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At the start of every year, the trade press is full of comments from lenders reviewing the previous 12 months and making predictions about what’s on the horizon. This can be very valuable, of course, but at Castle Trust Bank, we like to do things a bit differently. We work in close partnership with brokers, so we fully understand their  business business model. When it comes to identifying trends, brokers are on the frontline of client demand. So, we asked you about your experiences over the last year and your hopes for the future when it comes to the bridging market.

We will release the full results from our latest Castle Trust Bank Pulse Survey over the next couple of weeks, but in the meantime, here are some of the trends you experienced in 2023 and your expectations for 2024.

When it comes to bridging business volumes, you told us that 2023 remained robust, although demand from first-time property investors was either static, or down on the previous years.

The main use for bridging finance was quick property purchases and, when it comes to property, it’s clear that investors were targeting higher yields, with most brokers saying HMOs and MUFBs were the most popular type of property for bridging. The least popular uses of bridging finance were found to be development exits and auction finance.

While the mainstream mortgage market was particularly challenging for brokers last year, our survey found that bridging brokers either maintained their staffing levels or increased the size of their teams.

And, perhaps unsurprisingly in an uncertain environment, certainty of decision ranked highly as a consideration for bridging clients when it came to choice of lender.

So, what are your expectations for 2024?

Our survey found that brokers are generally positive about the prospects for the year ahead, regarding bridging volumes and the outlook for their business, although few of you expect there to be a big influx of first-time investors this year.

There are, of course, clouds on the horizon and questions marks remain around the economic outlook. Our survey told us that you think the two biggest risks to a more promising year are continued high interest rates, and political uncertainty.

What conclusions, then, can we take from broker views back on 2023 and looking ahead to 2024?

From the first weeks of the new year, it seems that uncertainty will continue to prevail, at least for the coming months. The upcoming general election is likely to be later in the year rather than earlier and, whilst the year has started with mainstream lenders cutting rates, international unrest has put upwards pressure on SWAP rates.

 

Bridging, however, is a product built to finance periods of uncertainty, so there is little reason to doubt brokers’ optimistic view for the year ahead. At the same time, as landlords continue to experience pressure on their finance, higher yielding investments such as HMOs and MUFBs are likely to grow in popularity. And, of course, in periods of uncertainty, everyone craves something certain, so those lenders that are able to provide this will continue to be in high demand.

My view on your feedback to our Pulse survey is the continued importance of strong partnerships. The future does look brighter, but there remain some hurdles ahead. Last year, the most successful brokers were those who worked in partnership with their clients to help them succeed and the most successful lenders, were those who worked in partnership with brokers to enable this. 2024 will probably feel a lot like 2023, and we can all use the experience from the last 12 months to educate the approach we should take in the year ahead.

To say that 2023 has been a challenging year for brokers would be an understatement, and it’s been particularly hard work for those with property investor clients. Rising rates in the first half of the year hit Buy to Let affordability hard, with anything but low LTV cases being tricky to place.

At the same time, rates were changing rapidly in the first half of the year, with brokers often having to revisit cases on multiple occasions, both pre- and post-offer, to ensure they were securing the best rate for their clients. Many brokers have reported having to do four or five times as much work on every case than they may have done previously.

One sector, however, that has gone from strength to strength throughout the year is bridging. The Association of Short Term Lenders (ASTL), reported that bridging loan books hit a record level in the third quarter of the year, with applications and completions also showing strong growth during the period.

There are many reasons for the success of bridging in 2023. As a product, it provides finance to fund a period of transition, and the volatility throughout the year has most definitely felt like a period of transition, most notably from a low-rate environment to one that is generally being considered as the new normal. One way that bridging has helped to finance this particular transition is by providing a short-term, fixed-rate loan for investors whose mortgage deal has expired and are unwilling to lock into a long-term product. A bridging loan can buy investors time, rather than sitting on their lender’s SVR.

With higher rates increasing the cost of investing in property, this year we have seen much greater demand from investors for alternative types of investment that can deliver higher yields.

Property refurbishment and larger scale projects like MUFBs and HMOs all offer investors an option for increasing their returns, whilst property auctions have provided a means of acquiring assets more quickly in a flat market where transactions have dragged on, often taking much longer to complete than they have historically.

One way of helping to expedite a property transaction is having a comprehensive title insurance policy in place, as this enables a lender to focus on underwriting the fundamental elements of a bridging case and this supports a more efficient and effective application process. It also makes possible some transactions that would otherwise be impossible, where there are complicated legal issues surrounding the security.

This gives a lender greater certainty and it means that we can, in turn, provide greater certainty to brokers and their clients and, this year, at Castle Trust Bank, we have increased the maximum loan size available to use title insurance to £3m, as a firm signal that we are ready and willing to provide fast access to bridging finance on high value and often complex cases.

Looking forward, there are signs that 2024 may be less challenging than 2023. Nationwide has now reported three successive months of house price rises (contrary to many recent predictions), and Buy to Let affordability is improving as lenders structure products with high fees and lower rates to help investors meet the stress testing on a mortgage. This is leading to an increase in Buy to Let activity and research platform, Mortgage Broker Tools, has said it had its second busiest month ever in October for Buy to Let enquiries.

A healthy Buy to Let market is important for bridging exits and will help to deliver much needed private rental accommodation to the market. Affordability is key in bridging as well, of course, but is more often based on the value of the property, rather than a stress test, and attaining leverage has been a big consideration for investors, particularly when commencing a refurbishment or conversion project.

This time last year, at Castle Trust Bank, we pivoted to bridging and launched Light Refurb and Heavy Refurb Bridge products to include Net LTV calculations, meaning that fees and interest can be added to the loan above the maximum LTVs, as well as the flexibility to choose a term that best suits their needs, up to the maximum term of each product.

2023 may have been challenging, but strong and reliable lenders like Castle Trust Bank have adapted their propositions to help meet the changing needs of property investors throughout the year. Many of these needs will continue into next year and we anticipate the growing demand for alternative property investments to continue, alongside an appetite to maximise leverage and achieve greater certainty in property transactions. Brokers now have tools to help meet this demand, and make the most of the opportunities that will be available in 2024.

It is no secret that some buy-to-let (BTL) investors have faced tough times recently.

While we have seen rates in the BTL market come down in recent months, any investor remortgaging off a 2- or 5-year fixed-rate deal today faces paying rates around 3% higher.

The average 2-year fixed rate has risen from 2.92% in October 2021 to around 6.40% in October 2023, while the average 5-year fixed rate has followed a similar pattern, nearly doubling from 3.40% in October 2018 to 6.32% in October 2023, Moneyfacts figures show.

While some investors may be able to withstand the rise in repayments, others risk not being able to meet lenders’ increased stress tests, potentially falling short of the affordability assessment. In the worst-case scenario, they may have no choice but to switch to their lender’s Standard Variable Rate (SVR) – ironically, at an even higher interest rate.

For such investors, a bridging loan could provide a solution.

While we typically associate bridging loans with property purchases or renovations, they can effectively also bridge any financial gap.

Although the bridging market has not been immune to rising rates, similar to other segments of the mortgage market, it may still be a more cost-effective option than switching to a potentially higher SVR.

Given that some loans can be taken out for up to 18 months, for BTL investors nearing the time for remortgage, a bridging loan could provide them with the additional time needed to deliberate and consider their options – whether that be selling their property/properties in a more stable market climate, or remortgaging further down the line.

There is a growing consensus that we have reached the peak or are nearing it in terms of rate hikes, given that since the end of 2021, we have seen 14 increases in the Bank of England’s base rate.

While waiting for the base rate and subsequent mortgage rates to decrease can be a risky move for investors, one advantage of our bridging loans is that they do not incur an Early Repayment Charge (ERC) after the initial three months. This means landlords can quickly change course if their plans change.

Given the more favourable stress tests for five-year fixed rates and the preference for longer-term fixed-rate options in the BTL market, there may also be some landlords who pass the remortgage stress test but are reluctant to commit to a five-year fix at the current rates.

Even for those landlords who are eager to sell, there may still be some merit in waiting for a more buoyant market.

Increased mortgage costs and the cost of living have eroded some buyers’ confidence over the past year. While there is no doubt that we will end the year with lower house prices, the general sentiment is that property prices will start to climb again towards the latter part of 2024. Savills is currently predicting an overall house price decline of 10% in 2023 but gains of 1% in 2024 and 3.5% in 2025.

With it looking like there is going to be no significant improvement in the interest rate situation for BTL investors in the near future, brokers and lenders have to think innovatively for those struggling to remortgage. A bridging loan could be a suitable solution, providing investors with the extra thinking space required to explore the possibility of refinancing or selling in a stronger market down the road

Castle Trust Bank have increased the maximum loan size on which we can use Title Insurance to expedite the process from £2m to £3m.

We are now able to use Title Insurance to speed up transactions on our Bridge and Light Refurbishment bridging products on loans up to a maximum value of £3m.

Anna Lewis, Commercial Director, said: “Having a comprehensive title insurance policy in place enables a lender to focus on underwriting the fundamental elements of a bridging case and this supports a more efficient and effective application process. It also makes possible some transactions that would otherwise be impossible, where there are complicated legal issues surrounding the security.

“This gives a lender greater certainty and it means that we can, in turn, provide greater certainty to brokers and their clients. Increasing the maximum loan size available to use Title Insurance to £3m is a firm signal that at Castle Trust Bank we are ready and willing to provide fast access to bridging finance on high value and often complex cases.”

Refurbishments, HMOs and MUFBs have been the most popular types of specialist property investment in the last three months.

Broker research carried out as part of our ongoing Pulse surveys, found that refurbishment was the number one specialist property investment, with nearly 40% of brokers saying it was the top choice for their clients.

Following closely behind were investments in Houses of Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs). Despite the high profile of Holiday Lets, this was the least popular type of specialist property investment over the last quarter according to brokers.

When it comes to choosing a bridging lender to finance their clients’ specialist property investments, most brokers opt for speed of decision first, whilst certainty of decision is the second biggest consideration. Rate is third on this list for brokers when it comes to reasons why they choose a bridging lender.

Anna Lewis, Commercial Director said: “The Castle Trust Pulse survey provides a snapshot of the trends and challenges brokers are currently experiencing in the bridging market, and the first set of results make for interesting reading. Landlords are increasingly looking at ways they can increase their returns and property refurbishment is the most common way they choose to do this.

“When it comes to choice of lender, speed and certainty are at the forefront for brokers, with rate having less prominence. This perhaps reflects the recent environment of uncertainty and frequent rate rises, where speed of decision has often made a significant impact on the rate a client has been able to achieve. However, in a competitive market, speed and certainty have always been crucial in bridging, enabling investors to respond quickly to market opportunities and build their portfolios.”

Data from estate agent Hamptons describes the average home in Great Britain taking 49 days to sell in April, far above the 26 days it was taking on average a year previous. With rates continuing to rise at the time of writing, there is little reason to imagine this trend reversing soon.

And those are just the sales actually going through - Quick Move Now recently put out a report stating that 55.8% of property sales in England and Wales outright failed before completion during the first quarter of this year.

For property investors wishing to expand their portfolios, a reliance on properties caught in a chain risks wasting a lot of time, effort and money.

But there is one area investors can move into: chain-free properties. Not only do these present a far greater certainty of a sale going through, but investors can potentially enjoy greater returns in the long term if they can secure empty properties in need of renovation.

In our conversations with brokers, we find there to be three main types of property that investors are most interested in.

Property in need of refurbishment: This enables an investor to increase both the value of a property and the yield it returns either through a large initial capital outlay or through a sequence of smaller material improvements. As well as enhancing a property's presentation, investors are also able to use this as a chance to future-proof the property against likely incoming energy efficiency regulations.

Property conversions: For example, from commercial use to residential use. Not all properties can be changed in this manner, but those that do qualify often need extensive physical reworking.

Properties at auction: Buyers in this arena need to be organised and well capitalised - typically just a month passes between the publication of an auction catalogue and the auction itself. And buyers will need a 10 percent deposit for any property they successfully bid for on the day and the means to pay the remaining balance within a maximum of 6 weeks.

Not every investor has enough cash on hand to go this route, but that is no reason for them to be frozen out of this dynamic and often prosperous market. Bridging finance serves all three of the methods well. Being able to get a short-term loan underwritten on day one means investors can be confident in being able to raise the funds necessary to purchase these properties and pay for any work required.

We offer these loans at up to 80 percent LTV across a term of up to 18 months. Interest is rolled up, there is no early repayment charge after 3 months - offering even more flexibility. We also offer bespoke pricing for loans with a value north of £5m.

Bridging finance is a product that perfectly matches the flexibility and swiftness that being a property investor in such uncertain time demands.

Talk to any mortgage broker at the moment and the first subject that comes up is product withdrawals, and interest rate changes on fixed rate mortgages.

There has been significant upheaval in recent weeks, with mortgage lenders of all shapes and sizes feeling compelled to pull some or likely all of their fixed rate products, and relaunch them later on at noticeably higher interest rates.

The speed and size of these changes has led some to talk of the market feeling like September 2022, specifically the aftermath of the disastrous Trussonomics mini-Budget which effectively ended Liz Truss’s premiership.

But at the heart of what’s going on has been the role of Swap Rates, a subject that can seem confusing but which is vital for brokers to have a good grasp of.

Why Swap Rates matter

Many mortgage lenders have to raise the funds used for their mortgage activities through the financial markets. That means partnering with financial institutions to raise funds over a set period of time.

Effectively the two parties involved - the mortgage lender and the funding institution - agree to ‘swap’ the interest rate payments they will be getting from assets they hold. One will be focused on getting a fixed rate payment, while the other will be keen on receiving a variable interest rate payment. The trade will see each party take on the income - and therefore the risk - from those specific assets.

Key to those Swap Rates is the expectation of what lies ahead for the bank base rate. If the market expects further increases, then Swap Rates go up, while if the expectation is for base rate cuts then Swap Rates will start to decline.

In essence, the Swap Rate is what the lender agrees to pay the financial institution for the funding it then uses for its lending activities. The Swap Rate then influences the pricing of its mortgage products, and its profit margin. A failure to properly account for the future cost of lending on fixed rate, term mortgages could undermine the lender’s financial stability, and its ability to continue to bring products to the market in the future.

Given the importance of Swap Rates in funding and pricing mortgage deals, fluctuations in Swap Rates then have a big impact too.

If Swap Rates spike, increasing rapidly, then lenders will be forced to act, and that’s what we have seen of late. In the last few weeks we have seen hundreds of mortgage products pulled and repriced by lenders across the industry, from those focused on vanilla residential borrowers to those targeting the more niche, underserved areas.

This has all been driven by concerns around what lies ahead for base rate. The latest jumps in Swap Rates have been the result of data from the Office for National Statistics around the ongoing high rate of inflation, which is proving rather more stubborn than might have been expected given the Bank of England’s decision to increase bank base rate on 13 successive occasions to date.

This simply raises the prospect of more increases ahead, and that expectation has led to the noticeable jump in SWAP rates.

In truth it’s not altogether different from September 2022, when the financial markets determined that the bank base rate would have to increase substantially as a result of the measures announced by the Government.

Mortgage lenders have therefore had to react. It’s not just a question of profit margins either. As their rivals have repriced, some lenders have found themselves at risk of attracting too much business, potentially exhausting their funds and putting their processing under undue pressure.

What SWAP rates mean for mortgage advice

Clearly, understanding Swap Rates and what’s likely to happen with them in the future is useful for mortgage brokers. That way advisers can ensure that their clients are as informed as possible when making product decisions.

For example, if we see positive economic data published, particularly around inflation, that may mean that the Bank of England holds off on further increases to bank base rate. This could lead to a reduction in Swap Rates and therefore the launch of more competitive fixed rate mortgage products.

The reverse is also true though - as we have seen of late, all it takes is for some unexpectedly negative economic data and the resulting expectations of future bank base rate increases can lead to Swap Rate spikes and costlier fixed rate mortgages.

Given the speed at which Swap Rate changes can have an impact on fixed rate deals, it’s useful for brokers to engage with the Swap market so that they are best placed to guide their clients on what the future may hold.

Just as buy-to-let attracted more government attention as the sector grew larger, so too has the short term let market. The most recent proposed intervention comes in the form of a consultation into whether properties let on a short-term basis in England should come under a different use class to dwellings, giving local authorities greater control over the number of short-term let properties in their area.

The government’s reason for this proposal is that, while short-term lets can play an important part in supporting the visitor economy, which can benefit an area, the rise in the number of short-term lets in certain areas has prompted concerns. It says that high concentrations of short-term lets in areas such as coastal towns, national parks and some cities is reported to adversely impact the availability and affordability of homes to buy or to rent for local people and on the sustainability of communities more broadly.

