Average loan sizes available to buy-to-let landlords and investors have dropped significantly over the past six months, due to rapidly escalating interest rates.
New data from Mortgage Broker Tools suggests that lenders’ stress tests are restricting the size of the bridging loans BTL borrowers can access, as the UK continues to trudge through a period of unprecedented economic uncertainty.
Analysis from the platform found that an applicant projected to collect £750 monthly rent payments will now (on average) be offered a BTL bridging loan with a maximum value of £106,000. Just six months ago, the same applicant would have been able to qualify for a loan of around £131,000 – a full £25,000 more than today.
These figures are based on standard current calculations of 125% at 6.79%.
The change has been even more notable for those projected to collect larger monthly rent payments. As it stands, a typical BTL bridging loan applicant who stands to collect £1,250 per month rental income can qualify on average for £177,000 (based on the standard stress calculation of 125% at 6.79%). This represents a £41,000 drop from the £218,000 they could have borrowed earlier in the year.
As for those projected to collect £1,750 per month in rental income, a typical maximum bridging loan can now be taken out for £247,000 – a steep decline from the £305,000 back in July.
Here is a brief overview of the findings published in the Mortgage Broker Tools report:
It is worth noting that while the above figures apply to a typical BTL borrower seeking bridging finance with fairly standard terms and conditions, many lenders continue to demonstrate a good deal of flexibility in special cases.
Projected rental income alone is not the only factor taken into account when processing bridging loan applications – loan security and planned exit strategy are just as vital.
Even so, experts are warning prospective buyers and investors to think carefully about any major decisions they make in the near future, in order to avoid costly errors.
“It’s no surprise that the loan sizes available to BTL investors have fallen in recent months, as rate rises have significantly impacted stress tests,” Tanya Toumadj, CEO at MBT.
“However, our data analysis has revealed the scale of change, particularly as the benefits of stressing rental income at the pay rate of the mortgage have now been eclipsed by the size of the rate increases.,”
“In the current environment, many landlords may be tempted to take uncompetitive product transfer rates offered by their lenders at the end of their existing deal, so it’s vital that brokers have access to a research platform that enables them to quickly and easily assess the options available to their clients, to prevent them from making a potentially expensive mistake.”
Speaking on behalf of Glenhawk, director of sales Jamie Pritchard highlighted the difficulties in accurately predicting how bridging loan rates will change going forwards, without knowing how Bank of England base rates will be hiked further over the coming months.
“Could it be up to five percent next year? Until we know that, it could be that the average bridging rate could be above one percent this time next year,” he said.
“We don’t know but we all have good teams…who are constantly doing work on that to know where it will be.”