Sometimes the wider market may not be able to move quickly enough for a property investor’s plans. An unexpected, yet welcome base rate cut may spur some landlords into action in order to try and attain better terms. But mainstream lenders still have their checks and balances to perform which will take time.
A landlord may have three properties total in their portfolio, each with outstanding mortgages. Property one has £500,000 remaining, while two has £300,000, and three has £200,000. The landlord, given the base rate news, wants to consolidate all these into a single £1mn mortgage with better terms.
They have found a new bank who can accommodate this, but they have informed the borrower that the bank’s internal process will take up to three months to complete. The issue here is that the existing mortgage deals are close to expiring, meaning the borrower could face high variable rate costs as the bank does its due diligence.
To avoid this, the borrower could turn to us for a bridging loan, which could be issued in mere days where everything lines up, that would pay off all three of the mortgages immediately, and avoid the higher costs. Also, to help with affordability while they’re utilising the bridging loan, they could roll up the monthly payments and cover everything at the end of the term.
Then, when they receive the new consolidated mortgage, they could use it as the exit strategy for our facility. With a consolidated mortgage, not only would the borrower benefit from better terms, they could also enjoy simplified management of their assets, and improved control of risk. By consolidating, a borrower no longer needs to fear being caught out by sudden rate hikes on individual loans, or inconvenient expiry dates.
FAQs
Q: Can any external economic forces impact how mortgage lenders operate?
Yes, the economic climate can lead to heightened confidence, or nervousness among lenders. Liz Truss’ 2022 mini-budget offers an obvious example. As she laid out her unpopular plans, mortgage providers were spooked and ended up pulling hundreds of deals from the shelves as panic set in. It took a long time for confidence to return to the market.
Q: Where loan/mortgage affordability levels drop, how does it affect the market?
Put simply, when mortgages become more expensive, it can hinder demand among buyers. Although, where there’s a lack of buyers, it could lead to more opportunities for property investors who may face less competition.
Q: What primarily impacts mortgage rates?
Mortgage rates are largely influenced by swap rates. Simply put, swaps represent the cost that lenders incur when they obtain fixed-term funding from financial institutions and corporations. Banks, building societies, and other mortgage providers use these instruments to manage their exposure to interest rate changes, fine-tune their pricing strategies, and offer customers fixed-rate deals. Typically, when swap rates decrease, mortgage rates tend to fall as well. Conversely, if swap rates climb, mortgage rates are likely to increase too.