With this in mind, the government is proposing the introduction of a short-term let use class and the introduction of new permitted development rights for the change of use from dwelling to short-term let and vice versa, which it says will provide flexibility where short-term lets are not a local issue.

It is also seeking views on how homeowners might be provided with flexibility to let out their sole or main home for a number of nights in a calendar year looking into the introduction of a planning application fee required where permission is required for the development of a new build short-term let.

The consultation, which runs until 7th June, will seek views on any potential impacts on businesses, local planning authorities and communities from the proposed measures – but what of the impact on investors?

On the surface, another layer of bureaucracy for investors in short-term let property looks like an unnecessary extra hurdle. However, given the scrutiny the sector has come under, the proposals in this consultation seem to be relatively light touch.

Many property investors are already well-versed in using permitted development rights to help them achieve their investment objectives, and while it is another step of the process, it does at least provide certainty, unlike a planning application. It’s likely that investors in many areas will be able to buy a residential dwelling and change its use to short-term let without too much trouble.

In those areas with a high concentration of short-term lets, where permitted development rights may not be granted, there’s also a positive takeaway for investors, as it will limit over-saturation of supply of short-term let properties, helping to maintain the prices that can be achieved.

Only time will tell how this consultation will eventually be implemented in policy, but at this stage, it seems a sensible response to high profile concerns. There continue to be opportunities for investors in short-term lets and, while these proposals will give more control to local authorities, they fall very short on slamming the door on those opportunities.

Property investors have had a lot to deal with in recent years. With a rising tax burden and increasing regulation, there’s a lot for landlords to consider. However, the fact remains that the fundamentals of a Buy to Let investment continue to be as strong as they ever have been.

According to Zoopla, the number of homes available to rent in the UK has fallen by a third over the past 18 months. In its March Rental Market Report, Zoopla said that rents for new lets have increased by 11.1% in the last year, while earnings have increased by 6.7%. Over the last three years, the report says that rents have risen by 20%, adding an average additional income to landlords of £2,200 a year.

With demand for housing continuing to exceed supply, there’s little doubt that landlords who buy the right property in the right area should be making a good investment, and it’s important they understand the responsibilities that come with this investment.

Unsurprisingly, given that around a fifth of all UK households now live in privately rented accommodation, the regulations around letting property have been tightened to protect tenants.

Under a standard fixed term Assured Shorthold Tenancy (AST) for example, landlords can’t ordinarily put the rent up until the fixed term ends - unless the contract has a rent review clause and they must give at least one month's notice. If the fixed term of the AST is a year, landlords must then give six months' notice ahead of increasing rent on the property. For rolling term ASTs landlords can usually only put up the rent once a year, they must give at least one month's notice when they do so, and any rent rise must be fair and realistic.

There are also strict rules in England surrounding the holding deposit a landlord can ask of potential tenants to reserve a property. The holding deposit, for example, can’t be more than one week's rent and tenants should get the money back within seven days of signing their tenancy agreement – unless it has been agreed that this will go towards their rent.

Asking tenants to leave a property is also an area where tenants are strongly protected and landlords need to make sure they follow the strict rules, or risk any eviction being considered illegal or even finding themselves guilty of harassment.

There are two main ways of evicting a tenant, both of which need to be delivered in writing. A "section 8" notice can be provided if a landlord has a reason for wanting a tenant to leave, such as late rental payment or breaching the terms of the AST. While a "section 21" notice can be given to a tenant without providing a reason. The government has consulted on removing this section 21, but as of yet has not confirmed a final decision.

There are also rules about the condition of the property and tenants have the right to "live in a property that's safe and in a good state of repair". So, a rented home might be considered unfit if, for example, it has damp, unsafe electrics, or a rodent problem. However, landlords aren’t expected to do small jobs like changing light bulbs.

If you are working with first-time landlords, or even more experienced property investors, you can add extra value by discussing some of their responsibilities and considerations, as well as their mortgage requirements. This isn’t intended to put them off investing in property but, by encouraging your clients to go into an investment with their eyes open, you can help to ensure that they have the best chance of making it a success.

There was speculation a couple of years ago that the booming demand for staycations was solely down to Covid restrictions. However, two years later, with a cost-of-living crisis gripping the country and people increasingly choosing to make more environmentally friendly choices, demand for holidays within the UK remains strong.

This is good news for the many thousands of investors who have purchased property for the specific purpose of holiday lets, and it’s not too late for those who want to buy somewhere for the 2023 summer season. They will have to move quickly though. According to the Smoove Home Movers Report, the average time taken to complete a property purchase is 153 days, and this has increased by 23% since 2019.

Average times do not mean that the process can’t be completed more quickly of course, and one-way investors can expedite a purchase is by using bridging finance to raise the funds they need, which is much faster to access than a term mortgage.

There is another big consideration as to why bridging finance can provide a good way for holiday let purchasers to buy their next investment.

The popularity of this investment class has increased significantly in recent years to meet the growing demand, which is good news for holidaymakers as it provides them with more choice. However, it also means that, for a holiday let investment to be successful, the property will need to attract guests in a competitive environment – and it’s the well-equipped, most attractive properties that will be booked first.

There will always be demand for best-in-class properties and, for investors, this means not only buying the right property in the right location, but also refurbishing that property so that it offers upgraded facilities and décor.

Bridging finance can provide investors with the ability to purchase a property quickly and provide additional funds to carry out refurbishment, to make it more attractive to discerning holidaymakers – with the opportunity to then refinance onto longer term funding, potentially at a higher value, in the future. Another advantage of this approach is that, when it comes to refinancing onto a term product, the property may have already established a track record as a holiday let over the summer period, and this may open more options regarding lenders and products.

This is certainly something worth discussing with your clients as bridging finance can help them to access an investment quickly, potentially increase its value and establish a track record. In taking this approach, not only could they benefit from letting the property to holiday makers this summer, but they could also put themselves in a stronger position to secure a lower rate on their long-term mortgage in the future.

Anna Lewis, Commercial Director, Castle Trust Bank

Originally posted on Financial Reporter.

It’s just over a year since we last spoke to Anna Lewis, who had recently joined Castle Trust Bank as director of proposition and strategy. Since then, Anna has been promoted to the role of commercial director, and the bank has made a number of changes to its proposition. So, we caught up with Anna to see what’s happened over the last 12 months.

FR: It seems a lot has changed in the last year. First, tell us about your new role?

I’m a few months into it now, but as commercial director, I lead the bank’s commercial strategy, building on our mortgage and bridging lending proposition. I also have responsibility for leading the team of regional account and business development managers.

Castle Trust Bank is an incredibly dynamic lender, able to innovate and develop its offering to meet the changing needs of property investors. Change is one characteristic that has defined the market in the last year, and we like to think that we have remained one step ahead of changes.

FR: Can you give an example of how Castle Trust Bank has remained ahead of market changes?

As part of our commitment to providing brokers with certainty in an uncertain environment, we introduced a booking fee which enables brokers to lock into the rate they are quoted at the outset, with a booking fee option, allowing greater control in selecting the best solution for their clients. We were the first lender to do this and led the market with this sensible initiative, which provided greater confidence for brokers and their clients and was subsequently followed by a number of other lenders.

Throughout the year, within a volatile funding environment, we have been able to provide brokers and their clients with certainty of funding, given our status as a bank, which means we are able to lend our own funds rather than rely on third parties.

Another element of our proposition that has enabled brokers to provide a solution for more of their clients was the introduction of net LTV calculations, meaning that fees and interest can be added to the loan above the maximum LTVs on our light refurbishment and heavy refurbishment bridging loans. This has helped investors to increase their leverage in an environment where leverage isn’t easy to achieve.

FR: What other changes have there been in the last year?

We launched our specialist bridging proposition, which is supported by dedicated sales, underwriting and processing teams.

The range has a number of attractive features, including net LTV calculations on our refurbishment products and the option for clients to choose the term that best suits their needs, up to the maximum term of each product.

One of the highlights is that our light refurbishment product is available for works that fall under permitted development, works that require building regulation sign-off, residential to HMO conversions up to six tenants, replacement windows, decoration, light central heating and electrical work, internal reconfiguration, full rewiring, and installation of new bathrooms and kitchens.

Our heavy refurbishment product can be used where planning permission is necessary, although not on ground-up developments.

Finally, our standard bridge product can be used for chain breaks, quick purchases, auction purchases and development exits.

FR: What was the reasoning behind launching a dedicated bridging proposition?

Bridging lending should provide a simple solution to complex problems, with fast decisions and quick processing. We recognised that we could only deliver this by providing it with its own sales, underwriting and processing teams.

In doing this we have been to maintain consistently excellent service levels, responding to all enquiries within 4 working hours.

Our commitment to service is ongoing and we are investing in a new mortgage and underwriting platform to benefit brokers and their clients.

Castle Trust Bank has completed a £4.6m Light Refurb Bridge to fund the renovation of a large Multi-Unit Freehold Block (MUFB).

We were approached by Nicholas Christofi from Sirius Property Finance, to structure a loan for his client, secured on Saint Marys College, a 57-unit MUFB in Newcastle with a purchase price of £6.3m.

The client was a limited company with two directors – a UK national and an Israeli national, both of whom were seasoned developers with five properties currently owned between them.

They wanted a loan of £4.6m to purchase the property and carry out the works, with the intention of achieving a GDV of £9.3m.

There was an additional complication due to court proceedings regarding a utilities bill, but we were able to work together with Sirius and the client to quickly process the case once clearance had been obtained by the court, and deliver the funds required.

Anna Lewis, Commercial Director, said:

“This was a large and complex bridging case, and I would like to thank Gary Maher and the team supporting him for their hard work and determination to get it over the line.

Saint Marys College is a wonderful building in need of renovation. The clients had a vision to make this happen and, with the help of our Light Refurb Bridge, they also had the funding.

It’s an excellent example of how versatile our Light Refurb range can be, with loans available up to 80%  LTV and fees and interest able to be added to the loan above the maximum Net LTVs.”

Nicholas Christofi, Co-Founder at Sirius Property Finance, said: 

“When our client first approached us there were no existing offerings in the lending market that suited their requirements.

This is where, at Sirius, we come into our own as we knew exactly the correct people to approach to structure a bespoke solution that worked for all and remained active in co-ordinating all parties to a seamless completion.

I’d like to thank the team at Castle Trust Bank for their tireless work on this complex case.

Many lenders promote themselves as specialist, however Castle Trust Bank continue to prove they truly are, time after time, case after case.”

When it comes to bridging, the maximum LTV offered by a lender is not always what it seems. If your clients are looking for maximum leverage, applying to the wrong lender could leave them coming up short.

This is because of the different ways lenders take in calculating the loan amount. While some will use a Net loan amount for calculating their maximum LTV, others will use a Gross value, and this could make a big difference to the loan size your client is able to achieve.

The Net value of a bridging loan is the capital that is borrowed before any additional costs are added, including the arrangement fee and any interest that isn’t serviced. While the Gross value of a bridging loan is the total amount that is owed at the end of the term of the loan, including additional costs such as arrangement fee and interest.

Whether a loan is calculated as a Net amount or Gross amount becomes most important when it comes to quoting a maximum LTV to which a lender can lend. Some lenders use the Net value of a bridging loan, while others use the Gross loan amount, and this means that, at the outset, it can look like some lenders are prepared to lend to higher LTVs than they actually are.

At Castle Trust Bank, we have recently revamped our Bridging range, with a number of new enhancements including the ability for fees and interest to be added to the loan above the maximum Net LTVs on our Light Refurb and Heavy Refurb Bridge products. This means that fees and interest can be added to the loan above the maximum LTVs.

Here are a couple of examples that demonstrate the different loan sizes that could be achieved depending on whether a bridging lender uses Net or Gross.

Example 1

A 5-bed HMO in West London with 2 studio flats attached. It was a Limited Company purchase for £700k on an 18-month heavy refurb bridge at 0.95%/month.

Subject to planning being approved, the plan is to renovate the house completely, add a new bathroom and apply for an HMO licence. The works were estimated to cost £100k, with the resulting value of the property increasing to £1m.

At Castle Trust Bank, we were able to offer a day one 80% Net loan of £560k.

With the same term and rate, the day one loan at 80% Gross would have been just £461k – a difference of more than £98k.

Example 2

A client wanted to buy 2 flats, with a purchase price £600k on a 12-month heavy refurb bridge at 0.95%/month.

The client planned to spend £50k to redesign the floorplan and increase the number of bedrooms in the flats. After this work, the estimated value of the property was £900k.

At Castle Trust Bank, we were able to offer a day one 80% Net loan of £480k.

With the same term and rate, the day one loan at 80% Gross would have been just under £419k – a difference of more than £61k.

Net and Gross loan calculations can make a big difference to how much a client can borrow, so if your investor clients are looking to maximise their leverage, think about how you can net a larger bridging loan.

In a sector where speed is often of the essence, sluggish transactions can often lead to disappointed clients and sometimes result in aborted applications.

Consequently, some bridging lenders are using title insurance are part of their proposition, to help speed up transactions and deliver more certainty.

Title insurance ultimately protects a lender should an issue arise with the title if the property needs to go through a possession process as part of any recovery activity. This gives lenders greater certainty during the application process and it means they can, in turn, provide greater certainty – and speed – to brokers and their clients.

Often a title insurance policy will also go well beyond what would be unearthed by basic searches and can protect against unknown defects, such as fraud and forgery on behalf of both the borrower and the solicitor, negligence on behalf of the solicitor or search agents, and false assertions, undue influence and mental incapacity.

So, with a comprehensive title insurance policy in place, lenders can focus on underwriting the fundamental elements of a bridging case and this can create more efficient and effective application processes.

Another benefit of title insurance is that it can enable some transactions to proceed that may not have otherwise been able to do so. For example, at Castle Trust Bank, we recently completed a portfolio loan secured on 19 Buy to Let properties in London, with an aggregated value of £9.3m. There were a number of complicated legal issues associated with the case, but the application was able to proceed quickly and easily with the use of a bespoke Title Insurance Policy, obtained via specialists Westcor International.

With this in place, we were able to provide a £5.4m TermTen loan on a 5-year fixed rate to the borrowers, who were an Israeli and a UK national, both of whom currently live in Israel.

There may be challenges around conveyancing delays in the bridging market at the moment, but there are also potential solutions. Title insurance can unlock some of these challenges, which is why it is being used by a growing number of forward-thinking lenders, like Castle Trust Bank, to deliver the best results to their brokers and customers.

Dear Prime Minister

The Private Rented Sector provides accommodation for nearly a fifth of all households in the UK. As house prices continue to rise, working patterns become more fluid, and social housing stock supply continues to fail to meet demand, this sector is only going to become more crucial to meet the needs of a growing population.

According to the latest Rental Price Tracker by Rightmove, private rents are growing at their fastest annual rate in 16 years, with the cost of renting increasing by nearly 12% outside of London and 15% in London in just 12 months.

The driving force behind these rental increases is, of course, supply and demand. The number of people requiring housing and looking to the Private Rented Sector to bridge that gap exceeds the number of available properties. At the same time, government policy in recent years has layered additional tax burdens and regulation on top of landlords, leading many to sell property to reduce their portfolio, and some to leave the market altogether, whilst also discouraging new landlords from entering the market. Reports recently identified that there were half as many rental properties available through letting agents in March 2002 compared to March 2019. In the meantime, the Government’s annual target for housebuilding has been missed again, with only 180,000 houses being built against the target of 300,000 in 2021.

The result is that, while demand for rental property is growing, the supply of available properties has been strangled. Not only does a market of demand exceeding supply create price inflation, but it can also reduce the standard of property available to rent. With so much demand for every property, there is little incentive for landlords to invest in renovations and improvements.

We think it’s time for government policy to acknowledge the important role those private landlords play in meeting the housing needs of this country’s growing population, and to strip back some of the barriers that have been placed upon them in recent years. Encouraging new landlords into the market, and existing landlords to grow their property portfolios may potentially take some properties out of the first-time buyer market – but it will instead place them into the Private Rented Sector; these properties often offer the most affordable rents and can help first time buyers have their first home whilst saving a deposit for their first property purchase. A stripping back of some of the current disincentives will help to increase the supply of rental property and, as with any market, greater competition helps to raise standards and put downward pressure on pricing.

This is absolutely vital if this important source of housing stock is to continue to help meet the increasing accommodation needs of the country.

How do we encourage greater investment into the Private Rented Sector?

