The Prudential Regulation Authority (PRA) has introduced new affordability rules that could delay commercial mortgage applications for buy-to-let landlords, but a February 2017 article on BridgingAndCommercial.co.uk has discussed how bridging loans can provide finance until a commercial mortgage application is completed.
Under new financial guidelines, landlords applying for a mortgage need to satisfy the lender that rents for a property will cover 145% of the mortgage repayments if interest rates were to rise to 5.5%. To scrutinise this could delay the mortgage application process..
Many property investment opportunities require fast action in order to secure the deal before another buyer steps in. This can often mean that there is no time to complete a commercial mortgage application and have the funds available before the completion date. Many landlords use bridging finance, which provides a short-term loan that can be repaid once the mortgage application goes through. With the expected delays of the new affordability tests, there could be an increase in the number of landlords wanting bridging finance.
There are plenty of bridging loan providers and products available. Although bridging lenders are not governed by the PRA affordability rules, many lenders apply the same affordability tests for bridging loans. There will be some flexibility when dealing with limited companies or borrowers who are on a basic rate tax and will not be affected by the government’s reduction on mortgage interest tax relief.
The lender also needs to be satisfied that an exit strategy is in place, as this informs them when and how the bridging loan will be repaid.