Growth of bridging loans and let to buy mortgages due to a difficult property market
When funds are required in order to maintain a place in a property sale chain, bridging loans are often the preferred method of finance and have been used for this purpose for many years. Due to the property markets being depressed since the credit crunch and it being more difficult in order to obtain finance facilities to enable property purchases, quite often property sale chains require the help of bridging loans in order to hold them together and prevent them from falling apart.
The difficult property market has largely been caused because it is more difficult to obtain mortgages. This has particularly been a problem for first time buyers who have had to contend with tougher lending criteria meaning that 100 per cent mortgages are no longer available and typically deposits of at least 15 per cent are now required. Since many first time buyers are unable to provide such large deposits this area of the housing market has been particularly effected since the years following the credit crunch.
Being unable to obtain a suitable mortgage has meant that more and more people have had to turn to renting instead of purchasing a home. This has led to a large increase in the demand for rented property, consequently leading to rises in rents being charged by landlords.
The depressed property market combined with high rental incomes has resulted in an increase in the popularity of let to buy mortgages. This is because many people moving house have been reluctant to sell their existing property and have therefore required alternative funds in order to finance their purchase of the new home. The reluctance to sell is mainly because they do not want to accept a price that they feel is well below the value that they consider their property to be worth. Consequently it is very appealing to hold onto the property until a time when property values increase as the market improve, then they will look to sell. In order to achieve this many people have opted to take out let to buy mortgages which allows them to raise the funds required to buy their new property, often obtaining a great bargain in the depressed market, and then renting their previous property taking advantage of the high rents that are currently being earned.
Other benefits of let to buy mortgages is that they enable people to maintain ownership of their former homes, which can be particularly important for people moving out of the area for some reason, but at some time in the future may be moving back. For people looking to get involved in the investment property and rental markets, let to buy mortgages are a great way to start.