Any such strategies need to align with wider economic strategy, and shouldn’t be considered in isolation; a package of changes and improvements should be part of a full, coherent strategy. However, a good place to start will be to put a freeze on implementing any new burdens for landlords. In recent years, property investors have had to absorb a string of tax changes and additional regulation. A period of calm, where this is not the case, will help to give those investors greater confidence to buy new property and should encourage increased availability of stock in this sector. New policies to encourage property investment, will expediate this growth, of course, but at the least a period of calm will settle landlords, which will also benefit renters.

Yours sincerely,

Barry Searle, managing director of property at Castle Trust Bank

Various pandemic-fuelled revelations have shaped the past couple of years, from the so-called ‘death of the high street’, to the realisation that remote working could be a reality. For Buy to Let (BTL) investors, some of these trends, such as the purported exodus out of London and other cities have proven little more than a flash in the pan.

One trend that might in fact prove more permanent, though, is the rising popularity of holiday lets. Of course, the ‘staycation’ first boomed when there was little other choice than to holiday within our shores. Many might have expected the sudden love for our own green pastures to give way to a wish for warmer climes abroad when travel restrictions started to lift, but not so, it seems.

According to Sykes Holiday Cottages’ ‘Holiday letting Outlook Report 2022’, the UK staycation sector continues to boom, with bookings up 35% compared with pre-pandemic levels. A quarter (25%) of current holiday home owners started letting during the pandemic, and 85% say bookings are stronger than ever, and do not expect this popularity to abate for at least five years. Unsurprisingly, the Lake District, Dorset and Cornwall have seen the biggest booms.

In an environment of increased regulation and taxation tightening margins on standard BTL investments, holiday lets present an attractive opportunity and Sykes says that 69% of holiday let owners do this alongside a full-time job.

However, it is not simply a case of earning easy money in the background. These properties take considerable management, particularly post-pandemic, with expectations of stricter cleaning regimes. As demand, and rates, continue to rise, there is also an expectation of luxury, which means that to make a property desirable, owners may have to invest heavily in amenities. For those with a full-time job based further away from their property, remote management can also come with added time and cost implications.

Holiday lets tend to offer greater returns than Assured Shorthold Tenancies (ASTs), which can more than offset the added demands, but would-be investors should remember that to get the most out of this opportunity, the location, amenities and management have to be just right.

It is also worth considering that this is a newer market, with the potential for rapid developments. We have already seen Mayor of London Sadiq Khan push back against what he deemed the ‘threat’ of an influx of short-term rentals in the capital by imposing a 90-day cap on renting out homes. In 2019, Khan suggested a ‘light touch’ registration system to better enforce this rule, which many have found ways to flout, including listing on multiple short-term booking sites. Prospective owners should make sure to keep up with any regulation that might come in as the staycation trend swells further.

Holiday lets, as an investment category, is still in its infancy and the lending market is evolving to provide more specialist solutions in this area. Lenders are starting to get on board and introduce tailored products, but it might still prove difficult to find something that suits everyone, particularly for first-timers with a limited ability to prove either previous experience or projected rental income. In fact, many lenders continue to assess affordability based on AST rental projections, usually lower than the income prospects actually offered by holiday lets.

This is why it’s so important to partner with a lender that understands the nuances of specialist BTL investments, including holiday lets, uses rental income rather than AST and is able to provide lending based on the individual merits of a case, potentially even structuring a bespoke solution to meet the requirements of the client.

The holiday let market undoubtedly provides many exciting opportunities, either for seasoned landlords looking to diversify their portfolios, or one-off investors with a view to supplementing their income. Our love affair with the UK’s green and pleasant land is not likely to cool any time soon, but brokers should make sure they are working with a lender that understands the complexities and nuances, and has developed its criteria accordingly.

The buy-to-let remortgage opportunity has been well documented. According to data from UK Finance, there was £27bn worth of buy-to-let remortgaging in 2021 and it is expected to remain at this level in 2022. However, in 2023 UK Finance predicts that buy-to-let remortgaging will increase by more than 22% to £33bn.

One of the drivers behind this opportunity is the wave of buy-to-let purchase business that took place at the beginning of 2016 ahead of the 3% increase in Stamp Duty Land Tax that April. Many landlords purchased those properties using a five-year fixed rate mortgage because of the benefits around stress testing and these deals have now lapsed, leaving landlords free to refinance their loan.

Another driver is, of course, the rising interest rate environment. Inflation was already a serious issue ahead of the situation in Ukraine and now, with increasing fuel prices adding to the growing cost of living, there is certain to be increased pressure on the Bank of England to continue the interest rate rises it has already started. The cost of borrowing only looks like heading in one direction, so for any property investor planning on remortgaging, there is impetus on doing this sooner rather than later.

The motivation to remortgage is exacerbated for portfolio landlords who own a number of different properties, some of which may be more complex investments such as HMOs, holiday lets or multi-unit blocks. However, the mechanics of arranging many different new loans at the same time can be cumbersome and costly. Fortunately, there is another way.

For portfolio landlords who want to refinance numerous properties, there are specialist buy-to-let lenders that are able to offer portfolio remortgages, with a single loan secured against multiple assets. This type of remortgage will use an average LTV across the portfolio, which is beneficial for investors who have some assets that are more highly leveraged than others. Investors can also release equity to finance further expansion of their portfolio and some lenders, like Castle Trust Bank, can even include more complex property investments as part of the loan, structuring a solution built for the specific requirements of an individual client.

When considering a portfolio remortgage, it’s also worth thinking about the overall cost of borrowing rather than just the headline rate, as fees can vary and some lenders that specialise in this area may also offer incentives. For example, at Castle Trust Bank, we offer a valuation incentive scheme at the moment that pays out a cashback of up to £5,000 + VAT and this can significantly reduce the overall cost of borrowing.

By way of example, we recently had an application for a £14.6m portfolio. We split the transaction into two separate cases, each of about £7m and this enabled us to double the valuation cashback. The total valuation costs were between £25k and £30k and the client was able to claim back £10k + VAT, significantly lowering their costs.

For investors and for brokers, a portfolio remortgage can provide an efficient and effective way to refinance several properties at once, saving time and multiple fees. So, if you have plans to make the most of the buy-to-let remortgage opportunity and you have clients who are portfolio landlords, think about how a portfolio loan could provide a streamlined way for them to achieve their objectives.

It’s a buoyant time to be a landlord. The latest Zoopla UK Rental Market Report says that in Q3 2021 strong rental demand pushed rental growth to its highest level in 13 years, as the resumption of a more ‘normal’ way of life with offices, restaurants and bars, cinemas and theatres and other amenities re-opening – as well as students looking for accommodation –led to strong rebound in rental demand. And, in meeting this demand, investors have rarely had as much choice when it comes to mortgages. Moneyfacts says that at the start of 2022, the number of Buy to Let mortgage products on the market hit the highest level since September 2007.

One area of particular growth has been specialist Buy to Let on investments such as HMOs, multi-unit freehold blocks (MUFBs) and holiday lets, as existing lenders have expanded their proposition into these areas and new entrants have targeted this more niche sector of the market. There are certainly opportunities within specialist Buy to Let and those investors that get it right often find that they can make returns that are far superior to a more standard Buy to Let investment.

However, despite the growing demand, as more investors are tempted into this sector by the growing availability of mortgage finance, competition amongst landlords is going to increase. Riding the wave of the market is one thing, but if the landscape changes, it’s important that investors are able to maintain a proposition that still stands out against the competition in a more crowded environment.

Consequently, at Castle Trust Bank we have seen a flight to quality when it comes to specialist Buy to Let. Since the beginning of the year there has been a significant uplift in the number of applications for larger loans, often over £1m, on HMOs, MUFBs and holiday lets. Sometimes these larger loan sizes are to fund the purchase of larger properties, but often it’s the case that they are desirable, or high-spec properties in more salubrious areas.

This is a sensible approach. If the market were to turn, it is the most in-demand properties that will continue to attract attention, particularly if they have stand-out qualities when set against the stock of that type. At the same time, even in the current buoyant environment, the best properties will always command a premium and that potentially means better returns for investors. It’s good news for brokers as well, as high-end properties can mean larger loan sizes.

The current positive outlook for property investors may encourage many to expand their portfolios, particularly when it comes to more specialist type of investment that could deliver better returns. It’s worth thinking about what steps they can take to make their investment more resilient in the future and a flight to quality – choosing to invest in top-end property may help to do just that. If this is a path that your clients choose to go down, make sure you work with a lender that has the experience and expertise in this part of the market to help ensure that they set out on that investment from the best possible footing.

Barry Searle, Managing Director of Property 

Castle Trust Bank has recruited Anna Lewis as Director of Proposition & Strategy to help drive the bank’s ongoing development of its specialist Buy to Let and Development Finance propositions.

Anna, who joins from Hampshire Trust Bank where she was Head of New Business, has nearly 18 years’ experience in intermediary mortgages, having previously held roles at Purely Mortgages and Interbay Commercial.

She joins Castle Trust Bank in the newly created role of Director of Proposition & Strategy, with a focus on continuing to develop its specialist Buy to Let and Development Finance propositions to deliver even more lending solutions that meet the needs of property investors.

Anna said: "This is a fantastic time to join a company that has ambitious plans to grow. With my expertise in specialist mortgages we can continue to build on the great proposition that Castle Trust Bank already has in place, working closely with intermediaries to support them and understand how we can continue to evolve and meet their lending needs.”

Barry Searle, Managing Director, Property, said: “I’m very pleased to welcome Anna to the team. She has a wealth of experience and a great track record in working with intermediaries to identify the evolving needs of property investors and developing propositions to meet those needs. We have already had a huge amount of success with our specialist Buy to Let and Development Finance offering and Anna will become a key member of the team in building on that success and putting Castle Trust Bank at the forefront of consideration for any broker who has property investor clients.”

Currently, domestic private rental properties must meet a minimum level of energy efficiency of an EPC rating of E. However, from 2025, all new tenancies will be require the property to have a certification rating of C or above, and this will apply to all existing tenancies from 2028.

It’s a long way in the future, but is a talking point now as landlords who are refinancing onto a five-year fixed rate may want to consider raising capital at this stage to cover the potentially extensive costs of converting an E rated property to a C – not least to take advantage of the current low interest rates. The work involved in delivering such an uplift in energy efficiency could include insulating walls and the roof, upgrading the heating system and installing double or triple glazed windows, and so may require an investor to increase their borrowing to finance these improvements.

However, a question remains as to whether landlords will behave in this way and begin work sooner rather than later, or delay the expense of making improvements until absolutely necessary.

A consideration will clearly be whether making improvements to the energy efficiency of a property will deliver an uplift in rental income and capital value. Common sense indicates that a more energy efficient property will be more attractive to tenants because of the lower associated heating costs and so could potentially attract higher rent, but in reality will the impact on income justify the expenditure?

One resource that could be useful for landlords is a tool on the Halifax website that offers a high-level calculation of the cost of undertaking work to make a property more energy efficient and the resulting energy cost savings. This could provide some indication of any increased rental income that may be able to be achieved by providing tenants with a property that has lower energy bills. However, it’s unlikely that landlords will be able to increase rents by the full energy savings and the cost of the work is always likely to be larger in the short term than any savings achieved.

One issue when it comes to the price achieved by more efficient properties is that surveyors value property based on an assessment of current market value, which is driven by buyer demand. The energy efficiency of the property is not a consideration in the valuation unless it leads to a quantifiable shift in that demand. Currently, we are seeing no major shift in how much buyers or renters are prepared to pay for a more energy efficient property. This may happen in the future, of course, but until it does the energy efficiency of a property is unlikely to materially influence its value – or its potential rental income. It may be some time yet before the best environmental intentions from consumers translate to a willingness to pay more from their own pocket.

There also remain unanswered questions about how regulation will impact the owner occupier market. A property with an EPC rating of E may not be able to be let out on a new tenancy as of 2025, but as it stands, it will still be able to be sold to a buyer who chooses to live in the property. The value is likely to be detrimentally impacted if the property requires work in order to be let out, making it less appealing to investors, so it will be interesting to see how this dynamic plays out.

One other consideration for investors, and one that may encourage some to carry out the work sooner rather than later, will be the lead time required to make any changes and the availability of materials and tradespeople. There will undoubtedly be a rush to make changes ahead of the deadline and, as many investors who have attempted a refurb project recently have found out, sourcing tradespeople and materials can be a lengthy and expensive process. Costs, invariably, increase in line with demand. Jumping the queue and completing any required work before demand increases may ultimately enable landlords to carry out the work more efficiently.

Whatever trends we see in landlord behaviour over the coming year, it’s important to understand the individual considerations and concerns of your investor clients, so strike up the conversation and make sure they are aware of their options – even if they do choose to hold off on starting any renovations.

Castle Trust Bank has cut the rate on one of its most popular products, extended special offers and improved valuation criteria as part of a range of new year proposition enhancements.

We have cut the 5-year fixed rate with a 5-year ERC, up to 75% LTV, on our popular TermTen range by 0.59% to 4.15%. In the same range, we are maintaining our special rate of 3.95% up to 70% LTV and 4.50% up to 75% LTV on 5-year fixed rates with a 2-year ERC.

In addition, we are extending our cashback offer of up to £5,000 + VAT on valuations fees across its entire product range, from the end of February until the end of April 2022.

We have also made improvements to our valuation criteria, including all property portfolios will now be assessed on open market value, freehold blocks up to 20 units will be assessed on aggregate market value and freehold blocks greater than 20 units will be assessed on investment block value.

Barry Searle, Managing Director of Property, said: “At Castle Trust Bank, we understand that a good specialist Buy to Let proposition is a combination of factors, including rate, service, criteria and incentives, and we are always looking into how we can improve our proposition for brokers and their clients. Our new year enhancements include a significant rate reduction on one of our most popular products, the extension of great rates we had previously introduced as special offers, and we are continuing our valuation cashback offer until the end of April. This has already been in high-demand and we know that the current environment and prevalence of the Omicron variant means many businesses in the property industry are currently working under capacity, which is prolonging the process for many transactions. So, it seems only right that we extend this offer to give as many customers the opportunity to benefit from it as possible.”

A record number of new limited companies were set up in 2020 to hold Buy to Let properties, according to analysis of Companies House data by estate agent, Hamptons. It says that last year there were a total of 41,700 Buy to Let incorporations, an increase of 23% on 2019.  The numbers have more than doubled since 2016, when tax changes for landlords were introduced and at the end of 2020 there were a total of active 228,743 Buy to Let companies.

However, a limited company structure is not for everyone, and many investors still choose to hold Buy to Let purchases in their own name. So, what are the considerations?

Here are some of the pros, cons and considerations of holding a Buy to Let investment in a limited company. Naturally most of the differences come down to tax treatment, but there are other things to think about and it’s important to seek the guidance of a specialist adviser before making a decision about what’s right for a client’s circumstances.

Pros of a limited company

Restrictions on mortgage interest relief don’t apply to a limited company

In 2015, the then chancellor George Osborne announced that mortgage interest tax relief would be gradually eradicated for individuals between 2017 and 2020. As it now stands, individual Buy to Let landlords are unable to offset any of their mortgage interest costs against their tax bill. The government has introduced a 20% tax credit for people in this position, but it is not as beneficial for higher rate tax payers. The mortgage interest payable on a Buy to Let mortgage for a limited company can still be offset against its tax bill.

Corporation tax rates are lower than income tax rates for most landlords

Profits generated by an investment property that is owned by an individual will be taxed at that individual’s personal tax bracket, which could potentially be 45%. Profits generated by an investment property that is owned by a limited company will be subject to corporation tax, which is currently 19%.

In this year’s Budget it was announced that the top rate of corporation tax will increase from April 2023 to 25%. However, it’s worth noting that the top rate will only apply on profits over £250,000. The rate for small profits under £50,000 will remain at 19% and there will be relief for businesses with profits under £250,000 so that they pay less than the main rate.

A limited company provides more varied options for tax planning

With a limited company investors can choose to draw income as and when they need it in the most tax efficient way. For example, a married couple owning an investment property through a limited company could separately reward themselves dividend payments, to maximise their tax free thresholds. There may also be more complex tax planning opportunities to meet an individual’s individual circumstances and it’s always important to speak to a specialist tax adviser.

Limited companies are separate legal entities, so they offer limited liability protection to landlords

There is a degree of comfort and separation in owning a property in a separate legal entity. For example, if tenants have unpaid utility or council tax bills, it is the limited company that will be contacted as the owner of the property, rather than the individual.

Drawbacks of a limited company

Landlords are still subject to personal tax when they take income out of the company

Corporation tax may be less than income tax, but if you want to use the money you earn from a Buy to Let investment you will need to draw money from the limited company and this may also become subject to personal tax. So an investor may be paying corporation tax through the limited company in addition to personal tax on income or dividends. Specialist tax advice should always be sought in these situations.

