The short-term lending market today is a well-established and professional sector and bridging products are used by borrowers every day for a myriad of reasons.
Clients like the speed and flexibility that a bridging loan offers; it can provide a flexible, relatively fast route to funds with the added benefit of leaving existing financial arrangement intact, which has proved to be very attractive to property investors who have buy-to-let mortgages with rates that they don’t want to touch.
That said, there are other options available to landlords which may well prove to be more suitable in certain circumstances. For instance, a revolving credit facility can be an extremely useful tool for property investors. It offers a number of benefits which may well appeal to landlords who are looking to expand their portfolios or undertake refurbishment work.
Firstly, it provides access to funds without the time and effort required to complete an application process every time they need to access finance. As a result, the borrower can move quickly to capitalise on a property investment opportunity, or perhaps deal with another business situation, such as a cash flow issue due to rental voids, for instance.
There are many circumstances where this can be extremely helpful. For example, developers often face challenges in securing the materials they need for their projects quickly enough, resulting in higher prices which can negatively impact the bottom line of their project. To address this issue, revolving credit facilities can play a crucial role in helping developers access capital at the start of their project.
Landlords can also use the facility to fund property renovations, maintenance, or upgrades, enhancing the property’s value and potentially commanding higher rental rates.
That’s why at Mercantile Trust we offer experienced property landlords with access to our drawdown product. It allows them, subject to underwriting, to secure a pre-agreed limit against an unencumbered asset, up to 75% Loan to value, which they can then draw down on over an 18-month period, with the customer only paying interest on the amount drawn.
Alternatives
Meanwhile, we also offer a homeowner business loan product which enables property professionals to release equity from their main residence for business purposes; to invest in new capital, machinery, stock, or premises, for example.
A homeowner business loan allows the client to access funds much more quickly and over a much shorter term than a second charge mortgage would allow. In addition, it is ideal when thelandlord’s portfolio might not have the required equity or they are dealing with a first mortgageewho, for whatever reason, is not consenting.
It enables the property investor to leave their portfolio as it is, protecting preferential rates oravoiding incurring costly ERCs whilst achieving their expansion/upgrade objective. The exit is generally sale of a further investment asset.
The most popular use of a homeowner business loan by landlords at present is for EnergyPerformance Certificate (EPC)-related upgrades. The Prime Minister may have signalled the delay for the 2025 EPC deadline for landlords, but we anticipate work to improve EPCs to continue.
As a result of tenants dealing with the cost-of-living crisis, rental properties with an EPC of C or above are much more in demand than those with poor energy efficiency ratings. Landlords also know they can exit the homeowner business loan to a more advantageous rate as the new EPC provides access to better-priced ‘green’ mortgages. Therefore, the incentives are still present, even if the present government’s commitment to ‘net zero’ isn’t.
Bridging finance is a powerful and popular tool for property investors, but there are times when a revolving credit facility or homeowner business loan may be a more suitable option; that’s why we offer all three at Mercantile Credit.
Maeve Ward is director of commercial operations at Mercantile Trust
