Why Landlords Should Select Lenders Carefully
In our previous instalment, we explored the theme “Jubilant Home Thoughts From Abroad.” Today, we focus on selecting lenders wisely.
Many professional landlords aim to grow their property portfolios. However, securing the funds needed for new purchases often proves challenging, particularly when deposits aren’t readily available. To tackle this, landlords frequently leverage their existing property portfolios to raise capital.
One effective strategy involves targeting properties offering capital growth potential through refurbishments or permitted development. This allows landlords to unlock equity within their portfolios to fund future purchases. Three main methods for raising capital are remortgaging, securing a further advance, or taking out a second charge loan.
Five-year fixed-rate products are increasingly popular among landlords. They offer affordability and financial stability. Even landlords not specifically seeking affordability benefits are drawn to the predictability and reduced risk associated with these rates.
However, remortgaging often has drawbacks, such as significant early repayment charges tied to fixed-rate products. Some lenders, including Godiva, offer five-year fixed rates with no early repayment charges to mitigate this issue. Others, such as Precise and Foundation, provide products with charges limited to the first three years of the term.
Despite these innovations, remortgaging for capital raising can still involve considerable costs. Landlords must weigh these carefully against potential benefits. For those seeking alternative solutions, further advances or second-charge loans can provide a flexible option.
As the UK mortgage market evolves, landlords must stay informed about available financial tools. Keeping up with these developments is essential for strategically expanding property portfolios effectively. This ensures landlords are well-equipped to navigate the complexities of buy-to-let financing.
Buy-to-let watch episode 2 | Collaborative approaches in the property financing
The primary lender, often a high-street buy-to-let (BTL) institution, plays a pivotal role in second-charge loans. These lenders typically approve further advances and, in many cases, consent to second-charge arrangements. Prominent players, including BMS and TMW, offer additional advance options and support second charges, making them highly competitive.
However, specialist lenders present a more complex picture. A closer look at 13 specialist lenders reveals a notable variation in their practices. Among these, only Kent Reliance stands out for offering both further advances and second-charge approvals. This distinction underscores the diversity within the lending sector and the importance of tailored approaches when exploring second-charge opportunities.
The differences in lender practices highlight the need for collaboration and informed decision-making. Property investors seeking second-charge financing must understand lender-specific policies to navigate this landscape effectively. Consequently, working with experienced brokers or advisors becomes essential for success in the UK mortgage market.
Buy-to-let watch episode 2 | Exploring limited options for further advances in property investment
In property investment, obtaining further advances is often limited. Only Aldermore and Paragon are currently considering such requests. However, they do not allow second charges, further restricting landlords’ options. Conversely, Precise and Foundation accept second charges but do not offer further advances, adding to the challenge.
A recent survey reveals that 70% of lenders provide neither option. This lack of flexibility complicates landlords’ capital-raising plans, particularly when they need additional funds post-purchase. Therefore, understanding these limitations is crucial when planning for future borrowing needs.
For instance, a landlord may plan to raise capital two years after purchasing a property. Issues could arise if an adviser recommends a five-year fixed rate with early repayment charges from a lender unwilling to allow further advances or second charges. The landlord might face difficulties raising capital as planned or incur early repayment or remortgaging costs.
These scenarios highlight the importance of advisers considering clients’ long-term plans. Discussing borrowing constraints early can help landlords make informed decisions, avoiding unnecessary complications later. Additionally, advisers must document these discussions to protect both parties from future misunderstandings.
Failing to record advice on borrowing limitations exposes advisers to potential complaints. Proper documentation serves as a safeguard, ensuring transparency and accountability. In the ever-changing property investment market, thorough record-keeping remains essential for maintaining trust and delivering sound recommendations.
Buy-to-Let Watch Episode 2 | The impact of specialist lenders
As we conclude our Buy-to-Let Watch Episode 2, it is only fitting to highlight the most compelling insights. Specialist lenders are crucial in the UK mortgage market, offering diverse criteria to help landlords manage varying property types and unique financial circumstances. However, advisors must remain aware of potential limitations within this sector.
Specialist lenders significantly expand the options available to landlords by providing tailored solutions. Their offerings enable landlords to address specific needs, such as multi-unit properties or non-standard tenants. Moreover, they facilitate opportunities for portfolio landlords looking to optimise their investments.
Despite these benefits, evaluating any restrictions these lenders may impose is crucial. For instance, some buy-to-let (BTL) lenders do not offer further advances or approve second charges. This limitation could hinder landlords seeking to maximise equity or access additional funding. Advisors should encourage such lenders to reconsider these policies to attract a wider client base.
Additionally, the flexibility offered by specialist lenders adds value to the broader market. By catering to various scenarios, they empower landlords to expand their portfolios strategically. This adaptability is especially relevant when navigating the complexities of property investments in today’s dynamic market.
However, certain lenders’ limitations cannot be overlooked. Advisors must carefully assess the availability of further advances or second charges when designing strategies to support portfolio landlords. Addressing these gaps could enhance lenders’ appeal and strengthen their market position.
In summary, specialist lenders contribute immensely to the UK’s buy-to-let market by offering bespoke criteria. Nevertheless, recognising and addressing their limitations is essential. Encouraging lenders to review restrictive policies could unlock greater opportunities for landlords while driving growth in the sector.
Thank you for reading our publication “Buy-to-Let Watch Episode 2 | Selecting The Right Lenders.” Stay “Connect“-ed for more updates soon!