No Capital Gains Tax (CGT) allowance

Individuals are able to benefit from CGT allowance on profits when they sell a property. Limited companies cannot. The 2021-2022 CGT allowance is £12,300.

There are additional administration considerations and costs

A limited company is a separate legal entity, and while a company can be set up at Companies House for just £12, the company will come with a number of responsibilities, including reporting and accounting. Outsourcing these tasks will come at a cost.

Transferring an existing property from own name to a limited company is subject to costs

There are costs involved in transferring existing properties owned by an individual into a limited company. As the ownership or the property is changing it could be subject to Stamp Duty Land Tax, legal costs and potentially Capital Gains Tax. So it’s worth weighing up these costs and speaking to a specialist tax adviser before making the change.

There remain fewer products for limited companies

However, this situation is changing and many lenders, like Castle Trust Bank, offer the same rates for both individuals and limited companies.

Within its research, Hamptons provided a useful example of tax payable during the 2020/2021 tax year on a property worth £250k, with a 75% LTV mortgage for a limited company, lower rate tax payer and higher rate tax-payer.

 

	Limited Company	Personal (lower rate)	Personal (higher rate)
Purchase price	£250k	£250k	£250k
Rent	£12k	£12k	£12k
Mortgage interest	£6563	£4688	£4688
Gross profit	£5438	£7313	£7313
Tax due	£1033	£1463	£3863
Net profit	£4404	£5850	£3450

 

This calculation assumes a 75% LTV interest only mortgage with a rate of 2.5% on a property held in a personal name and 3.5% for a property held in a limited company. Gross profit is calculated after costs but before tax. Net profit is calculated after all costs, including tax.

Whichever route your clients choose depends on their individual circumstances and it’s important that they seek the guidance of a specialist property tax adviser before making a decision. You can of course discuss their options, particularly when it comes to mortgage product choice, but don’t be tempted to stray into offering tax advice if you don’t have the permissions to do so. Many broker firms find that it’s beneficial to have a referral agreement with a tax adviser, both as a way of offering additional services to their clients and of generating new business leads.

Barry Searle, Managing Director of Property at Castle Trust Bank

Castle Trust Bank is offering a cashback of up to £5,000 + VAT on valuations fees across its entire product range.

The offer applies to all valuation fees paid on or after 1^st December 2021, where the loan completes before or on 28^th February 2022. It is available across the Castle Trust Bank product range and the cashback of up to £5k + VAT will be applicable on most loans.

Barry Searle, Managing Director of Property at Castle Trust Bank, said: “We’re really pleased to be able to offer this valuation cashback which gives brokers and their clients reason to celebrate as we close 2021 and enter 2022. A good example of the amount that could be saved is a recent £3m completion, where the valuation fee was £3,250 + VAT. The cashback of up to £5k + VAT will mean that most customers who pay their fees from today and complete by the end of February, will not have to pay a valuation fee. Feedback from brokers tells us that valuation cashbacks offer a bigger benefit than free valuations as they enable greater freedom to choose a surveyor, which is particularly important in the current environment where there have been reports of delays with some firms.

“It’s further demonstration of our understanding of what brokers want and commitment to supporting our intermediaries, building on our rate reductions earlier this year and our recent criteria enhancements, which included lending to first-time buyers.”

To find out more about how Castle Trust Bank could help you, or to find your local BDM, please click here.

In 1996 the Association of Residential Letting Agents (ARLA) worked with a small group of lenders to develop and launch a mortgage product specifically tailored for landlords and so, 25 years ago the first Buy to Let mortgage was born.

I’ve been involved with the specialist property lending market for more years than I care to remember, and I can safely say that over the last quarter of a century, few years have seen quite as much change in the Buy to Let market as 2021. 

As the UK slowly emerged from lockdown in the first half of the year, it was clear that the impact of lockdown had changed many people’s attitudes to where they want to live. Data from property website, Rightmove, shows that increased demand from renters to live further away from cities has led to asking rents in suburban and rural areas jumping by 11% since before the pandemic started. This is compared to asking rents increasing by just 2% in urban areas.

Rightmove says that demand for each available property is up 155% compared with pre-pandemic levels in suburban areas, and up 224% in rural locations. Demand from renters looking in urban locations is also rising, but by not as much at 82%. However, there are more homes for them to choose from. Of all the available rental properties on Rightmove, 64% of them are now in urban locations, which is up from 48% pre-pandemic. The proportion of available properties that are in the suburbs has dropped from 46% to 33%, while rural areas have declined from 6% to 3%.

While most of the increase in rental demand has been in rural and suburban areas, the UK Rental Market Report by Zoopla for Q3 2021 found that London rental growth swung back into positive territory after 16 months of falls. And Zoopla says that rental demand will remain higher than supply as the availability of properties to let is 43% below the five-year average.

This increasing imbalance between supply and demand of rental property has encouraged investors in greater numbers to refurbish properties and introduce new higher standard properties into the rental stock. Property refurbishment has always been a popular method for investors to achieve greater returns – increasing the capital and rental value of a property by carrying out renovations and 2021 has seen the emergence of product innovations that have encouraged more investors to take the plunge. 

Traditionally a refurbishment project is funding by a bridging loan and then an investor has an option to sell the property or refinance onto a term product. However, in an uncertain environment, both of these exit routes present uncertainty and potential extra costs to investors. So, this year, lenders have addressed this uncertainty by providing short term loans for property refurbishment combined with an assured exit. One example is our Bridge to Let product at Castle Trust Bank, which has proven to be very popular throughout the year.

2021 was, of course, the year of the staycation. This trend presented opportunity for property investors and the popularity of holiday lets surged. In fact, in September, Primis Mortgage Network says that holiday let mortgages were the most common broker query during the month. Travel is likely to open up in the future, but the popularity of holiday lets looks set to stay. In fact – perhaps reflecting awareness raised in the recent COP26 summit – Sykes Holiday Cottages says that one in five people are more likely to consider a staycation because of concerns for the environment.

Holiday lets are one way for investors to achieve better yields, but the two highest yielding types of property investment this year, according to research by BVA BDRC, are HMOs and multi-unit blocks and both of these have also performed strongly over the past 12 months with demand from both tenants and new investors entering the market. As with property refurbishment, many of these investors have benefited from product innovations, such as Bridge to Let, that have enabled them to maximise opportunities with the safety net of a guaranteed exit from their initial short-term finance.

This growing demand for more complex types of Buy to Let investment reflects the maturing market. Buy to Let reached its 25th birthday in 2021 and many investors are now more confident in taking on more work in return for greater returns. Lenders have responded to this trend and the range of options for specialist Buy to Let has never been as large. We can look back on 2021 as a year when a lot was achieved despite the challenging circumstances. And we can look forward to 2022 with optimism.

The UK property market remains an attractive place for investors as house prices continue to climb. According to Halifax, property prices registered the strongest monthly rise for 14 years in September, pushing the average cost of a home to a record high and reversing a three-month decline in annual growth.

At the same time, estate agent Savills has said that London’s high-end property market is showing glimmers of recovery following a second consecutive quarter of price increases on the back of years of falling or flat-lining values, according to new data. Savills says that prices of expensive London homes rose by 1.4% in the year to September, including a rise of 0.7% in the latest three-month period.

Activity in the top-end London market is also a sign that foreign investors are returning to the UK capital. With travel restrictions easing and property prices remaining robust, this trend is likely to continue, which means you are more likely to encounter foreign nationals or expats who want to invest in UK property. And just as domestic investors are increasingly seeking investments that can deliver greater returns this is something you should expect to see more of from your expat and foreign national clients.

The good news is that there are opportunities for expats and foreign nationals to invest in things like HMOs and holiday lets. At Castle Trust Bank, we recently worked with a foreign national who had been living in London for more than five years. They had clean credit and owned their main residence and they were looking to purchase a four bed HMO in an area that was already established for HMOs and with four occupants already in situ. The client was looking to raise 75% LTV, and this proved a challenge with some lenders, given that it was their first investment property and they were, of course, foreign nationals. However, given the strong set of circumstances, we were able to help them achieve their objectives.

Another recent case was an expat couple living in Switzerland. They owned two Buy to Let properties in the UK and were looking to make their first UK holiday let investment – a property based in the North of England near the Lake District. The yields were promising and so the couple were looking for a lender that could take into account their existing letting experience in the UK so they could purchase the property. Again, we were able to weigh up the case and given their Buy to Let track record, we were able to help these expat clients to buy their first holiday let investment.

The strong UK property market is going to attract an increasing number of expat and foreign nation investors and often they will want to invest in more complex, high-yielding options. This combination is likely to put many lenders off, but in the right circumstances, with a strong case behind them you can still find a way to help these clients access the finance they need to help them achieve better returns. You just need to know which lenders to turn to.

If you'd like to discuss an enquiry, you can find your BDM here.

As Buy to Let landlords become more sophisticated, traditionally specialist types of property investment become more common. In fact, research from a recent BVA BDRC Landlord Panel found that 13% of landlords own a multi-unit block, with an average yield of 6.6% – the second highest yield for all types of property owned.

Unlike an HMO, which provided the top yield, a multi-unit block contains separate, independent residential units, each with their own AST agreement. Each household has its own entrance and private areas into which no one else has right of access, and there are also likely to be common parts, such as a hallway or garden, that all households have the right to use. Examples of multi-unit blocks include purpose built blocks of flats, houses converted into flats, and very occasionally a number of houses all held under one freehold title.

Multiple-unit flats are lucrative for investors because they provide economies of scale. They can also be lucrative for brokers as, by their nature, they tend to be larger deals. Often a multi-unit block provides opportunity for investors to realise greater capital gains, as it’s possible to increase the value of each unit by separating the title and selling them off individually.

This was the case with a client we recently worked with at Castle Trust Bank. The client was a newly incorporated UK-based limited company formed of two directors, both with existing UK lending experience. They wanted to purchase a multi-unit block of flats, all held on one freehold, based in the West Midlands – and the broker needed a quick completion to secure the transaction.

The multi-unit block contained 14 units, had a total value of £1.7m, and individual leasehold agreements for the properties had yet to be arranged. So, this presented an opportunity to increase the overall value by separating the leases and selling some or all of the flats individually. The clients were looking to raise 75% LTV to purchase the whole block on one loan, which we were able to provide with a cross collateral charge – and completed in 24 days.

The clients then had the opportunity to increase the value of the 14 units by carrying out the necessary legal work to create individual titles for each of the properties so that they could be sold independently.

We are seeing more enquiries along these lines, where investors are seeing the potential in taking on multi-freehold blocks and, at Castle Trust Bank, we’re often able to structure bespoke solutions that enables investors to achieve their objectives, giving them the flexibility to make decisions as to the best course of action during the process. As more landlords look to invest in multi-unit blocks, make sure you are partnering with the right lenders to help them make the most of this lucrative opportunity.

House prices have risen by nearly 10 per cent in the last year, according to the Halifax House Price Index and values are expected to keep on growing. The latest report said that “the current strength in house prices points to a deeper and long-lasting change”.
As always, beyond the national picture there are also more local regional trends.

Property prices in Greater London, for example grew by just 3.1 per cent in the last year, according to the index, as demand for city living dropped in favour of larger homes with more outside space in more rural areas. 

The top-line rate of house price inflation is good news for developers of course, but it also poses a problem. Once they have completed a scheme, are they better off selling all the units while the market is hot or holding on to some to benefit from additional capital gains?  

In addition, for those investors building units in London, there’s a question as to whether they would be better off holding on until the impact of lifting lockdown restrictions is better known, when smaller properties close to amenities are likely to be more in demand. 

Timing is everything when it comes to investing and so the ability to have more control over when to make a sale can be a very powerful tool for developers. So, how can developers achieve greater control over when they sell some of their units? 

Gaining control 
One way of doing this is to use bridge-to-let. The bridging element of bridge-to-let can be used as a development exit loan to refinance the scheme that is completed or nearing completion, often at a lower rate than the development finance facility.

Then, when the properties are ready, the developer can choose to switch all the properties onto a buy-to-let loan and let the properties to tenants, perhaps with the intention of selling at a later date. Or, if they choose, they could sell some properties now and switch some onto the buy-to-let loan, reducing the outstanding balance in the process. 

Some lenders can also structure clever hybrid loans that give developers even greater flexibility. For example, a development exit loan which has a hybrid solution that combines a serviced loan and a bridge.  

The loan can be split at the outset between a bridging loan on some properties that are being marketed for sale and a fixed rate loan with serviced interest on those that were being retained to let out.  

Once the term ends, the bridging loan can be converted to a serviced loan without an early repayment charge (ERC), enabling the client the flexibility to choose whether to deleverage at this stage or to service the debt. 

The current market is encouraging increased activity from developers and the use of bridge to let, or a structured hybrid loan, can prove an important tool to give them the control they need to maximise their returns. 

Holiday lets have been a key investment trend for Buy to Let landlords in the last year and for obvious reasons. A successful holiday let has always been able to deliver better returns than a comparable property let on an AST, albeit accompanied by more costs and inconvenience, and the phenomenon of pandemic-driven staycations has pushed those potential returns through the roof.

There are still many considerations for landlords, of course, and investing in a holiday let is not a guaranteed formula for success, but the opportunity has peaked investors’ interest and lenders have responded with the launch of new holiday let products and propositions.

However, not all holiday let propositions are created equal and there are some key criteria that can make the difference between a deal that works and one that doesn’t.

One piece of criteria that can prove critical as to whether or not you can secure funding for your client’s holiday let aspirations is how the lender assesses the affordability of the loan. Many lenders launch holiday let products but still base their affordability assessment on the income achievable on an AST basis, even though a holiday let could earn a far greater amount, meaning that the client could borrow more towards it.

This criteria is most notable on larger, more expensive properties, which can often prove to be the most in demand holiday let investments. For example, recently at Castle Trust Bank, we worked with clients who were looking to raise funds to purchase a holiday let property on a converted farm valued at £1.3m, borrowing up to 75% LTV. In order to achieve this leverage, the clients needed a lender that would be able to base its assessment on the holiday let income rather than AST rental income. An added complication was that this was to be the clients’ first holiday let investment. We were comfortable with the clients’ proven letting experience given their existing portfolio and we also use the projected average of the high, medium and low monthly holiday rental figures, which mean they were able to achieve the loan they needed.

Even for those lenders that do use holiday let income rather than AST, establishing a track record of earnings potential can be tricky. Another client we worked with was an experienced landlord operating through a limited company. They were looking for a loan to purchase a holiday let property located in a popular holiday region and wanted to raise 70% LTV to purchase the property and make some improvements to improve marketability and rental yield. However, the COVID-19 restrictions severely restricted the client’s ability to take on bookings, which would have made it difficult to service a loan whilst the lockdown was in place.

Seeing the potential of a large property in a popular holiday location, we were able to provide a Buy to Let bridging loan, which allowed the client to purchase the property without the need to service the interest, and to accumulate bookings during that period ready for when restrictions were eased.

So, if you have clients who want to invest in holiday lets, make sure you work with a lender that offers criteria that makes it easy for them to make their aspirations a reality.

We are seeing a growing number of existing landlords who are choosing to diversify their portfolio, from letting out property on a standard AST, to investing in an HMO for the first time. If this is a trend you are also experiencing, it’s important to know the key considerations that will factor into your clients’ decision-making.

An HMO (house in multiple occupation) is a property rented out by at least three people who are not from the same household but who share facilities like the bathroom and kitchen.

In England and Wales a licence is required to rent out an HMO if it is rented to five or more people who form more than one household, although in some cases a licence may be required for a smaller property if the council requires one to be in place. This time last year, there was perhaps some doubt about the future demand for HMOs, but reports are that, if anything, there is actually growing demand for reasonably priced, flexible housing near to city centres and key hubs like hospitals and universities.

The most obvious reason why so many landlords are choosing to invest in an HMO is that it can usually deliver stronger returns than a single let property. According to BuyAssociation, research from BVA BDRC shows the average rental yield for an HMO property is 7.5%, which is 1.5% above the overall average rental yield for property investments. And the gap appears to be widening as BVA BDRC says that between Q1 2020 and Q1 2021 this difference has increased by 0.6%.

As well as the potential for stronger returns, earning rental income from multiple tenants means that landlords have less exposure to arrears than they would if they let the property to a single tenant – if one tenant is unable to pay or one room remains unlet, there is still the potential for income from other tenants.

Additionally, an HMO would ordinarily be operated as a limited company as the more complex nature of the investment and multiple sources of rental income make it more suited to this type of structure, and this may have some tax advantages over a single-let property owned in an individual’s name.

