Fixed Vs Tracker rates for bridging

With most non-bank lenders feeling the burden of an increased cost of borrowing, the bridging landscape has changed.

This time last year sub 0.5% per month rates were attainable. Now rates around the 1% per month mark seem the norm.

Tracker rates did not feature amongst the options available to brokers last year, but we've seen an emergence in the last few months (of which Octane Capital Ltd are a part).

From a lender's perspective, offering a tracker rate means SWAP complications can be avoided. And from a broker/borrower perspective, it gives access to rates akin to those available pre-2022.

But when the base rate rises, will any benefit be eliminated? Will tracker rates end up being more expensive comparatively?

Let's compare two options.

This comparison is based on a 65% LTV, ￡650,000, 12-month bridging loan.

Our tracker rate at this LTV is 0.4% + BBR, which equates to 0.65% per month as of today. We'll compare this to a fixed rate of 0.95% per month.

The below comparison assumes the current 3% base rate will increase by 0.25% every single month of the 12-month loan term, finishing at 5.75%. Clearly, well ahead of all projections.

Despite such a pessimistic base rate projection, our tracker rate option is significantly cheaper for the borrower, irrespective of whether they exit the loan at month 6, 9 or 12. For reference, with an assumed 5.75% base rate at the end of the term, our tracker rate would equate to just 0.88% per month at this point; still markedly cheaper than the alternative.

Of course, some borrowers will feel more comfortable knowing exactly how much interest they are due to pay over the course of the loan's term, something only fixed rates can provide. However, others will see tracker rates as an opportunity to secure lower-cost funding, in the knowledge that, even with base rate increases, they could still be the cheaper option.

Our bridging product offers up to 70% LTV on residential and semi-commercial property, with a broad appetite for complex borrowers.

Our refurbishment product offers up to 70% LTV net day one + 100% of the cost of any works, with appetite for both light and heavy refurbishment projects.

If you would like to learn more about our new bridging and refurbishment product range please get in touch with myself or one of the team.

07741591922 | [email protected]

[email protected] | 0345 222 9009