Sterner affordability criteria, stress testing and more robust risk management for lenders seeking to underwrite mortgage contracts has left many property investors, including buy-to-let landlords, with little alternative but to seek alternative finance options, which largely explains why demand for bridging loans – short-term secured loans designed to bridge a temporary cash shortfall when acquiring property – has surged over the past 12 months or so.
Bridging loans were once perceived as a ‘last resort’ lending option. But with many investors now struggling to obtain mainstream funding, a growing number are turning to alternative finance providers, such as bridging loan firms, many of which offer no minimum term and no exit fees.
In fact, the latest property investor survey conducted by bridging lender, mtf, shows that three quarters of property investors raised alternative finance in the past year after struggling to obtain mainstream funding.
Some 44% of the 82 property investors questioned cited affordability as the main barrier to getting mainstream funding, followed by adverse credit at 34% and strict lending criteria at 22%.
However, 47% of investors got a secured loan as an alternative, while 39% opted for a bridging loan.
Three quarters of investors intend to expand their portfolio in 2017, with 67% targeting London and 33% looking to buy in the South East, in an encouraging move despite changes to tax relief for residential landlords.
When asked how the UK government could improve the private rented sector, the vast majority of respondents said scrapping the additional 3% stamp duty surcharge on buy-to-let and second homes would greatly help.
Tomer Aboody, director of mtf, said: “The results from our Q1 Property Investor Survey reflect the impact of stricter affordability and stress testing from lenders on professional property investors’ ability to obtain mainstream funding.
“It’s certainly been a tough 18 months for landlords but alternative lenders are stepping in to meet the needs of borrowers.”