There are, of course, additional considerations. For example, there is increasing legislation and regulations that landlords need to be aware of and investors need to be confident that they understand the local rules for the area in which they are buying.

The supply of property suitable to being used as an HMO is also limited and investors often need to convert existing properties, often using short term funding. An HMO is also likely to come with higher start up and operating costs, such as furniture costs, adhering to fire and environmental health regulations, utilities, maintenance and letting agent fees.

Ultimately, and like any other property investment, the decision whether to invest in an HMO will come down to an investor’s own individual appetite for risk and reward, combined with their desire and ability to take on the extra associated work. However, there are new product innovations that can take some of the uncertainty out of an investment in an HMO. For example, a Bridge to Let mortgage can combine a short term loan that can be used to convert the property so it is fit for purpose, with a guaranteed exit route onto a term mortgage at a lower rate, and a product like this can take some of the stress and complication out of diversifying in a new area that has the potential to deliver greater returns.

As originally published in Specialist Finance Introducer

Ongoing property price inflation and growing rental demand mean that refurbishment projects continue to present a good opportunity for investors. However, there are also obstacles in the current environment, with plenty of anecdotal evidence of building projects stretching beyond their original budgets and timelines due to an increase in demand for builders, and shortages of/increases in the price of construction materials.

The evidence isn’t only anecdotal. The Monthly Statistics of Building Materials and Components published by the Department for Business, Energy & Industrial Strategy has confirmed that between May 2020 and May 2021, there has been a 10.2% increase in all building work, including a 10.8% increase in the construction of new housing. This increased demand has combined with some limitations in supply to drive up the cost of some construction materials. According to the report, the biggest annual change has been to the price of concrete reinforcing bars, which have increased by nearly 43% in the last year, while fabricated structural steel has risen by more than 38% and the cost of imported plywood has gone up by almost 30%.

These are significant price increases that could easily erode any contingency budget, so it’s important that your clients go into their next refurbishment project with their eyes open and a plan to overcome any extra costs that are out of their control.

One way of increasing the available budget for a refurbishment project, of course, is by borrowing more at the outset, so that there is extra margin to meet any unexpected outgoings. How much your clients choose to borrow will depend on their appetite for leverage and their deposit, buy if they are looking for greater leverage there are ways to secure that even based on the same deposit.

When it comes to refurbishment projects, some lenders will base the maximum LTV to which they lend on the purchase price of the property prior to the renovations. Other lenders like Castle Trust Bank, however, are able to base the LTV on the price the property is likely to achieve once the refurbishment has been completed. This could mean that an investor is able to borrow more at the outset, which may give them enough of a contingency to ensure they can meet the rising costs of a refurbishment and successfully complete the project without any unnecessary hold ups.

So, if your clients are concerned about the rising costs of construction, look into ways you could secure them a greater contingency and provide them with greater confidence for their refurb projects.

Barry Searle, Managing Director of Property at Castle Trust Bank

As originally published in Specialist Finance Introducer 

Specialist property lender Castle Trust Bank has agreed a £13.2m development loan with Laner Ltd, for a commercial and residential build-to-rent (BTR) scheme in Dagenham.

The OXLO project, being developed by Barking Dog Developments Ltd, will provide ground floor commercial space, plus residential apartments for private rent.

The project requires the demolition of an existing warehouse and the redevelopment of the site to provide 63 residential units, including studio flats, one and two-bedroom flats, and one-bedroom maisonettes.

The project will also provide over 350 square metres of mixed commercial space, together with associated car parking spaces and communal areas.

Barry Searle, Managing Director of Property at Castle Trust Bank, said: “We’re delighted to be providing funding for this exciting project in Dagenham.

“The development is ideally situated, and there will be high demand for the units once they become available to rent.

“We’ve provided finance for projects undertaken by Barking Dog Developments before, and continue to be impressed by their experience, professionalism and expertise.”

Kirk Pickering of Barking Dog Developments Ltd added: “We are delighted to have concluded development funding with Castle Trust Bank for the OXLO Project, an innovative 60+ unit PRS scheme in east London.

“They supported the delivery team and understood the product, which is a continuation from a previous project also funded by Castle Trust Bank.”

As originally published in Financial Reporter

There are few areas of the market that seem to attract as much speculation as Buy to Let. Despite the fact that private rental accommodation accounts for more than a fifth of the UK’s total housing stock, the arrival of any new piece of regulation or tax change seems to trigger a wave of commentary hailing the beginning of the end for the investment.

It is true that the tax changes introduced in 2016, which saw a 3% surcharge added to the stamp duty on a Buy to Let purchase and tapering of relief on mortgage interest payments, discouraged a lot of landlords from entering the market or growing their portfolio. In fact, according to research by Hamptons International, landlords have bought 26% fewer properties in the last five years than they would have done had the tax changes not been introduced. Hamptons says that landlords have bought around 700,000 properties since April 2016, which they suggest is 250,000 fewer than they would have if the tax regime had stayed the same.

This, however, is not bad news for those landlords who have remained committed to the market. Demand for rental property continues to grow and so any restriction of supply merely underpins rental prices.

The latest data from Rightmove shows the biggest annual and quarterly increases in rents the property website has ever seen. Rightmove says that national asking rents outside London have jumped by 6.2% year on year to reach more than £1,000 a month for the first time on record. London is the only region where rents are lower than this time last year, but the capital has bounced back, with rents increasing this quarter for the first time since before the pandemic. The website adds that tenants are being found for properties at the fastest rate on record, with the average time taking just 21 days, and that this is leading to a 36% annual fall in the number of available rental properties.

So, where does this leave the outlook for Buy to Let? Landlords have undoubtedly had to absorb a financial hit over the last years, with many tenants unable to meet their full rental commitment, but as we emerge from the pandemic, it’s hard to argue against the potential for a Buy to Let investment given the imbalance between supply and demand. One way that investors are continuing to benefit from the market, whilst also mitigating against increased costs is by diversifying their property portfolio. Investments such as HMOs, multi-unit blocks and holiday lets can deliver higher yields than a property let on a standard AST and we are seeing increasing demand from brokers whose clients are accessing these investments for the first time.

Increased regulation and taxation mean that Buy to Let may have not grown as much as it could have, but less is proving more for many landlords, who are benefiting from increased rental growth and exploring more diverse and profitable portfolios.

Barry Searle, Managing Director of Property at Castle Trust Bank

House prices have risen by nearly 10 per cent in the last year, according to the Halifax House Price Index and values are expected to keep on growing.
 
The latest report said that “the current strength in house prices points to a deeper and long-lasting change”. 

As always, beyond the national picture there are also more local regional trends. Property prices in Greater London, for example grew by just 3.1 per cent in the last year, according to the index, as demand for city living dropped in favour of larger homes with more outside space in more rural areas. 

The top-line rate of house price inflation is good news for developers of course, but it also poses a problem.  

Once they have completed a scheme, are they better off selling all the units while the market is hot or holding on to some to benefit from additional capital gains?  

In addition, for those investors building units in London, there’s a question as to whether they would be better off holding on until the lifting of all lockdown restrictions when smaller properties close to amenities are likely to be more in demand. 

Timing is everything when it comes to investing and so the ability to have more control over when to make a sale can be a very powerful tool for developers.  

So, how can developers achieve greater control over when they sell some of their units? 

Gaining control 

One way of doing this is to use bridge-to-let.  

The bridging element of bridge-to-let can be used as a development exit loan to refinance the scheme that is completed or nearing completion, often at a lower rate than the development finance facility.

Then, when the properties are ready, the developer can choose to switch all the properties onto a buy-to-let loan and let the properties to tenants, perhaps with the intention of selling at a later date.  

Or, if they choose, they could sell some properties now and switch some onto the buy-to-let loan, reducing the outstanding balance in the process. 

Some lenders can also structure clever hybrid loans that give developers even greater flexibility.   

For example, a development exit loan which has a hybrid solution that combines a serviced loan and a bridge.  

The loan can be split at the outset between a bridging loan on some properties that are being marketed for sale and a fixed rate loan with serviced interest on those that were being retained to let out.  

Once the term ends, the bridging loan can be converted to a serviced loan without an early repayment charge (ERC), enabling the client the flexibility to choose whether to deleverage at this stage or to service the debt. 

The current market is encouraging increased activity from developers and the use of bridge to let, or a structured hybrid loan, can prove an important tool to give them the control they need to maximise their returns. 

Permitted development has proven to be a rich vein of opportunity for investors in recent years, as the government’s appetite to increase housebuilding has driven changes that make it easier for developers to convert property from commercial to residential use.

Until recently, this opportunity has most widely been used to change office blocks into large residential blocks, but this trend for permitted development looks set to change following new legislation this year.

From 1 August, the amount of floorspace which can change use under permitted development will be limited to 1,500 square metres and this effectively means the era of easily converting large office buildings is coming to an end. There will, of course, continue to be opportunities where planning permission is granted, but the rate of large office to residential conversion will undoubtedly slow.

One of the reasons for this change is that the government wants to focus more investment on revitalising England’s beleaguered high streets, and earlier this year, the government announced its plans to streamline the planning system to make it easier for buildings to convert between commercial, business and service uses, such as shops, restaurants, banks, gyms and offices, without the need for planning permission. As part of this, it will also enable more commercial, business and service premises on high streets to be converted into residential without planning permission. In order to qualify, the commercial premises must have been in a commercial business and service use for two years and vacant for three months before any conversion can be considered.

The idea is that, by making it easier to convert smaller disused properties, the government can help to stimulate investment back into high streets, creating mixed-use areas and attracting new businesses. The relaxation of development rules is part of a package of measures designed to revitalise high streets and other measures include a new fast track for extending public service buildings including schools, colleges, universities and hospitals; relaxation of planning rules to allow pubs and restaurants to operate as takeaways; longer opening hours for retail to provide flexibility and reduce pressures on transport; and extending the provisions for temporary pavement licences.

The concept of regenerating high streets by encouraging residential development alongside commercial businesses is one that makes a lot of sense. The reality, however, as always will hang on the detail. The right mix of commercial and residential is essential to create an area in which people actually want to live, and lenders are likely to want to know the detail of the commercial outlets that neighbour potential developments. A high-end townhouse may have limited appeal if it is next to a kebab shop.

The key for developers is always proper planning – even if planning permission is not required – and an attention to detail that creates the right environment for success. For brokers, it’s important to start working with your clients at an early stage of their scheme, to understand their plans and requirements, so that you can then engage a lender early-on to help ensure the project is on the front foot right from the start. Depending on the nature of the project, your clients may require development finance or they could be able to complete the conversion with a bridging loan that enables refurbishment. A lender, like Castle Trust Bank, that offers a full range of loans for property investment, will be able to talk through what type of funding arrangement is required. It could also provide you with longer term options in the form of Bridge to Let should your client want to hold onto some or all of the completed properties for rental income.

It’s stating the obvious to say that, over the last year, the pandemic has had a major impact on the student rental market, but what does the future hold for investors in this sector? And what does that mean for your business?

Analysis by lettings platform, Goodlord, has found that during 2020, revenues from student lets dropped by 30 per cent compared to figures from 2018 and 2019.

Student accommodation is predominantly let by students in their first year and with so many students choosing to defer their university studies, or live at home whilst learning is remote, demand has naturally dropped – and this has impacted prices. Goodlord says that during 2018 and 2019, the average monthly rental price of a student property was £1,265. In 2020, it was £1,012 – a fall of 20 per cent on average across England and Wales.

The outlook, however, looks positive. Where students deferred entry last year, the demand for university places this September is likely to be higher than usual – and, of course, the fast pace of the vaccination programme means that all students should have had the opportunity to be vaccinated by the time the term begins.

According to Knight Frank analysis of UCAS data, early indicators are that there will be an 8.4 per cent increase in university applications for the 2021/22 academic year compared to 2020/21.

This is the highest comparable year-on-year increase since 2010, and Knight Frank says it is driven predominantly by an increase in UK applications, which are 11.6 per cent higher than last year. The rise coincides with an increase in the UK population of 18-year olds – the first time in six academic cycles where this has been the case.

Global reach

Despite the pandemic, there is also anticipated to be an increase in applications from international students residing outside of the UK. In 2020/2021, this number increased by 17.1 per cent on the previous year, driven by particularly strong demand from China and India. High-end purpose-built student accommodation remains especially popular with overseas students who may be unfamiliar with the local housing market.

Another trend that will be important for investors in this sector to note is the differences in demand for places at universities in different cities, and across different groups and tiers of universities.

Since 2012, demand by students to study at higher tariff universities – which typically demand higher exam grades for entry – has increased much faster than demand for lower tariff universities. Consequently, while student numbers at lower tariff universities have remained flat since 2012, they have grown by 25 per cent at higher tariff institutions – and this naturally has an impact on the demand for accommodation.

So, while investors in student accommodation have taken a hit in the last year, the ongoing strong demand from students, particularly from overseas students, and particularly at well-regarded universities, paints a positive picture for the future. Indeed, some investors may see opportunity in snapping up distressed stock now with the hope of benefitting further down the line – and this presents opportunity for you.

There continue to be lenders with an appetite for student accommodation and product options, such as bridge to let, that can provide investors with flexible finance to buy, renovate or repurpose a property before switching onto longer term funding when it is ready to be let.

This combination of strong student demand and competitive lending options means there continue to be opportunities in student lets.

We're receiving so many queries about our Bridge to Let product, it would be easy to think that everyone understands what it is, and how it can be used. But I'm sure that's not the case - and I'm equally sure that an explanation would help many of you! So grab yourself a coffee, sit down, and spend a few minutes finding out how Bridge to Let can meet so many of your clients' needs...

What is Bridge to Let?

Bridge to Let is a clever product that combines a bridging loan and a Buy to Let mortgage. It enables property investors to purchase a rental property that they might struggle to finance with a term mortgage, complete any necessary changes required to make it mortgageable and then switch onto a pre-approved Buy to Let mortgage once the property is ready to be let out for rental income.

With Bridge to Let the two funding facilities can be approved with one application process, which means no doubling up of work and no extra costs or delays.

Popular uses for Bridge to Let

Light Refurbishment

One way for property investors to maximise their Buy to Let returns is by purchasing a property that requires some work in order to make it fit for purpose, carrying out the work, and then letting the property.

Light refurbishment is the term used for a property renovation that requires no planning permission or building regulations and where there is no change of use to the property, and commonly includes renovations like a new bathroom, new kitchen, redecoration, rewiring or new windows.

A light refurbishment of a property is a good way of adding both capital and rental value to the property without having to undergo significant structural changes. After all, a new kitchen and bathroom and some decorative work can transform an otherwise undesirable property and help the property to command a premium on the rental market.

Some Bridge to Let lenders can also factor in the value uplift resulting from any renovations when it comes to agreeing the terms of the Buy to Let mortgage.

Conversion to HMO

HMOs are a popular way for landlords to increase their ongoing rental income and so one way for a property investor to increase their returns is to buy a property and carry out work to convert it to an HMO.

An HMO is a building that is not entirely comprised of self-contained flats and where the occupants share one or more of the basic amenities (defined as a toilet, personal washing facilities and cooking facilities). A typical HMO might be a student house that is let to a number of different students, but HMOs are also popular close to city centres amongst young professionals and near to hospitals for medical and maintenance staff. An important consideration for landlords purchasing an HMO investment is think about the location of the property and the potential to let it as an HMO, as some areas will be inappropriate for this type of investment, and there are clearly some questions around the demand for student accommodation for the foreseeable future.

It is also worth remembering that there is now mandatory licensing for all HMOs that are occupied by five or more people from two or more households. And, as part of this mandatory licencing, there are minimum room sizes for bedrooms in licenced HMOs.

Investors buying a property with the intention of letting it as an HMO will usually need to carry out some work to make the property fit for purpose, and this is where the s Bridge to Let loan can come in. The initial bridging loan can be used to purchase the property and carry out the work, before switching it to a Buy to Let mortgage when the work has been completed and the building is ready for tenants.

Development Exit Loans

Bridge to Let can also be used as a development exit loan, putting developers in a position where they have greater control over when they choose to sell in order to achieve the best price.

The bridging element of Bridge to Let can be used as a development exit loan to refinance a scheme that is completed or nearing completion, often at a lower rate than the development finance facility and can also free up capital that a developer can use to start their next project.

Then, when the properties are ready for tenants, Bridge to Let can switch over to longer-term funding. This approach is particularly useful for developers who complete their schemes during a downturn in the purchase market when they might not achieve as much from the sale of a property as they would have hoped. By letting out the properties, rather than selling as soon as they are ready, developers have greater control over when they choose to sell, so can ride out any downturn and plan their exit strategy at a time when they are most likely to achieve the best price.

