Ian Boden

Why we need to bring the bridging mentality to BTL

It's now just over two months since LendInvest formally launched into the buy-to-let market, though it is a market that we have been interested in for a long time.

Yet it’s remarkable just how different the sector looks today compared with only a few years ago.

A clear sign of the way that the buy-to-let market is developing is the way that the products on offer are shifting. For many years, the vast majority of the products on offer have been designed with a single property in mind, as if this individual investment is all that the borrower needs to think about.

That was appropriate for the buy-to-let market as it was then, where there were professional landlords building sizeable portfolios, but the ‘dinner party landlord’ with one or two investment properties were also a sizeable player.

But times are different now, and the increasing number of limited company loans is a good example of that. The buy-to-let market has undergone a succession of fundamental changes in recent years: additional stamp duty on second homes, stripping back the tax relief on offer, changes to the way loans are underwritten, for example.

Each of these changes have made life harder for all property investors, though the truth is that those for whom property is a business rather than a hobby or sideline are better placed to deal with them.

That’s why the make-up of the landlord market is shifting. We constantly hear stories about the numbers of landlords who are put off by the tax and regulatory changes, who are looking to sell up.

Figures from Countrywide last year, for example, suggested that the number of landlords active in the market had fallen by 154,000 since 2015, while the latest research from the National Landlords Association has suggested that as many as 20% of its members are looking to reduce the number of properties they own in the coming year.

But this is only half the story. Yes, the overall number of landlords is falling, but that’s because the part-time landlords are getting out. The professionals are staying and expanding their portfolios. That same Countrywide research highlighted that though landlord numbers were dropping, the number of properties available to rent had jumped by 200,000 over the same period.

While there is so much focus on how the make-up of the average landlord is changing, there is precious little on how their approach to funding and what they look for from a lender must change too.

In previous years, it was understandable that mainstream lenders could play a larger role in the buy-to-let market – the product design and service on offer didn’t need to be all that different from the way they put together residential mortgages, as the borrowers were often the ‘dinner party landlords’.

But professional investors need something different from their lenders. They need lenders who understand that they are running a business, who can essentially bring a commercial lending approach to buy-to-let, rather than a residential lending one.

As one of the success stories of the resurgence of the bridging market, we have seen first-hand exactly what these property professionals need. It’s not so much a question of pure speed, but of nimbleness, being able to provide these investors with the backing they need and being flexible enough to understand that all property projects are slightly different.

It’s not all about rate either; we know that brokers and their clients are far more concerned about lenders who can provide more comprehensive support and can guarantee delivery of those funds, rather than the odd percentage point here or there.

As the landlord market changes, the lenders active in that market need to change too, and the truth is that innovation is more likely to come from lenders who bring a commercial understanding to the table. For too long buy-to-let products have resembled rebadged residential products, but the time has come to apply the mentality of bridging to the buy-to-let market.

The landlords of tomorrow are not those who have taken a punt on a property, but those for whom property is the day job. Lenders need to better understand exactly what those borrowers need from them and rise to that challenge.



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