Could landlords turn to bridging finance in a rising rate environment?

read time: 2 min

03.10.23

Jonathan Hyde

Following the government’s mini budget in September 2022 and the repeated rise in the Bank of England base rate over the course of this year, it has been a tough environment for landlords who have seen significant increases to interest rates on their buy-to-let mortgages. This has resulted in increased repayment costs on their loans, with many unsure as to what next steps to take.

According to Which?, the average fixed-rate buy-to-let mortgage at the start of September 2023 was 6.54%. With the potential for further interest rate increases in the latter half of 2023, remortgaging is likely to be a daunting prospect for many landlords.

Taking into consideration loan-to-value, interest rates and the applicable acceptance and/or exit fees, an interim solution for landlords could take the form of bridging finance. Whilst traditionally perceived as expensive, bridging finance offers landlords the flexibility to change course and refinance if and when the interest rate situation improves, as opposed to being locked into a fixed term buy-to-let mortgage with an interest rate that is no longer affordable.

Requirements are also coming into force, where landlords must have minimum EPC ratings in place for their housing stock. The current EPC rating of a property may not be acceptable to buy-to-let mortgage providers. On the other hand, bridging finance could be the method by which a property is acquired, the necessary energy efficiency upgrades carried out and then refinanced onto a longer-term buy-to-let mortgage.

Ashfords’ banking & finance team acts for a number of specialist lenders and also for corporate and individual commercial borrowers. We therefore see the transaction from both sides and focus on what is important in terms of managing risk, whilst ensuring efficiency through each transaction.

We provide advice and project manage the lending process, typically comprising:

the terms of loan agreements, security and guarantees;
intercreditor arrangements (i.e. priority of existing and/or subsequent creditors);
the preparation of certificates of title in relation to security properties;
satisfaction of conditions precedent to lending (i.e. corporate authorisations, insurance broker letters, drawdown requests); and
post completion security registration at Companies House and the Land Registry.

Our experience gives us a unique insight into what is considered ‘market standard’ in the area of bridging finance. We also have a good grounding in the processes that are involved in getting a deal to completion in a timely manner for the benefit of our clients, whether they’re the lender or borrower. These are all qualities which are crucial for landlords, who might be facing a tight deadline for refinancing existing property portfolios or lenders who wish to provide funding to this type of customer.

If you are interested in discussing further the legal services we provide in the bridging finance sector, please contact the banking and finance team.