What are the benefits?

There’s little doubt that bridging can provide property investors with a lot of freedom. It can be fast and flexible, and deployed where it may be difficult, or impossible, to secure a standard term mortgage. But it can also be uncertain as the underwriting of a bridging loan is dependent on the validity of the exit route. And, in the current environment, investors may have concerns about their ability to refinance a bridging loan onto a buy to Let mortgage in six to 12 months’ time.

Bridge to Let removes this uncertainty as the exit route is underwritten and pre-approved upfront, so it can provide investors with more peace of mind than separately sourcing a bridging loan and then a Buy to Let mortgage. This makes it more suitable for less experienced investors who are embarking on one of their first refurbishment projects and can also prove invaluable in helping experienced portfolio landlords to plan with more certainty.

In addition to peace of mind, Bridge to Let can deliver a great deal of efficiency to the process of financing a property investment. As both the short-term and longer-term funding are both secured at the outset, there is no need to go through the full application again. For brokers, this means there is no doubling up of your work or additional and potentially costly delays for your clients, which is particularly welcome at times like this.

At any time, Bridge to Let is a straightforward process that can provide investors with more flexibility and greater peace of mind, but in the current environment, it is becoming an even more essential tool for brokers. With brokers reporting record levels of demand and many lenders working at reduced capacity to facilitate Covid measures, there are frequent stories of applications hitting frustrating delays, both when it comes to bridging finance and term funding. Set against this backdrop, with one application process rather than two, Bridge to Let can provide a far more efficient route to finance for property investors and put them in a stronger position to make the most of any opportunities that the market presents.

 

 

 

 

 

 

 

 

There are few areas of the market that attract as much speculation as Buy to Let, and much of it is contradictory.

On the same day last week there were two news stories in the trade press that each painted a very different picture of the outlook for Buy to Let.

In one story, a survey of more than 1,000 landlords by FJP Investment found that 68% of multiple property owners believe Buy to Let investments have become "far less attractive" over the past five years, with 71% believing they have been unfairly targeted by the Government through tax reforms and new regulations since 2016.

At the same time, criteria specialist, Knowledge Bank revealed that the most searched-for term by brokers in February was ‘first-time landlords’ and that this was actually the tenth month in a row when it made the top five criteria searches.

So, what’s the truth? Is Buy to Let less attractive than it has been in the past or is it attracting new investors?

In reality, it’s probably a bit of both.

After all, landlords have been hit by an increasing tax burden in recent years, which is why so many are looking to different types of Buy to Let investment that can deliver stronger yields – such as holiday lets, HMOs and refurbishment projects.

However, Buy to Let remains an appealing investment for landlords who are prepared to take a long-term view. It’s often said that bricks and mortar become more popular during a downturn, rather than equities, as they at least provide investors with a tangible asset, and this certainly seems to be the case at the moment.

Whatever news story you read about Buy to Let, positive or negative, it’s always worth referring back to the fundamentals that underpin this market. The UK private rental sector provides accommodation for a fifth of all households. It has become an integral part of our housing stock and will remain so. And we continue to have a housing deficit in this country, with demand for housing vastly exceeding supply.

These are the two key factors that mean, whatever the latest survey says, ultimately, Buy to Let is here to stay.

Castle Trust Bank has partnered with Legal & General Mortgage Club to enable more brokers to access its range of specialist Buy to Let products.

Legal & General Mortgage Club members now have full access to Castle Trust Bank’s Buy to Let mortgages, bridging and development finance, which are available to UK residents, ex-pats, foreign nationals, SPVs and trading companies.

Castle Trust Bank offers loans for a variety of investments, including holiday lets, HMOs, portfolio loans and property refurbishment, and its proposition includes Bridge to Let, which provides brokers with the built-in certainty of a confirmed exit route at the outset.

Barry Searle, Managing Director of Property at Castle Trust Bank, said: “2021 is going to be a big year for Castle Trust Bank, and this is a great way to start. We are really pleased to partner with Legal & General Mortgage Club to offer our full range of specialist But to Let, bridging finance and development finance to its members. We have built our specialist Buy to Let proposition on delivering certainty to brokers and their clients. Our BDMs provide certainty at the outset, with instant terms on term loans up to £500k, and our Bridge to Let proposition delivers certainty at redemption with a guaranteed exit route. This is a very important partnership for us, and it will help more brokers to access the certainty they need.”

Danny Belton, Head of Lender Relationships at Legal & General Mortgage Club, said: “Castle Trust Bank has always been an innovator in the Buy to Let market, building a reputation on certainty of funds and flexible underwriting. It’s another great addition to the Legal & General Mortgage Club lender panel and I am looking forward to working in partnership with the Castle Trust Bank team to provide our members with access to its specialist lending proposition.”

Details are available here.

Castle Trust Bank has completed a £9.6m development exit loan, structuring a hybrid solution that combines a serviced loan and a bridge.

The specialist lender worked together with Sirius Property Finance to complete the transaction which will enable the client to sell a proportion of the properties and retain the rest to let to tenants.

The £9.6m loan has been secured on a block of 69 one- and two-bedroom apartments in a five-storey commercial to residential conversion in Birmingham. Constructed under permitted development, the scheme in Four Oaks, Sutton Coldfield has been valued at £13.2m and the LTV was 73%.

The loan provided by Castle Trust Bank is split at the outset between a bridging loan on the properties that are being marketed for sale and a five-year fixed rate loan with serviced interest on those that are being retained to let out. After nine months, the bridging loan will also convert to a serviced loan, enabling the client the flexibility to choose whether to deleverage at this stage or to service the debt.

Barry Searle, Managing Director of Property at Castle Trust Bank, said: “This case is an excellent example of the type of bespoke deal we are able to structure at Castle Trust Bank. The client wanted the flexibility to sell some of the units but also a sustainable solution that would allow them to retain the majority of the units for ongoing income. We worked together with the team at Sirius to deliver this solution, which gives the client the surety of a Buy to Let loan and the flexibility to deleverage when some of the units are sold – and all at a very competitive rate.”

Nicholas Christofi, Managing Director at Sirius Property Finance, said: “It’s always a pleasure to work together with a lender on a deal like this, which is structured to give a client exactly what they need. Castle Trust Bank weren’t put off by the large loan size or complex nature of the requirements and worked in partnership with our team to deliver an excellent solution for our client.”

As originally published in Mortgage Solutions

The pandemic will impact property investors in a number of direct and indirect ways.

Many landlords, for example, have already experienced a direct loss of income as the economic effect of multiple lockdowns has led to more tenants missing rent payments.

A more indirect consequence could be the potential increase to Capital Gains Tax the chancellor is reportedly considering as a means of helping to repay the vast cost of the last year.

Either way, it seems reasonable to assume the trend will continue for investors to explore options with the potential to deliver better returns to offset increased costs.

Maximise returns with refurbishments
One way for property investors to maximise their buy-to-let returns is by purchasing a property that requires some work to make it fit for purpose, carrying out the work, and then letting it out.

It’s often the case that a property considered uninhabitable, and therefore unmortgageable, could be made habitable with relatively straight forward light refurbishment, providing there is no structural work or planning required, so, bridging finance is a valuable tool in this area of the market. But one area of concern for brokers is whether there will be a suitable buy-to-let product available that enables their client to exit the bridging loan on time once the work is complete.

This is likely be a growing concern this year as term lenders tread carefully in the uncertain economic environment.

With this in mind, expect to see more demand for bridge-to-let products, which combine the short-term finance to complete any necessary changes required to make a property mortgageable with a pre-approved buy-to-let mortgage once the property is ready to be let out for rental income.

Service levels and value increase
With bridge-to-let loans the two funding facilities can be approved with one application process, which means no doubling up of work, no extra costs and no delays.

This could also prove particularly useful this year as continued remote working means service levels will remain a key consideration.

Some lenders can also factor in the value uplift resulting from any renovations when it comes to agreeing the terms of the buy-to-let mortgage.

We are also likely to see a shifting demand in the types of property refurbishment carried out by investors to meet the changing requirements of renters.

More people are looking to move to larger properties outside of major conurbations, and the supply of good rental property in these areas is often limited.

So, there will be opportunity for investors to satisfy the changing demands of the rental market by updating the housing stock in more rural locations.

Castle Trust Bank has been added to the lender panels of PMS Mortgage Club and Sesame Network. Members of PMS and Sesame now have full access to Castle Trust Bank’s Buy to Let mortgages, bridging and development finance, which are available to UK residents, ex-pats, foreign nationals, SPVs and trading companies.

Castle Trust Bank offers loans for a variety of investments, including holiday lets, HMOs, portfolio loans and property refurbishment, and its proposition includes Bridge to Let, which provides brokers with the built-in certainty of a confirmed exit route at the outset.

Barry Searle, Managing Director of Property at Castle Trust Bank, said: “We are really pleased to partner with Sesame and PMS and offer our full range of specialist But to Let, bridging finance and development finance to their members. Certainty is vital for brokers in the current environment and at Castle Trust Bank, our proposition is built on delivering certainty – from our BDMs offering instant terms on term loans up to £500k, through to our Bridge to Let proposition providing a guaranteed exit route. With this important partnership, we are looking forward to delivering more certainty to even more brokers.”

Stephanie Charman, Specialist Lending Relationship Manager at Sesame and PMS, said: “We’re delighted to welcome Castle Trust Bank to our panel to offer our members more options to place their specialist Buy to let and bridging. Castle Trust Bank has built a reputation of delivering clarity of decision, certainty of funds and flexible underwriting, and this will be a very useful combination for our members and their clients.

For property investors on the hunt for better yields, there is little denying the appeal of a holiday let.

Analysis of properties on Rightmove and using data from Airbnb shows that, in the East Sussex seaside town of Hastings, a typical one-bedroom flat close to the sea front would cost around £177,000. If let out on a standard buy-to-let basis through an assured shorthold tenancy (AST), that property might earn £725 per calendar month, or £8,700 over the course of a year. However, if it was let on a short-term basis, and even accounting for just a 54% occupancy rate, it could earn more than £17,000. That’s the difference between a yield of just under 5%, compared with a yield of just under 10%! There are obviously other costs and considerations in operating a holiday let, but it’s easy to see why so many investors are looking to move into the holiday let business.

The trouble is, buying a first holiday let is not always that easy as many lenders will want a track record of previous holiday lets, or a track record that the property has been used for holiday lets. So, what’s the answer?

One way to help your clients invest in their first holiday let is to use bridging to buy the property and then refinance onto a term mortgage once there is some track record in place. The downside of this is that it can prove expensive if your client is unable to secure a suitable exit route in good time. But what if you could secure the exit route at the outset?

At Castle Trust Bank, we’ve seen a lot of demand for our bridge-to-let product from property investors who want to get up and running with their first holiday let. The benefit of this approach is that bridge-to-let offers a guaranteed exit onto a term loan at the outset, so the clients know they won’t be stuck on bridging finance indefinitely. In fact, if it’s possible to demonstrate the track record of the holiday let before the end of the bridging term, borrowers can switch over to the term finance sooner.

With bridge-to-let, first-time holiday let investors benefit from the ability to access a new investment area with the confidence of a guaranteed exit and the added benefit of achieving that exit sooner if they are able to get up and running quickly.

So, if you are thinking about helping your clients to buy their first holiday let, think about bridge-to-let.

Light refurbishment is a common way for property investors to increase their returns. Buying a run-down property, fitting a new kitchen and bathroom, changing the flooring and redecorating are relatively low-risk ways to increase the rental and capital value. But what else can an investor do to make sure they are maximising the property’s potential?

Taking steps to make a property more energy efficient can increase its value by up to 13%, according to analysis by comparethemarket.com. The report found that homes with a higher rating on their Energy Performance Certificate (EPC) are worth more in all areas of the UK other than London and the South East, where any value uplift is negligible given that house prices are so high in this region. However, in the North East, houses with an A/B EPC rating are worth 13% more than those with a D rating, and in the Cotswolds an A/B EPC rating can add 8%. With research from the Mayor of London showing that one in seven Londoners wish to move out of London following the Covid crisis, improving the EPC level could be a cost-effective way to increase the rental or capital value of these properties.

An EPC certificate will rate a property from A to G based on how energy efficient it is and as of 1 April 2018, all private rental properties in the UK must have an Energy Performance Certificate with a minimum rating of E. The best ways of improving the rating, and the value of the property, are increasing loft insulation, adding double glazing, adding cavity wall insulation and draught proofing.

Taking steps like these can be a cost effective, and green, way for property investors to add value to their investment, and for investors who are quick, there is even the potential to secure a grant to help with the costs.

The Green Homes Grant provides a voucher that will cover two-thirds of the cost of eligible improvements to a property up to a maximum government contribution of £5,000. It’s available to landlords as well as residential homeowners, but the current scheme requires that vouchers must be redeemed and improvements completed by 31 March 2021.

With or without the grant, the energy efficiency of a property should be a consideration as part of any refurb project. Not only will it help the environment, it will help to make the property more attractive to potential tenants or purchasers, and tenants will realise an ongoing benefit in the form of lower energy bills.

For investors who are considering a property refurbishment, a product like Bridge to Let offers the upfront flexibility to enable the works to be carried out, with the peace of mind of a guaranteed exit once they are completed and the property is ready for tenants.

With Bridge to Let the two funding facilities can be approved with one application process, which means no doubling up of work and no extra costs or delays. So, on a project like this, it’s not just the property that can become more efficient, but also the funding process.

As originally published in Bridging & Commercial.

Increased cost and regulation have lessened the appeal of traditional BTL in favour of alternative types of investment, such as holiday lets, HMOs and refurbishment. At the same time, a flat property market and uninspiring house price inflation leave little to excite short-term speculators.

The definitive result of the general election may prove to be a shot in the arm for the property sector, but even factoring in a Conservative majority government, Savills has forecast national house price growth over the next five years to be just over 15%.

There remains significant opportunity for those investors who are prepared to adapt their approach to the changing market, and, at the moment, those opportunities appear to be for alternative types of property investment for landlords who are prepared to take a longer-term view.

At Castle Trust, we have seen increasing demand from property investors for loans that can deliver the flexibility and lending appetite of traditional bridging, but with longer terms that can provide them with peace of mind. The market is shifting and, as lenders, we need to adapt to provide the products that best fit the requirements of clients.

This is why we have launched TermTen, a 10-year term loan that is fixed for five years, after which time customers are able to refinance penalty-free. This might be an unusual concept for some brokers, but it is one borne out of customer requirement, and the longer term enables rates to be competitive. We believe that this approach will prove popular among borrowers and be adopted by more lenders that realise a moving industry requires a different type of product.

As originally published in Development Finance Today.

The average time taken to sell a home increased by nearly two weeks in 2018 compared with 2017, according to the latest City Rate of Sale Research report that has been produced by the Centre for Economics and Business Research (CEBR) and Post Office Money.

The research found that the average time to sell a property in the UK was nearly four months (114 days), while homes in Oxford took the longest to sell, staying on the market for an average of five months (152 days). London dropped down the list having topped it the previous year, but the average time to sell still increased by a week from 131 days to 138 days.

It’s little wonder then that demand for longer-term, short-term lending is increasing, as property investors are realising from the outset that they may need more time to secure an attractive exit.                                    

This is why, at Castle Trust, we launched development exit products that are available on a three-year term with a two-year early repayment charge (ERC). These products provide developers with the extra time they need to properly market their scheme and achieve the best possible price, without the inconvenience and cost of having to refinance after 12 or 18 months. Developers are also able to repay the loan without penalty any time after two years if they are able to do so and the products can even include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.

But three years is not the limit when it comes to longer-term, short-term funding. After all, the distinguishing characteristic of most bridging products is not necessarily the term, but the flexibility they can deliver in funding an acquisition, project or investment ahead of an exit in the future.

So, with this in mind, short-term products don’t always have to have a short term. In the right circumstances and for the right clients, there could be times when a longer term of five, or even 10 years, provides a client with the space and time they need to secure the most opportune exit. As with most decisions, timing is everything and so providing investors with more freedom about when they dispose of an asset gives them greater control over the value they can achieve.

There are obviously considerations here about how long a client may be tied into a loan with ERCs before they can exit without cost, but in the current environment and the foreseeable future when house price activity continues to look subdued, longer-term, short-term products could become a very useful tool for brokers and their clients.

On 26th September, we launched some major enhancements to our broker portal, including full online case management, secure messages and automatic certification of uploaded documents.

