Landlords don’t get much sympathy these days but they have arguably been impacted more than most by the impact of the Bank of England’s never-ending base rate hikes.
Every time the central bank raises rates by 0.25 per cent, mortgage lenders will follow suit. This has caused misery for homeowners, some of whom have seen their mortgage payments double over the past year.
For professional property owners, this misery is multiplied. Buy-to-let (BTL) mortgages differ from residential mortgages in a few ways. They are considered to represent a higher risk, so the fees and rates tend to be higher than the average homeowners. In fact, recent research from estate agents Barrows and Forrester found that BTL mortgages have seen the largest interest rate increase of any mortgage category since the central bank rate hikes began. Separate research from Moneyfacts found that average BTL mortgage rates are currently at a 12-year high.
Furthermore, some lenders are pulling out of the BTL market altogether, reducing the choice for landlords and making it harder to secure financing on new rental properties.
Thank goodness then, for alternative lenders such as peer-to-peer lending platforms. The P2P space is dominated by property lenders at the moment, many of whom specialise in BTL lending and similar types of property loans.
Unlike banks, P2P lenders are not beholden to the Bank of England’s base rates, so they have more flexibility when it comes to setting – and fixing – rates. P2P property lenders also tend to be run by property experts, who understand the ins and outs of property management, sales, lettings and refurbs. This means that they can spot any potential issues before they emerge, and work with the borrower to adjust to any emerging risks or obstacles.
During Covid, for instance, P2P property lenders were able to offer payment holidays and re-terming options to their BTL borrowers almost as soon as the lockdown rules were introduced. This hands-on approach helps to reduce the risk of an unexpected default, as there is ongoing communication between the borrower and the platform throughout the duration of the loan.
For investors, P2P property lending offers returns commensurate with being successful BTL landlords themselves. While rates vary from platform to platform, and depending on the amount of risk associated with a particular property, P2P property investors can typically earn between six and 14 per cent on their portfolios.
As BTL becomes less and less appealing to would-be property investors, P2P lending can offer many of the financial benefits that landlords used to enjoy, without the stress of having to manage a property in real life.