But soaring inflation and six consecutive base rates rises by the Bank of England means moving onto a BTL mortgage is now more expensive than ever, with figures from Moneyfacts showing rates on BTL products hitting a seven-year high of 3.41% in May.
In contrast, rates on bridging loans have remained relatively stable and landlords seeking a more cost-effective solution could benefit from considering using a lender that can combine both in the form of a bridge-to-let loan as it may well prove to be a more cost-effective solution in the current rising interest environment.
While many landlords and investors use a bridging loan to bring a property up to standard before moving onto a BTL mortgage, a bridge to let loan is specifically tailored to the needs of the buy-to-let market as the loan comes with the added benefit of an in-built exit strategy in the form of pre-approved refinance onto a traditional BTL mortgage.
This means that landlords and investors can get swift access to a short-term cash injection in the form of a bridging loan, while simultaneously locking in a competitive rate on their BTL mortgage before interest rates escalate even further. It also provides certainty of the BTL loan at the outset and prevents the need to search for finance once the bridging loan comes to an end.
Recently, we have seen a significant uplift in the number of landlords using bridging products to refurbish both existing and new properties in order to bring them in line with the new Energy Performance Certificate (EPC) regulations that come into effect in 2025 for new tenancies and 2028 for existing tenancies.
In this instance, a bridge-to-let loan could prove to be a shrewd move as it would provide landlords and investors with the funds to update the property as well as provide assurances around the exit strategy and refinancing options once the update is complete. This would enable them to focus entirely on the remodelling of the project safe in the knowledge that the BTL mortgage was also secure once the refurbishment was complete.
With speculation that the Bank of England could raise the base rate to 2.5% by the end of the year and inflationary pressures continuing to fuel the cost of living crisis, interest rates on BTL mortgages are almost certainly going to continue to head northwards as the year progresses, making bridge-to-let products increasingly attractive.
For BTL landlords looking to reduce overheads, choosing the same lender to bridge and exit a loan may well provide the certainty and economies of scale they are seeking. Brokers unfamiliar with the market should work with a specialist distributor that has access to a host of lenders as they can provide the advice and help needed to secure a loan.