The new upgraded case manager area provides brokers with everything they need to manage all of the business they write with Castle Trust, with instant access to the status of their cases available 24 hours a day, seven days a week. A key feature of this area is an up-to-date listing of any outstanding information required to advance an application, so that brokers can clearly see at a glance how their case is progressing.

Another feature of the enhanced portal is the secure messaging platform, which enables direct communications between brokers and the underwriting team. This system enables brokers to keep all of their case correspondence in one place, making it easier to manage and all messages are time and date stamped and grouped in conversations, just like on a smartphone. In addition to this, there is no longer any requirement for brokers to certify documents that are uploaded onto the portal, as these will be automatically verified using the broker’s unique login details.

Barry Searle, Managing Director of Mortgages at Castle Trust, says:

“These technological enhancements to our broker portal represent a huge step forward in the experience we are able to offer brokers who work with Castle Trust. We offer bespoke loans to match client requirements, and so we understood that we couldn’t settle for an out-of-the-box technology solution. Instead, we worked with a dedicated team of in-house developers to ensure that our technology takes the same tailored approach as our lending. I’m delighted with the outcome, and I’m confident that brokers will be blown away with the experience when they next work with Castle Trust.”

As originally published in Bridging and Commercial.

There’s been a lot of talk of default rates in recent months, both in the trade press and on LinkedIn. The announcement by FIBA that it would start publishing lenders’ default rates put the spotlight on facility extension charges and the ASTL quickly followed up to confirm that its code of conduct for members was amended in 2017 to ensure that all members applying an alternative higher interest rate, such as the default of a loan, must make it clear and transparent in all of their documentation.

Transparency on default rates is clearly important, but it’s really just the bare minimum that lenders should be doing. Default rates have come to the fore recently, not just because of announcements by trade bodies, but also because, in the current market, properties are taking longer to sell, and more borrowers face the potential need to extend their finance.

If an extension, or refinance, is required it should not come as a surprise to the borrower, the broker or the lender. Most responsible lenders should start a dialogue about potential exit solutions many months before a default rate might be triggered. At Castle Trust, we start engaging with borrowers a full 12 months ahead of the maturity of the loan, and we do not charge default rates. Instead, we will look to work with the borrower to identify whether refinancing their loan might be an appropriate option if they do not expect to exit via sale of the asset.

Much has been spoken about default rates, but if lenders work in the best interests of their borrowers and brokers, they should only ever be a last resort when all other avenues have been exhausted.

Brokers have a role to play too. In an environment when a higher proportion of short-term loans are likely to extend beyond their redemption dates, brokers should consider the way a lender treats its customers at the end of a loan as well as at application when they choose the most suitable lender for their clients. It’s a very competitive lender market and there are plenty of options to place a case with lenders that will not charge clients expensive default rates.

As originally published in Specialist Financial Introducer.

There are many consequences to the ongoing uncertainty caused by the continued Brexit situation – one of which is the rise of the staycation. The current political situation has hit the value of the pound, making it increasingly expensive for holidaymakers to go abroad, which means that more people are looking to take their holidays in the UK.

Visit England says the number of people booking self-catering holidays in England increased from 6.22 million in 2015 to 7.23 million in 2017 – and the value of the pound has fallen significantly since then.

This growing demand, coupled with the popularity of sites like Airbnb, has presented an emerging opportunity for property investors who are looking at alternatives to a traditional buy-to-let investment.

A furnished holiday let is a more involved investment than a standard buy-to-let and investors should be commercially prepared for periods of no occupancy, high turnover and increased costs, all of which make holiday lets much more like a trading business.

An advantage of this, however, is that a furnished holiday let is therefore treated like a business rather than a passive investment when it comes to taxation. For example, investors in a furnished holiday let are able to continue to claim full relief on mortgage interest payments in addition to other benefits that are not afforded to buy-to let investors. They can also claim entrepreneur’s relief when they sell a property, for example, so could pay 10% rather than Capital Gains Tax at 28%. The detail of these tax consideration can be complicated, so it’s important that your clients speak to a specialist tax adviser to get accurate information about their tax liabilities when they are considering an investment in a holiday let.

One area that is not complicated, however, is the potential to generate higher returns. For example, according to Rightmove, it is possible to purchase a 2-bedroom flat in good condition, overlooking the beach in Margate on the Kent coast, for £185,000. Let to tenants on an AST, this type of property could generate around £600 in rental income each month, or £7,200 a year – that’s an annual yield before costs of 3.89%.

A similar type of property could be listed on Airbnb for around £140 per night. Let’s assume that the property is fully occupied in July and August and then let to holidaymakers a further 30 weekends throughout the year – this means that it would accommodate holiday makers for 122 nights in a year. At £140 a night, the property would therefore generate £17,080 in income, which is the equivalent yield of 9.23% before costs.

Holiday lets are not for everyone, but for the right investor, the maths can be quite compelling, particularly in the current environment that is continuing to drive an increasing number of staycation holidaymakers.

There are a range of options available to help landlords invest in properties that deliver a lower yield, including deferring interest or rolling some of it up. But which technique leads to a better outcome for your clients?

First, it is important to understand the difference between both methods:

Deferred interest

With a product offering deferred interest, the all-in rate may be quoted at 6.99%, which includes 2% deferred interest and a serviced rate of 4.99%. Interest on the deferred element of the loan is compounded and then added back to the loan for payment of the total balance at redemption.

Roll-up interest

With a roll-up interest product there are no monthly payments required as interest is rolled up to redemption and, any interest which is capitalised is not subject to a stress test. Rolling up all of the interest can reduce the maximum LTV available and so a blended approach is popular. This is where a loan is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. When the two are combined, the rates can be aggregated to give one set of loan terms.

Both deferring interest and rolling up interest can provide a solution for landlords to invest in low yielding properties, but which is the better option for your clients? The simple truth is that every case is different and depending on the circumstances one approach may deliver the right cash flow model or be more cost effective for your client.

At first sight, a loan with deferred interest might look like the cheaper option but remember that interest on the deferred element of the loan is compounded and this can result in a higher balance to pay off at redemption than you might expect.

So, when it comes to structuring a deal for your buy to let clients, it is worth taking the time to consider in detail the available options and stacking up the figures to see which provides the best outcome, as the deferred choice may not always be the preferred choice.

 

 

 

As originally published in Financial Reporter.

Bridging lending grew by 15% last year alone, according to member data from Association of Short Term Lenders, and it was driven by increasing demand from borrowers for flexible short-term funding.

How many other sectors of our market have experienced this type of growth in a relatively flat environment? And, if you don’t already advise your clients on bridging finance, what are you waiting for?

Despite the growth in the popularity of bridging finance, some myths still prevail about the sector. So, what’s the truth behind some of the most common bridging myths?

Myth: The main use of bridging finance is to save broken chains

Truth: It is true that this is a use of a bridging loan. Bridging finance is a short-term mortgage secured against property or land that is used to ‘bridge’ the gap, until longer term finance can be arranged, or the underlying security is sold – and so one use is to bridge the gap between property transactions.

But often the purpose of bridging finance is to bridge a criteria gap, providing flexible finance where longer-term lenders are unable to help because the process takes too long, or the security is unmortgageable. Three common examples include auction finance, property refurbishment and development exit loans. Another purpose is to for clients who are looking to release equity for cash flow purposes on a short-term basis, for business use for example.

Bridging finance is available on a first or second charge basis on residential, commercial and semi-commercial property as well as land.

Myth: A bridging loan is a last resort

Truth: Bridging can be a useful tool when other avenues have failed, because it offers speed and flexibility, but these attributes are more commonly harnessed by savvy investors and business owners who recognise the benefits of fast access to flexible finance as a means of leveraging their capital. Bridging finance can also provide the option to roll-up some or all of the interest and this means it can be used to manage cash flow, which opens the door to a lot of other uses, including structuring loans that fit the ICR on buy to let properties.

Myth: Bridging lending is expensive 

Truth: Bridging is a tool that enables investors and business owners to leverage their capital and fund investments and, in doing this, it can help to create wealth. For example, a bridging loan to fund a refurbishment project may have a total cost of £50,000 for the borrower but could increase the capital value of the property by £100,000 and so the borrower benefits from a net gain. The thing to remember is that bridging is short-term funding and so can be inefficient when taken over a longer period.

Myth: Bridging lending is complicated

Truth: The bridging landscape may seem unfamiliar at first, but the market has evolved significantly in recent years to become more aligned with other areas of secured lending, with greater transparency and clarity. If you have any questions, about how a product works or what it can offer to your clients, speak to a lender BDM who will be able to help.

The key for any bridging loan is to be clear about the exit strategy. This would usually be via a refinance onto a longer-term product, the sale of the property, or a possible combination of both if additional securities have been offered as part of the loan structure.

In the specialist lending world, it’s easy to see each lender as a standalone provider and finding a lender perfectly matched to your client’s circumstances can be painstaking.  But there are ways to make it easier.

On most occasions, it’s a question of finding the right lender and from then onwards it’s a straightforward process.  However, there can be times where thinking creatively can help to provide a better option for your clients.

We recently received an enquiry on the refinance of a complex £13m portfolio where the loan was outside of our appetite.  With most lenders, the case would have been declined instantly and the broker left to start his search again.  Our BDMs however, are used to thinking laterally with cases and helping the broker to find a solution, even if it doesn’t sit with us.  As a result, we were able to work together with the broker and another lender to structure the loan in such a way that we could provide the senior element of the funding within our appetite, and the other lender provided the remaining amount, fulfilling the borrower’s full funding requirement.

This example really brought home how having a good relationship with a BDM (and a good BDM!) can mean the difference between helping your client and letting a case go.  BDMs see every type of case imaginable and are often able to call upon a precedent to advise on how to build a case.  Where they haven’t seen a similar case before, it’s an exciting challenge to find the right approach and achieve the ‘impossible’.

Your BDMs are there to help you when the going gets tough as well as with the straightforward cases.  Their experience might be just what you need to help you place your next tricky case.

As originally published in Mortgage Solutions.

A growing number of investors are choosing to generate better returns by buying a run-down property and renovating it to achieve a higher re-sale price or increased rental income. Traditionally, property refurbishment falls into two main categories – light refurbishment, where no planning permission and building regulations are required, and heavy refurbishment, which requires planning permission or building regulations.

Light refurbishment could typically include re-wiring a property, or fitting a new bathroom or kitchen, whereas heavy refurbishments are more involved and can include converting a property to residential use, creating multiple units from a single building or converting multiple units to a single building.

Permitted development, however, provides a third option for property investors that is less involved than heavy refurbishment but provides more scope to add value than light refurbishment. As an example, at Castle Trust, we recently launched a bridging product that can be used for refurbishment where building regulations are required but planning permission is not.

This combination provides investors with a wide scope of options, so what type of changes to a property require building regulations but not planning permission?

Building regulations will probably apply for someone who wants to put up a new building, extend or alter an existing one, install washing and sanitary facilities, hot water cylinders, water drainage, replacement windows and fuel burning appliances of any type.

In these circumstances, the work must meet the relevant technical requirements in the building regulations and they must not make any other part of the property less compliant or even dangerous.

When it comes to planning permission, it is always worth checking with the local planning authority to check whether a project falls within permitted development of if planning permission is required. However, as a general rule, the following changes can be made without the need to apply for planning permission:

Internal

Nearly all internal works such as loft conversions, garage conversions, new staircases, bathrooms, kitchens, or rewiring, do not require planning permission. But always check if the property is listed or located in a Conservation area.

Extensions

Extensions are generally considered to be permitted developments, as long as:

• The extension is no more than half the area of land around the original house
• The extension is not forward of the principal elevation or side elevation onto a highway
• The extension is not higher than the highest part of the roof
• In the case of single storey extensions, it must not extend beyond the rear wall of the original house by more than three metres for an attached house or by four metres for a detached house
• The maximum height of a single-storey rear extension is not higher than four metres
• Extensions of more than one storey do not extend beyond the rear wall of the original house by more than three metres
• Side extensions are single storey with maximum height of four metres and width no more than half that of the original house
• Two-storey extensions are no closer than seven metres to rear boundary
• The materials are similar in appearance to the existing house
• The extension does not include verandas, balconies or raised platforms.

Garages, sheds and other outbuildings

Outbuildings such as sheds, garages and greenhouses are also usually considered to be permitted development, provided the building is no higher than 4 metres and outbuildings do not take up more than half of the land around the original property.

So, before you start to search for the right refurbishment loan for your client, make sure you understand the exact nature of the work and the regulations and permissions that are required, as this will influence your choice of product.

As originally published in Financial Reporter.

LinkedIn is a great way of keeping up to date with what is going on at the coalface of the market as brokers will often share their frustrations online long before any trends are picked up by more formal research.

One recent trend I’ve noticed on LinkedIn and feedback from my team of business development managers is the growing number of brokers who are frustrated by lenders pulling out of deals once they have been agreed.

It’s a worrying development that puts brokers in a difficult position and can leave clients frustrated and out of pocket, so how can you guard against being let down by a lender?

In the current environment, the strength and certainty of funding should be amongst the top considerations when you are choosing the right product and lender for your clients.

Your relationship with your BDM is key. A good BDM will answer any questions that you have about the certainty of a lender’s funding and give you the confidence that you need for your client’s deal.

Good BDMs will also keep you informed as the case is progressing. For many BDMs, their work stops at the point of submission but for a good BDM, that’s just the beginning. They’ll help to keep your case progressing and give you advance warning of any hiccups that might be on the horizon, helping you to keep your clients up to date.

The first thing is to ask your BDM whether they rely on a funding line from a third party. Many lenders in the specialist sector rely on third party funding, and this isn’t necessarily a bad thing, but if your lender does, you may want to ask whether the funding line is soon scheduled for renewal. Also check whether the lender has more than one funding line, with different institutions and renewal dates, to ensure continuity of service. At Castle Trust, our loans are funded by Fortress Bonds, investment products available to the public. That means that we are fully in control of our funding line and aren’t beholden to a third party funder.

Another consideration is the commitment of the lender and its backers to the market. A number of new entrants have stepped forward in recent years, which is great for competition, but not every lender will have the same level of commitment from their shareholder and, if the going gets tough, there is a chance that some might take a step back.

Also consider the lender’s experience of lending throughout different economic cycles. This applies to both the company and the individuals within the organisation. Lending in a stable environment is easy. The art is in continuing to provide consistent lending decisions when the landscape becomes more challenging. Our team have weathered the storms of many economic cycles and are well equipped to provide consistency regardless of the current environment.

Certainty of funding is a key consideration in the current market and it’s a growing concern amongst brokers. Make sure that you ask your BDM the right questions, so that you can proceed with confidence.

As originally published in Bridging and Commercial.

Large loans can be extremely lucrative for brokers. On a loan of £5 million, for example, a proc fee of 1.5% would deliver an income of £75,000 for just one case.

But while they present significant opportunity, they also pose a greater risk of falling through than more standard transactions. Some lenders can be more conservative when it comes to the concentrated risk of a large loan and, by nature, these types of enquiries are often quite complex.

So, if you have a client who wants to borrow a large loan, you need to make sure you are doing all you can to facilitate a successful completion. Letting a large loan slip through your fingertips because you chose the wrong lender can prove costly for your client and very frustrating for you.

With this in mind, what qualities should you look for in a lender? Here are three questions you should be asking your lender before attempting to place any large loan:

1. What is your decision-making process for large loans?

The problem many lenders have with large loans is that they have a hierarchical decision-making process. So, while they may be confident about a case at DIP when it is agreed with a junior mandate holder, the progression of the case through the hierarchy can be fraught with indecision.

Often, it can be the case that the questions asked throughout this process do not enhance the credit decision but are necessary for the higher mandate holder to justify their position, and it all takes time.

There are many lenders that claim to be able to underwrite large complex cases in a timely manner, but still have to put large loans through this cumbersome, multi-stage process.

So, look for a lender that doesn’t just claim to be able to specialise in large loans, but is able to prove its commitment with a dedicated process for making large loan decisions. A hierarchical approach is rarely fit for purpose in this market, so opt for a lender with a flat decision-making structure and a daily focus on progressing complex cases.

2. Do you have experience of successful large loan completions?

Ask to see the lender’s credentials. How many large loans have they completed and how long did they take? More importantly perhaps, try to find out how many large loans they have declined once the application process has started.

At Castle Trust, we recently completed a £12m loan in just 11 working days and were handed a tight deadline because the client had been let down by another lender and was left incurring penalties on an overdue development loan. Because of the situation, the valuation and some of the legal work had already been carried out, but it was a very complex loan, secured across multiple properties and the size of the deal required sign off at board level. But our efficient large loans process ensured we were able to secure a near-immediate decision and complete on the deal in just two weeks.

