Are bridging customers likely to be affected by the PRA’s new BTL affordability checks, which could prevent borrowers exiting bridging loans due to the increased rental yield hurdles?
In order to consider the impact of the PRA’a intervention in the Buy to Let market we firstly have to identify the two distinctive borrower ‘types’ who may utilise bridging finance in respect of these purchases.
There are those who wish to ‘flip’ a property for a quick return and in these circumstances the properties are often sold to private purchasers wishing to occupy them and there is therefore no impact, however many borrowers utilise such finance as a ‘bridge’ to a longer term mortgage solution, how will they fair?
The answer is mixed. The more professional investor often adds significant value to a property before refinancing longer term, thus reducing the required LTV and in many cases the rental yield provides greater coverage meeting the higher requirements. In addition they often have significant ‘stand alone’ income which is likely to be considered by the specialist Buy to Let funder. A combination of these things may assist in mitigating the impact although it is impossible to get away from the fact that the days of highly leveraging a portfolio to expand rapidly is on the way out!
The less experienced (but no less entrepreneurial individual) may have neither the stand alone income nor the ability to add such value, this will no doubt be the harder affected group.
Once again ill thought out government policy has a disproportionate effect on those simply trying to add a little security to their future.
As bridging lenders we all want to retain profitable business models and good client relationships. No one wishes to see a spike in litigation and possessions therefore the application of the new rules have to be carefully considered when advancing that bridging loan.
As always change brings fresh considerations and those that can apply a little common sense will prevail. There are new challenges and likely some moderate effect on volume but as always the best lenders and the savviest borrowers will thrive.