Buy-to-let watch episode 2
In our initial instalment of Buy-to-Let Watch, we discussed “Jubilant Home Thoughts From Abroad..” Today’s episode, “Buy-to-Let Watch Episode 2,” focuses on landlords’ careful selection of lenders.
Many professional landlords aim to expand their property portfolios. However, securing capital for new acquisitions can be challenging when deposit funds are limited. To overcome this, landlords often leverage their existing properties as capital sources.
A common strategy is targeting properties with potential capital growth through refurbishments or permitted development. This approach helps landlords unlock equity within their portfolios, facilitating further purchases. Capital raising against this equity involves three primary methods: remortgage, further advance, or second charge loan.
A notable trend among landlords is the strategic targeting of properties that offer opportunities for capital growth through refurbishments or permitted development. This approach allows them to unlock equity within their portfolios, paving the way for subsequent purchases. Capital raising against this equity typically involves three primary avenues: remortgage, further advance, or second charge loan.
Many landlords prefer five-year fixed rates to maximise affordability and ensure financial security. Even those not focused on affordability appreciate fixed-rate options’ stability and risk mitigation.
However, remortgaging has potential drawbacks, especially heavy early repayment charges on many fixed-rate products. To address this, some lenders, like Godiva, offer five-year fixed rates with no early repayment charges. Others, such as Precise and Foundation, provide five-year products with charges only for the first three years.
Despite these options, landlords must consider remortgage costs when raising capital. Alternatively, further advances or second-charge loans are viable options for additional funds. As property investment evolves, landlords must stay informed about financial tools to expand their portfolios strategically.
Buy-to-let watch episode 2 | Collaborative approaches in the property financing
A notable practice involves a primary lender, often a high-street buy-to-let (BTL) institution, approving second-charge loans. Typically, lenders extend further advances in the conventional BTL market and often endorse second charges. Key players like BMS and TMW offer additional advanced options and the capacity to approve second charges.
However, the scenario changes with specialist lenders, where practices differ significantly. Among 13 specialist lenders examined, only Kent Reliance stands out. They can provide both a further advance and approval for a second charge. This differentiation highlights the varied lending landscape, emphasising the need for collaboration between lenders. Exploring second-charge opportunities in property financing requires nuanced approaches.
Buy-to-let watch episode 2 | Exploring limited options for further advances in property investment
In property investment, the scope for obtaining a further advance is constrained. Only Aldermore and Paragon stand as potential lenders willing to entertain such a possibility. However, both shy away from consenting to a second charge, narrowing the options further. Conversely, Precise and Foundation are amenable to a second charge but fail to offer further advances.
A recent survey indicates that 70% of lenders do not offer either option. This adds complexity to landlords’ capital-raising endeavours.
Crucially, for landlords contemplating future capital-raising endeavours post-purchase, understanding the nuances of their plans is imperative. For instance, if a landlord envisions capital-raising two years later and the adviser has advocated for a five-year fixed rate with early repayment charges from a lender incapable of providing further advances or consenting to a second charge, complications may arise.
This situation could hinder the landlord’s planned capital-raising or necessitate dealing with early repayment charges and the complexities of remortgaging.
The significance of documenting such conversations cannot be overstated. If advisers fail to record discussions about the limitations on further borrowing, they open themselves up to potential complaints. Thus, thorough documentation safeguards against unforeseen challenges in the dynamic landscape of property investment.
Buy-to-Let Watch Episode 2 | The impact of specialist lenders
As we end our buy-to-let-watch episode 2, saving the best for last is only fitting. Specialist lenders play a pivotal role in the market, providing an extensive array of criteria options to assist landlords in navigating the complexities associated with diverse property types and unique circumstances. Nonetheless, it is crucial for advisors to be cognisant of potential limitations.
We strongly advocate for buy-to-let (BTL) lenders who currently do not provide additional advances or consent to second charges to evaluate these offerings thoroughly. This consideration becomes especially significant when devising strategies to attract business from portfolio landlords.
In broadening the horizons of the real estate market, specialist lenders emerge as key contributors, offering landlords a broader spectrum of criteria options tailored to accommodate various property types and individual situations.
While recognising the positive impact of specialist lenders, advisors must acknowledge and comprehend any inherent constraints. Specifically, my recommendation is directed towards buy-to-let (BTL) lenders that presently do not extend further advances or approve second charges. This aspect warrants careful consideration, especially when formulating approaches to entice business from portfolio landlords.
The market landscape is enriched by the distinctive contributions of specialist lenders, who play a pivotal role in widening the spectrum of criteria options available to landlords dealing with diverse property types and unique circumstances.
Despite their positive influence, advisors must navigate potential limitations judiciously. I strongly emphasise the importance of urging buy-to-let (BTL) lenders without existing provisions for additional advances or second charges to assess these aspects thoroughly. Such consideration becomes paramount when strategising ways to attract business from portfolio landlords, adding a layer of strategic insight to the financial landscape.
We reached the end of our publication on “Buy-to-Let Watch Episode 2 | Why Landlords Should Select Lenders Carefully | 2019”; until next time, stay “Connect!”