As the government brings forward the second phase of its Help to Buy scheme in an effort to help more people take their first step onto the property ladder, there has been a warning that the current UK financial system is hindering landlords.
In recent months, there have been many signs that the country’s economic recovery is strengthening and with the implementation of initiatives such as Funding for Lending, mortgage finance is now more readily available for landlords than at any time since the global financial crisis of 2008.
However, property owners are being forced to take out more and more short-term bridging loans in order to cover the costs associated with converting, adapting and renovating properties to bring them up to a suitable rental standard.
According to West One Loans, UK landlords accessed around £640 million of finance in this manner between September 2012 and 2013. In July and August of this year, bridging loans for buy-to-let purposes totalled £194 million – which is a record high for a two-month period.
Duncan Kreeger, director at West One Loans, said: “Landlords don’t just need mortgages. To expand portfolios, landlords are increasingly converting properties from other uses or from a dilapidated state.
“That’s vital for a growing rental market and it’s a huge economic opportunity. But this type of lending is not supported by most mortgage lenders. There’s a serious gap in the financial system.”
Mr Kreeger explained that traditional mortgages were not devised with this sort of lending in mind and since the financial crisis, the criteria demanding for granting a loan has been tightened significantly.
As a result, it is “practically impossible” to secure a mortgage from a high street lender on a property that was previously an office or a flat that does not have a bathroom. Therefore, increasing numbers landlords are opting for short-term bridging loans to finance the works required to turn unconventional spaces into properties that are suitable for letting.