Photo by Wilson Finch Properties

It’s been a turbulent month, with rates changing so quickly, so I want to start by giving you an update on rates. Then I’ll talk about the benefits of bridging finance, as I’ve had a few recent conversations where clients have been cautious when I’ve raised it.

Firstly, what’s going on with rates?

We’ve seen a lot in the news about what’s happening with mortgage rates, and there have been quite a few increases over the last few weeks. The base rate has not increased, so what’s caused this?

The threat of rising inflation is a major factor, as this affects swap rates. With the largest monthly jump in fuel prices in March, inflation is likely to increase. Another factor is the rise in demand for government gilts, as investors move money from higher-risk investments overseas into safer options in the UK. This increased demand has pushed up gilt prices, which in turn has pushed up swap rates.

Swap rates are based on future expectations, so if the trajectory is upward, we’ll see them sit above the base rate – which is what we’re currently experiencing.

What might this look like going forward?

We’ve seen around a 0.5% increase added to most mortgage rates over the last few weeks, so hopefully things will stabilise. However, if there are further developments in the Middle East, we may see additional changes.

Uncertainty is the biggest challenge right now, so my main advice is to act quickly and be prepared for higher rates. Make sure you’re building in a buffer when structuring your deals.

That said, this is also a time of opportunity. Many residential movers may choose to stay put, meaning those who do need to move could face less competition.

So, on to bridging finance – why is it so useful? Here are a few key reasons:

It allows you to act quickly on a purchase

Property sales are currently slow, so anything that enables you to move faster and with greater certainty than a standard mortgage is a significant advantage. Bridging finance isn’t quite as fast as a cash purchase, but it’s not far off.

We also don’t need to rely on the property being in perfect condition for the valuation to work – it doesn’t need to be in a lettable state. This increases the likelihood of completion and strengthens your negotiating position on price.

It opens up more property opportunities

If you’re planning to refurbish a property anyway, paying for one that’s already in good condition often means overpaying – which eats directly into your profit.

With bridging finance, you can purchase properties in poor condition – whether they have damp, no kitchen, no flooring, or require extension. This widens your options, often at lower prices and with less competition from other buyers. A lower purchase price ultimately means more profit in your pocket.

It helps you recycle your capital quickly

I’ve seen many clients use mortgages to buy properties, carry out light refurbishments, and then let them out. The challenge is that any uplift in value remains tied up in the property until refinancing, which slows progress.

Bridging finance may cost more in the short term, but it allows you to realise that uplift much sooner – as soon as the work is complete – so you can move on to your next project more quickly.

It also enables the effective use of investor funds, which are typically short-term. Being able to repay investors upon refinancing makes this approach particularly efficient.

I hope you’ve found this useful. If you need anything further, please feel free to get in touch here.

About the Author:

Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.