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Bridging the gap

With a range of industry indices highlighting how the stock available to buy and let is currently constrained and well below levels needed to meet demand, brokers may be faced with limited business volumes. Despite this, there is still a lot that can be done to help generate business and strengthen lasting relationships with clients that could pay dividends in future.

Demand for rented property has been high for a prolonged period and voids recently reached their lowest point for five years, according to Paragon research. Although landlord overheads will have increased as a result of things like sky-high energy prices and increased maintenance costs, this demand and scarcity of stock is placing pressure on rents which have risen at the fastest rate since 2017, according to Office for National Statistics figures published recently.

This means that since recovering from the initial economic shock caused by the pandemic, landlord profits have been fairly well insulated, and the stability of bricks and mortar investment remains attractive to many at a time when other assets can be seen as poor performing or relatively volatile. As a result, there are still many landlords that are interested in expanding their portfolios if the right properties are available.

Reports suggest that the scarcity of stock has been seen to the greatest degree in traditional family homes, meaning that investors could be faced with a lack of what would be considered more standard properties. Applications may reflect this, with cases that are more challenging to underwrite.

The role of the broker is vital in these scenarios as they can keep communication flowing, working closely with both lenders and borrowers to ensure that as much documentation as is necessary is requested first time around, minimising timescales and frustration.

As a result of the current stock shortages and in anticipation of a greater emphasis on the standard of privately rented homes referenced in the recently published Levelling Up White Paper, some landlords are also turning to improving the quality of their existing portfolio or investing in properties that need upgrading.

Here, a good knowledge of bridging loan options is valuable.

Whilst on the surface bridging might seem like an expensive option, its value lies in its speed and flexibility - at a time when competition for property is fierce, bridging loans give buyers the ability to move quickly to acquire stock. In addition, these types of products enable investors to finance properties that first charge lenders might not be willing to lend on, meaning that landlords can also target reduced price property at auction.  

Bridging loans are also well suited to situations where landlords need to finance property upgrades. Whilst new kitchens and bathrooms can be fairly quick to fit and inexpensive, many first charge lenders may not lend on a property which isn’t in a lettable state on day one. Bridging loans are not subject to the same restrictions so, provided the landlord is only keeping the bridge for a short period of time, 3 to 6 months being fairly standard, it can be a cost-effective way to grow a portfolio.

Of course, to be economical, the bridge should only be used for as long as it is needed. Brokers need to ensure a suitable exit lender is in place and landlords should be well organised too. Having a good grasp of the different stages involved, along with pre-agreed timescales will help to ensure that things run as smoothly as possible and works are carried out quickly, something that may take more planning than usual due to shortages of skilled labour and materials seen in the wake of Brexit and the Covid pandemic.

Many bridging companies are now venturing down the first charge buy-to-let route and enable the landlord to have a guaranteed exit onto one of their first charge products, helping to eliminate any concerns over getting off the bridge once the works are carried out. Lenders like West One now have a good range of buy-to-let rates and flexible criteria, with the benefit of the bridging proposition sitting behind it.

While only covering a small number of scenarios, these examples highlight how by just talking to clients about their portfolios and business plans, brokers can help to educate landlords about forthcoming changes to regulations or the range of products available to them, providing a good service while potentially creating opportunities for business.

This website is aimed at mortgage intermediaries and investment professionals only and is not intended to be relied upon by borrowers or investors.

© The Business Mortgage Company Limited: registered in England and Wales no. 5390573. Regus House, Malthouse Avenue, Cardiff Gate Business Park, Mid Glamorgan, Cardiff, CF23 8RU.

The Business Mortgage Company Services Ltd is authorised and regulated by the Financial Conduct Authority (No. 302764) to transact regulated mortgages and registered as a Consumer buy-to-let arranger. The FCA does not regulate some investment mortgage contracts.