3. How do you secure your funding?

Certainty of funding is always a key consideration, but it is particularly important on large loans, where lenders with fragile funding lines can be easily spooked. So, ask about a lender’s funding, whether they lend their own funds or rely on funding lines from external institutions and, if so, how many funding lines do they have and when are they up for renewal?

If your lender lets you down because it is unable to fund a deal, your relationship with your client is likely to be damaged, so do your homework and make sure you can be confident that your client’s application is in safe hands.

As originally published in Bridging and Commercial.

So, once you find a lender that can deliver the solution your client wants, how can you have confidence the deal will complete, even if the economic conditions take a turn for the worse?

Here are three questions you should be asking every non-bank lender before you submit an application on behalf of your client:
 

1. Do you rely on a funding line from a third party?
   
   Many lenders in this sector rely on third-party funding, and this isn’t necessarily a bad thing, but if your lender does, you may want to ask whether the funding line is soon scheduled for renewal. Also, check whether the lender has more than one funding line, with different institutions and renewal dates, to ensure continuity of service. At Castle Trust, we fund our own loans with fortress bonds, which are investment products backed by the Financial Services Compensation Scheme.
    
2. Do you have committed backers?
   
   At Castle Trust, we share the same commitment to the market as our shareholder JC Flowers & Co, giving us a unique confidence in its continued support. Knowing that a lender has support from an established shareholder, which is not liable to retreat from the market or withdraw its support, is reassuring for both the broker and the client, so it’s important to check who is behind your chosen lenders.
    
3. Do you have experience of lending throughout different economic cycles?
   
   This applies to both institutional experience and the experience of individuals within the organisation. Lending in a stable environment is easy. The art is in continuing to provide consistent lending decisions when the landscape becomes more challenging and previous experience can be helpful.

As originally published in Mortgage Solutions.

Not all landlords are obsessed by yield. If they were, there would be very few private rental properties available in London and an oversupply of HMOs in student towns around the country. For some landlords, purchasing a desirable asset in a sought-after location is a more important factor of their investment than achieving a high yield.

For example, according to Which?, the NG1 postcode in Nottingham provides the best buy to let yields in the country, with an average yield of 11.99% and an average house price of £152,631. In Hampstead on the other hand, where the average house price is more than £1.6m, the average yield is just 4.20%. But this is still a popular area for investors because the location will always attract a good level of demand.

The trouble with investing in properties that deliver a low yield is that it can be difficult to make the interest coverage ratio (ICR) stack up on a standard buy to let mortgage.

One option to tackle ICR on low yielding properties is to roll up some or all of the interest. With a roll-up mortgage there are no monthly payments required as interest is rolled up to redemption and, any interest which is capitalised is not subject to a stress test, and so this can increase the client's borrowing capacity.

Rolling up all of the interest on a loan can ultimately reduce the amount an investor is able to borrow however, as the payment of rolled up interest will need to be factored into the maximum LTV.

So, for landlords with low rental yields, a blended product can be the ideal solution. This is effectively a loan that is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. Because there are no monthly payments due on the rolled-up part of the loan, this element is not subject to a stress test. So, with a balance of serviced interest and rolled-up interest, it is possible to build a loan that fits the required stress test.

The roll-up element offers the opportunity for a client to maximise their loan amount and the serviced element offers a lower rate than the roll-up element. When the two are combined, the rates can be aggregated to give one set of loan terms, keeping things simple for you and your client.

So, if you have clients who choose to invest for long-term stability rather than yield, and need a flexible solution to tackle ICR, consider whether it would be appropriate for them to roll up some or all of the interest on the loan to achieve their lending objective.

 

 

As originally published in Financial Reporter.

The ongoing uncertainty around the UK’s departure from the European Union is continuing to have a dampening effect on the property market, which is bad news for developers who might be struggling to sell properties or suffering from down valuations.

The headline of the RICS December market survey was “housing market on hold for now” and the report said that the sales outlook for the next three months is the gloomiest it has been for 20 years.

RICS said that activity indicators from surveyors continued to slip in December with sales volumes dwindling and a net balance of -28% representing the poorest reading since the series was formed in 1999. However, the 12-month outlook is a little more upbeat, which suggests that some of the near-term pessimism is directly linked to Brexit and, while there is no guarantee of greater clarity any time soon, there are indications that the property market could experience an uplift, when we enter a more stable political environment.

So what options do developers have in the short-term if they have deadlines to pay off development finance but are also struggling to shift units at a desirable price?

In this situation, a development exit loan could provide the breathing space they need to transition from a development at their own pace. It’s important to allow a reasonable timeframe to market and sell the properties and, at Castle Trust, our development exit products are available on a three-year term with a two-year ERC. There is also the flexibility to sell an agreed percentage of the properties during this ERC period without penalty, giving the client a product that works on their terms.

So, don’t let your developer clients be suffocated by a stagnant property market. Consider their options with a development exit loan that can provide them with the flexibility and breathing space they need to successfully exit their current development and move onto their next project.

 

As originally published in Mortgage Solutions.

More than 400,000 first year students will begin university in September and 80% of those students will start looking for their accommodation by March, according to research by the consumer watchdog, Which?.

So, if your clients want to invest in student accommodation, now is the time they should be looking for the right property to ensure they are not too late to meet the demand from September’s starters.

University hotspots are lucrative for landlords, with locations in areas with a high student population like Nottingham, Liverpool, Manchester, Leeds and the North East boasting some of the UK’s highest rental yields, according to Totally Money, which puts Nottingham at the top of the list with average yields of 11.99%.

High yield doesn’t have to mean low quality and the standard of student accommodation has been shifting steadily upmarket, according to research by student housing charity Unipol and the National Union of Students. The survey found that average price of student accommodation in the UK has jumped by nearly a third in the last six years, with the average rental bill now taking up 73% of the maximum student loan, compared to 58% in 2012.

This is partly caused by an increase at the top end of the market, with studio flats now accounting for 9% of student accommodation, up from just 4% six years ago. In fact, self-catered en-suite accommodation now accounts for the lion's share of student accommodation with 58% of total rooms and only 17% of students live in traditional HMOs with shared bathrooms and kitchens.

The report says that private sector investment now provides half of all student bed spaces, up from 39% in 2012, as a growing number of landlords have identified the opportunity in the sector. Lenders have responded to meet this demand and there is now a range of flexible options to fund investment in a variety of student accommodation, from traditional HMOs to purpose built blocks.

September may seem a long way in the future, but opportunity knocks now for investors in student accommodation.

 

As originally published in Financial Reporter.

Top slicing has become a popular way for affluent buy to let landlords to invest in property where the yield does not support the rental coverage. But it’s not the only way for sophisticated investors to purchase high value buy to let property.

Blended rates offer an alternative to top slicing, allowing investors the flexibility to service a portion of their loan, whilst rolling up the interest on the rest, enabling you to structure a solution that fits the required rental coverage. Here's an example of how it works.

We recently worked with a broker to help a landlord client with a portfolio of three properties valued at £1,050,000.  The client wanted to consolidate his existing borrowing into one loan, with a view to selling his portfolio in three years.  He also wanted to ensure that the monthly repayments would be no more than £3,500 per month.

The problem was that the rental income alone would not support the full servicing of the loan, so the client was struggling to achieve his required loan amount without having to subsidise it from his personal income.

To provide a solution, we created a blended rate product for the client, with part of the interest serviced and the remainder of the loan on rolled-up interest.

£597,127 was offered on a serviced basis with an interest rate of 6.99%.  The remaining £135,180 required was offered on a rolled-up basis at 8.59%.  The two rates were combined to give an overall blended interest rate of 7.29%.

The result was that the client was able to achieve his desired loan amount and continue with his plan to sell the portfolio in the next three years, using the proceeds of sale to fund the rolled-up interest without having to use his personal income.

So, if you have affluent clients who want to invest in high value, low yielding buy to let property, consider a blended alternative to traditional top-slicing.

 

As originally published in Mortgage Solutions.

What age group do you think about when you consider Generation Rent?

Perhaps surprisingly, one of the fastest growing areas of tenant demand is amongst people over the age of 60. According to a report by the Centre for Ageing Better (CfAB), the number of over-60s renting privately has increased by 200,000 in the last four years. And the CfAB predicts that about a third of people over 60 could enter the private rental sector by 2040 as a growing number of older homeowners choose to sell up and rent in retirement.

This trend could have a significant impact on the target tenants for your landlord clients and it could present an opportunity for you. The primary factor impacting the success of a buy-to-let investment is the right property pitched to the right tenants in the right area. A shift in the demographic make-up of the tenant population could drive growth in new areas and on new types of property that have previously proven unpopular amongst buy-to-let investors.

A landlord targeting older tenants may, for example, may consider purchasing a bungalow in a rural location, which would otherwise prove an unlikely choice of investment if they were targeting young professionals.

Another element to consider is the styling and finish of the property. Older tenants may choose to sell their home to downsize but having established a level of wealth and comfort throughout their working life, they won’t want to sacrifice the quality of their accommodation. Renovating run-down properties could provide landlords with an opportunity to deliver the high standards their potential tenants are expecting and could provide you with an opportunity to finance those renovations.

The most straight-forward approach to property refurbishment is light refurbishment, which doesn’t require planning permission or building regulations and so avoids some of the risks of more speculative property development. Light refurbishment renovations commonly include new bathroom, new kitchen, redecoration, rewiring, or new windows and a newly renovated property can increase the capital and rental value.

A refurbished property could help landlords to attract this new generation of tenants, and a fresh look at the idea of Generation Rent could help you to boost your buy-to-let business.

 

As originally published in Bridging and Commercial.

The recent legislation changes for HMOs have triggered a wave of coverage about the higher yields that can be earned with a multiple occupancy property investment over standard buy to let. But HMOs aren’t the only choice for this type of investment and a multi-unit freehold block is another option that can deliver similar returns.

A multi-unit block differs from an HMO in that it contains separate, independent residential units, each with their own AST agreement. Each household will have its own entrance and private areas into which no one else has right of access, and there are also likely to be common parts, such as a hallway or garden, that all households have the right to use. Examples of multi-unit blocks include:

• Purpose built blocks of flats
• Houses converted into flats
• A number of houses all held under one freehold title

Multiple-unit flats are lucrative for investors because they provide economies of scale and so, by their nature, they tend to be larger deals. They also provide opportunity for investors to realise greater capital gains as they can increase the value of each unit by separating the title and selling them off individually.

According to the Mortgages for Business Buy to Let Mortgage Index, multi-unit blocks delivered the biggest uplift in yield this quarter compared to any other category of investment.

The average yield achieved by a multi-unit block in Q3 of this year was 8.4%, compared to 7.5% in Q2. The yields achieved by HMOs remained consistent at 8.6% in Q2 and Q3. The yield on a vanilla buy to let during this period was just 5.4%.

We recently worked with a broker to help a 61-year old self-employed director who had successfully developed two adjacent four-bedroom detached houses on a plot of land in Oxfordshire.  Both properties were listed on the same title and both were tenanted.  The total value of the houses was £1.73 million.

The client wanted to raise £1.07 million to clear the development loan, pay off existing debts and fund a new project.  We structured a solution to meet the client's requirements, with a product that allowed him to roll up some of the interest and service the remainder.

Many lenders are able to lend on multiple units on a single title but there are often more restrictions imposed when this is the case. For example, some lenders will not lend on new build properties and some may apply a stricter rental calculation. There are also often limits on the number of units held on the single title. So, look for a lender that takes a flexible and commercial approach, reviewing each application on its own merits and delivering bespoke solutions to meet the needs of the individual customer.

As originally published in Financial Reporter.

Your Buy to Let clients will soon start to feel the financial impact of recent tax changes, as they submit their tax returns for 2017-2018 and this could trigger a conversation about how they can maximise the returns on their investment to counter the extra cost.

One way many landlords choose to increase their returns is buying a run-down property and renovating it to achieve a higher re-sale price or retaining the property and benefitting from increased rental income.

For first time investors in property refurbishment, the most straight forward approach is light refurbishment that doesn’t require planning permission or building regulations and so avoids some of the risks of more speculative property development. Light refurbishment renovations commonly include new bathroom, new kitchen, redecoration, rewiring, or new windows and a newly renovated property can increase the capital and rental value. A refurbished property can also help landlords to attract higher quality tenants and reduce long-term maintenance costs.

Often, the properties that provide the best opportunity for refurbishment, even light refurbishment, are in a condition that makes them effectively unmortgageable, and there is a growing number of lenders that offer flexible short-term lending options to fund property renovation.

A common concern amongst landlords investing in property refurbishment is whether they will be able to refinance to a longer-term solution at the end of their refurb loan. But some lenders are able to offer both the short-term finance and a longer-term solution once the renovations have been completed.

This can provide your clients with the peace of mind in knowing that they have fully prepared their finance at the outset, which can benefit experienced refurb landlords as well as first-time investors.

As originally published in Mortgage Solutions

The number of students studying at UK higher education institutions is now more than 2.3 million and this presents a significant opportunity for landlords who want to invest in HMO property.

There are a number of benefits to investing in student lets. For the right properties in the right area, there is almost guaranteed demand year after year and student lets are often arranged early – up to six months in advance – which can minimise the risk of void periods.

The average yields on HMOs are also currently higher than any other property investment. According to the Mortgages for Business Buy to Let Mortgage Index, in Q2 of this year, HMOs delivered an average yield of 8.6%, compared to a yield of just 5.5% on standard Buy to Let property, while multi-unit freehold blocks delivered an average yield of 7.5% and the average yield on semi-commercial property investments was 7.8%.

For these reasons, we often work with brokers whose clients have children who are going to university and want to invest in an HMO that can be used by their children and rented to other students to cover the costs.

This is a very practical idea, but it does carry some complications. Letting a property to a relative is considered as regulated Buy to Let and this can restrict the number of options. However, most lender definitions state that Buy to Let mortgages are considered to be regulated if at least 40% of the property is used by a family member. So, if your client were to buy an HMO in which their child was to occupy one bedroom out of, say, five on a separate tenancy agreement to the other occupants, then it would not qualify as a regulated Buy to Let contract and you would have more options.

In these circumstances, you should ensure that the rental income achieved by letting rooms to non-family members is sufficient to cover the stress test as this will provide the lender with comfort that the investment is sustainable. However, in most cases, this is unlikely to prove a problem as the yield achieved on HMOs means that there should usually be excess rental income to cover the stress test.

If you are working with clients who would like to invest in student property that will be occupied by a family member, speak to a lender that specialises in HMO investments and can help you to structure the right deal to best meet their requirements.

As originally published in Bridging and Commercial

In case you hadn’t heard, the UK is scheduled to leave the European Union next March. 

The uncertainty surrounding the outcome of Brexit negotiations has, temporarily at least, put the brakes on an already faltering property market and transaction activity is suffering.

The September 2018 RICS UK Residential Market Survey has shown a continued weakening in national new buyer demand, citing a mixture of affordability constraints, a lack of stock, economic uncertainty and interest rate rises.

RICS says that new buyer demand was down by 11% in September on the same month last year and, at the same time, new sales instructions have also deteriorated, leaving average stock levels on estate agents’ books close to record low levels.

The combined effect of constraint on both supply and demand has resulted in house price resilience, but with little fluidity in the market, properties are taking longer to sell. According to RICS, the time taken to complete a sale, from initial listing, has increased to approximately 19 weeks, which represents the longest duration since the measure was introduced at the beginning of last year.

For home-movers, this period can be frustrating, but for developers it can also prove very costly and any delay in selling the property and redeeming the development loan can significantly impact the profit they achieve on a scheme.

This provides an opportunity for you, as a stagnant property market leads to increased demand for development exit loans, that can benefit developers in a number of ways.

A development exit loan allows a developer to refinance their completed development at a lower rate than most development finance, while giving them more time to achieve the best sales price and even release equity from the scheme to use towards future projects.

When it comes to development exit loans, flexibility is key, particularly if your client is actively marketing their development for sale. A loan with a lower rate may ultimately prove more expensive for your client if it also comes with restrictive early repayment charges.

A stagnant property market doesn’t have to put the brakes on your business and there are always options to deliver your clients appropriate solutions, whatever the stage of the economic cycle. In the current environment, development exit loans provide a great opportunity for you to provide your clients with the flexibility they need to bridge the current uncertainty and continue to grow their portfolio.

As originally published in Bridging and Commercial

Last year, there were 179,034 London properties listed for rental on Airbnb.

As originally published in Bridging and Commercial

A lot of commentary about the buy-to-let market focuses on yield – the annual return an investor can expect to earn based on the value of the asset.

As originally published in Bridging and Commercial

As originally published in Bridging and Commercial