation and packages introduced to protect tenants and the environment, landlords have had much to digest. Add to this the economic turmoil created by global factors and exacerbated by the mini budget, investors could be forgiven for thinking that specialist lenders are no longer keen to support this sector.
Prior to setting up my specialist finance brokerage last year, I spent several years immersed in the specialist finance sector working with challenger banks and specialist funders. I have been monitoring the situation closely for the last few weeks and in my opinion, the Specialist Property Finance market is very much open for business. Yes, there was a slight pause in the wake of ex- PM Truss’s disastrous mini budget. The shock of the uncosted budget spooked the markets and this had a potentially devastating impact on the British economy. Many Banks and specialist lenders chose to temporarily withdraw their products and took a short period of reflection to understand the market impact and the knock on effect to interest rates.
Almost all specialist Buy to Let lenders quickly returned to market with revised products, albeit interest rates have increased for all lenders (Ave 2.5% increase on 5 year fixed rate money). Some lenders have also tightened up their criteria to reflect the changes, whilst others have introduced new ‘tracker’ products. We have lived in a world where the Fixed Rate, at such historically low levels was an obvious choice for many, however we now see a shift in this space to some of the more competitive tracker rates available. An advantage of some tracker loans is they often do not have the high Early Repayment Charges that apply to most Fixed Rate products. Specialist Buy to Let lenders have been quick to recognise this change and have recently introduced a range of new trackers products to the market.
Lenders and investors alike recognise that where there are challenges for some, there are opportunities for others. Bridging finance lenders in particular are well placed to support property investors and help them take advantage these opportunities via a range of specialist products. The following products are available to most experienced property investors.
Bridge to Let
A bridge to let loan provides a means for investors to buy a property quickly and then ability to refinance to a term loan. This can be used in situations where a property is unmortgageable for example where there may be a lack of kitchen or bathroom. It may also be used for auction purchases or ‘off market’ transactions where a fast turn around is important. This also works well where investors want to retain their cash reserves or do not have the cash available to buy the assets. It is especially prominent now that there is a greater focus to improve the EPC rating for each tenanted property. If investors can leverage more against the purchase price and reduce the amount they need for a deposit, they free up their reserves for property upgrades. Buy to let investors are being rewarded with better rates for more energy efficient properties.
Bridging can be useful for investors when they have an opportunity to buy a portfolio of properties. During difficult times like these, some investors decide to go in another direction and put their portfolios up for sale, and investors can often buy these ‘off market’ at a discount for buying in bulk. The investors position is enhanced if they can expedite the sale as a cash buyer or do not need a traditional mortgage, which can take time, to fund the purchase. Specialist Bridging companies are able to support experienced clients and can offer up to 90% funding against the purchase price as (if this does not exceed 70-75% of the open market value).
A client contacted me recently with the opportunity to buy 6 Buy to Let units as part of a larger portfolio to be sold. Due to the volume of properties he was due to purchase, he was able to negotiate a 20% discount. I was able to provide indicative offers from two lenders on the same day, offering to fund up to 90% of the purchase price. This investor then only had to input 10% of the purchase price to secure the small portfolio. With plans to review the stock and make improvements to the energy efficiency of the properties, they will then re value and transfer the assets to a BTL term loan. By improving the condition and energy efficiency of the units the landlord may be eligible for more attractive rates on the BTL loan. The specialist lender providing this bridge is also able to refinance onto a term loan within 6 months.
It is clear that there are still uncertain and perhaps challenging times ahead, however, it is encouraging to see that there is still a strong desire to support property investors with the doors to specialist property finance still very much open.
If you would like to discuss any Buy to Let, Bridging or Development Finance proposal, please do get in touch directly with
Logic Property Finance