Bridging and buy-to-let have always had a strong relationship but, historically speaking, I’m not sure they have ever reached the Ant and Dec levels. Although if they had, I’m pretty sure that BTL would be on the left.
However, with the BTL sector moving in an increasingly professional direction – by this I mean far greater activity being generated by larger, portfolio landlords compared to a significant number of amateur and accidental landlords who have exited the market in recent years – this relationship has really blossomed.
This was evident after talking with a number of brokers and when moderating a panel session focusing on the BTL sector entitled – The future of the BTL market in 2023 – at our recent Mortgage & Specialist Finance Expo.
These conversations confirmed our experience that more landlords are using bridging finance for a multitude of reasons. From helping them to purchase a new portfolio addition at an auction, through to raising funds to make improvements on existing properties as an alternative to locking into a remortgage rate which could potentially prove far more costly in the longer term.
Of course, and as with any area of the specialist lending marketplace, borrowing scenarios will differ according to the landlords financial situation, the property type, timescales and a variety of other reasons. Impending and potential future changes to minimum energy efficiency standards (MEES) could also see bridging and BTL becoming even closer bedfellows.
What are MEES?
The MEES form part of the UK government’s plan to reduce emissions and achieve a goal of net zero by 2050. Since 1 April 2018, all non-domestic private rented properties needed to hold an Energy Performance Certificate (EPC) rating of band F or G in order to grant a tenancy to new or existing tenants.
And what’s new?
From 1 April 2023 the MEES are changing. Landlords must not continue letting a non-domestic property if that property has an EPC rating of band F or G. The property must achieve a minimum EPC rating of E in order to comply with the MEES. The new MEES apply not only to new tenancies, but also existing ones.
Moving forward, proposals are in place where MEES are set to become increasingly stringent, calling for a minimum EPC requirement of C by 1 April 2027, and an EPC rating band of B by 1 April 2030.
While some lenders won’t consider lending on properties that fall below the EPC E rating, specialist lender Greenfield Mortgages recently highlighted that a bridging loan could help the borrower buy a property and conduct the necessary work before exiting onto a long-term BTL mortgage. And this reliance on alternative sources of funding is evident as the challenges around ICR calculations and stricter stress testing are currently raising affordability levels across the BTL sector.
The question of how landlords view the short, medium and longer term impact of energy efficient upgrades across their portfolios is a highly relevant one, although the answer is likely to vary greatly. This demonstrates the value of good, professional advice. Although, in such a multifaceted lending and economic environment, even the best advisers may need additional support from a packaging partner to ensure that they can identify and source the right solution for their client.
From a packager perspective, there are plenty of viable solutions to be found across the specialist markets whether from a BTL, bridging or secured loan standpoint which can work well for an array of property professionals who have the ability to take advantage of opportunities which continue to present themselves. Especially when it comes to those older property types which less experienced landlords may be looking to offload due to many of the factors we’ve already mentioned. Meaning BTL and bridging could prove to be the new Ant & Dec after all.
Donna Wells, Director at Envelop