Term time for buy-to-let investors

For a lender, it’s never a certainty that a new product is going to be a success. You can do all the market research that’s possible, go over every conceivable calculation and repeatedly talk to trusted intermediaries about the proposed new deal. However, until it is live and ‘out in the wild’ you won’t know if all your hard work will pay off and it will be well-received in the marketplace.  Thankfully for Alternative Bridging, our most recent product revamp went very well where we saw a demand from buy-to-let investors. In December 2023 we relaunched the Alternative Term Loan with no ERCs.

With the new product, we are offering finance to property developers and SME owners to assist new and growing businesses, for asset management situations or to release working capital. Term loans typically suit SME borrowers who may be looking to spread the cost of a large business-related purchase over a few years, or a property developer who requires financing for longer-term schemes to provide more time to complete their current project.

The Alternative Term Loan is available for terms from three to five years, up to a maximum loan to value (LTV) of 70% and a maximum loan size of £4m. It can be used for purchase, refinance and property improvement. Business start-ups should welcome the fact that at Alternative Bridging we can structure our term loans to match cash-flow, including special arrangements for interest to be accrued when the property income is not yet stabilised.

Our thought process

Term loans are typically available for longer – three to five years – than the 24 months with an unregulated bridging loan. However, because term loans typically come with ERCs, when we were looking at opportunities to improve the product, we found that borrowers were often still attracted to the flexibility of a short-term bridging loan rather than a term loan. Even though, however, the latter would be more appropriate to their needs.

With that in mind, we looked to provide a solution to those borrowers who want a term loan but are uncertain about interest rates and the cost of borrowing over the next few years. After all, while the Bank of England’s Monetary Policy Committee (MPC) has held rates over recent months, it’s still not clear if we have reached a ceiling for the Bank Rate. There is a sizeable minority of the nine-strong MPC who have repeatedly voted for a further rate hike.

We therefore assumed that because our product comes with no ERCs, we would see strong demand for it from those who wanted to hedge their bets with regards to interest rate changes and react to any quickly. The good news for us is we have! Interest has been reassuringly keen, with intermediaries recognising how our product stands out from all the other term loans in the market.

What we hadn’t particularly anticipated was that we would also receive a lot of interest in the product from buy-to-let investors who want a term loan. Perhaps for purchasing an office building – but are put off by large, upfront fees that lenders generally charge with a term product. In comparison, the Alternative Term Loan not only doesn’t have any ERCs but also doesn’t have an upfront fee.

Meanwhile, borrowers have also been attracted by the fact that at Alternative Bridging we take a bespoke approach to every application and can offer one-to-one debt servicing ratio cover whenever possible.

Brokers whose experience is primarily in the bridging loan arena can rest easy that dealing with term loans isn’t like learning a foreign language. The main difference in the application process is that a term lender will need to be satisfied that the borrower can afford the monthly interest payment.

A term loan can deliver longer-term finance than bridging alternatives for property investors and SME owners. The Alternative Term Loan provides a solution for those who aren’t sure about interest rates, as well as those who don’t want to pay a large upfront fee. That’s why it’s been in demand with borrowers since day one.