"We’ve seen a noticeable rise in demand for bridging finance this year, following the mortgage market turmoil last autumn, because affordable buy-to-let term finance had become harder to secure"
PR: Who are Mercantile Trust and what's your role at the lender?
MW: Mercantile Trust is a specialist lender which launched to market in 2016. It specialises in non-regulated areas of lending, such as short-term bridging finance, buy-to-let term lending and commercial mortgages.
We strive to support the underserved, supporting first-time landlords and first-time buyers as well as experienced property investors.
As director of commercial operations, I am constantly looking at ways we can grow the business by broadening our proposition, making it more attractive to borrowers and extending our reach into other underserved areas of the market.
PR: How does bridging finance commonly help property investors and what trends have you seen so far in 2023?
MW: Bridging loans typically offer a flexible and speedy path to obtaining funds while keeping existing financial arrangements intact and cash reserves in the bank. This makes them an excellent option for landlords aiming to capitalise on distressed sales at auctions, for example, and we have seen a marked increase in demand this year for this.
Compared to remortgaging, bridging loans provide finance much more quickly and serve as a convenient way to access funds without incurring early repayment charges (ERCs) or losing a preferential interest rate, in turn positioning themselves as a cash buyer.
Additionally, bridging finance is commonly used when a property is deemed unsuitable for a traditional buy-to-let mortgage lender. This situation may arise when the property is currently uninhabitable, but the landlord recognises the potential to generate additional income through strong rental yields, once it becomes habitable, or alternatively sold for a profit.
By using bridging finance, investors can improve a property without the burden of monthly payments. Although the interest rates associated with bridging loans may be higher compared to mortgages, the interest can generally be rolled into the overall profit.
We’ve seen a noticeable rise in demand for bridging finance this year, following the mortgage market turmoil last autumn, because affordable buy-to-let term finance had become harder to secure. While buy-to-let products numbers have recovered somewhat, we’re seeing bridging demand hold firm. All indications are that once investors use bridging finance, it becomes a regular lending solution.
PR: You have recently published an EPC Guide with Elmhurst Energy, so what challenges do you feel investors will face in the coming months and years and how can they potentially be addressed?
MW: I’ve been talking about impending Energy Performance Certificate (EPC) regulations for a couple of years but our research shows that there are still landlords out here who are unaware of the changes and their implications. Investors really need to work out a plan of action as soon as possible as the first deadline is 2025. By then, all properties with a new tenancy agreement will need to have an EPC rating of at least C.
The challenges investors face include working out what needs to be done, finding the right tradespeople to do the work when required (not an easy task if everyone leaves it to the last minute) and raising the finance to pay for the improvements.
The EPC Guide is available on our website and is being issued to existing customers. It serves as a valuable resource by outlining the timeline, offering helpful links, and providing guidance on locating the current rating of a property. Furthermore, it sheds light on the potential expenses involved in enhancing the energy efficiency of the property, as well as the estimated costs of implementing the recommended improvements. Additionally, the guide highlights the consequences that may arise if the necessary improvements are not made within the designated timeframe.
Ultimately, doing nothing is really not an option anymore. Yes, there are challenges but there are solutions to overcome them.
PR: Despite these challenges, do you feel there are still opportunities for property investors and if so, what are they?
MW: Of course; don’t just listen to the naysayers, it really isn’t all doom and gloom out there! Yes, it’s obviously true that a number of landlords are selling properties, but equally, this represents an opportunity for less leveraged investors. By using bridging finance, buyers can secure properties much more quickly compared to the time it takes to apply for and complete on a buy-to-let mortgage.
If properties for sale require improvement this means they may well be able to be obtained at a discounted price, with bridging being used to fund the refurbishment. The landlord can subsequently look to charge a higher rent as the property is more energy efficient, possibly attracting tenants who are more disposed to take care of the property, as well as taking advantage of lower energy bills.
Other areas for investors to consider include holiday lets, Houses HMOs and MUFBs. The right properties in the right areas can offer better yields than traditional rental properties. At Mercantile Trust, we offer products to cater for these and demand remains consistently strong.
PR: Mercantile Trust doesn't just offer bridging finance and so can you briefly explain what else you offer and what solutions they can also provide to investors?
MW: As well as first and second-charge bridging finance, we also offer buy-to-let term mortgages on a first and second-charge basis. Unlike most lenders, we provide finance to first-time borrowers, and landlords without a main residence or rental history, as well as clients with some adverse credit in the past 12 months.
In addition, Mercantile lends smaller advances on lower property values, from £75,000 up to 75% LTV. This means we can appeal to investors outside of London and the South East, where other lenders tend to concentrate. Indeed, our products are available in England, Wales, Scotland and Northern Ireland, highlighting our commitment to serving the underserved.
As we provide second charges up to 75% LTV, property investors can use them to release equity, protecting preferential mortgage rates or avoiding costly ERC being incurred. In addition, we allow ‘top slicing’ enabling investors to borrow more, utilising surplus income from their portfolio or personal income, subject to an Income and Expenditure review.
Finally, we also offer homeowner business loans, a specific type of short-term loan which allows property professionals/business owners to release equity from their main residence for business purposes where speed and a shorter term than that of a conventional first or second-charge mortgage are necessities.
This product is ideal when the borrower’s portfolio might not have the required equity or the first mortgagee is not consenting. They allow landlords to use the equity within their main residence for business purposes enabling them to leave the portfolio as it is, protecting preferential rates, or avoiding incurring costly ERCs, whilst completing their expansion/upgrade plans.
