Landlords who used short-term bridging finance to purchase properties with plans to refinance onto buy-to-let mortgages face potential financial shortfalls as rates rise and lender criteria tighten.
The warning comes as buy-to-let mortgage rates have climbed significantly over recent months, whilst stress testing by lenders has become more stringent, potentially leaving investors unable to complete their planned exit strategies.
Rate increases squeeze refinancing plans
Data from Moneyfacts shows the average two-year buy-to-let residential mortgage rate currently stands at 5.36%, rising to 5.73% for a five-year deal. This represents an increase from 4.88% and 5.21% respectively in September 2025.
Craig Fish, director of London-based broker Lodestone, said: “A bridging loan is a promise you’ll be somewhere else in 12 months, and right now a lot of investors are finding that door has shut on them. Rates are climbing on inflation fears, lenders are trimming what they’ll offer, and the buy-to-let exit people banked on simply isn’t there anymore.”
Fish added that investors who treated refinancing as a certainty rather than a variable are now facing difficulties, with bridge extensions offering limited relief at significant cost.
Potential shortfalls quantified
Nouran Moustafa, practice principal and independent financial adviser at Roxton Wealth, provided an illustrative example to Bridging Loan Directory showing the financial impact of rising stress rates.
According to Moustafa’s calculations, on a property generating £24,000 annually in rent, a stress rate increase from 5.5% to 6% could reduce the loan amount supported by that income from approximately £349,000 to £320,000 – a shortfall of around £29,000.
Similar challenges are being seen across property refinancing transactions, where lenders are applying more conservative lending criteria in response to market conditions.
Lender scrutiny increases
Duncan Kreeger, founder of commercial mortgage lender and bridging specialist TAB, said refinance exits are likely to receive closer scrutiny in the current climate. He noted that higher term rates on buy-to-let mortgages do not automatically prevent an exit, but affordability, rental cover, property value and borrower contributions all need to remain credible.
TAB has restructured cases where a refinance no longer supported the original exit assumption, according to Kreeger. The situation mirrors broader market pressures affecting commercial refinancing deals across the sector.
Fish advised landlords with bridges maturing this year to begin buy-to-let conversations immediately, warning that extension fees could eliminate expected profits from property investments.
The situation highlights the risks facing landlords who have relied on bridging finance over the past 6 to 18 months, particularly those who may have underestimated the potential for rate increases and tightening lending criteria when planning their exit strategies.
