Buy-To-Let Introducer July 2022

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BUY-TO-LET

INTRODUCER www.mortgageintroducer.com

July 2022

£5

Challenging, changing – and robust

EDITORIAL

COMMENT Managing Editor Paul Lucas paul.lucas@keymedia.com Deputy News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie Campaign Coordinator Raniella Alonzo Content Editor Kel Pero Production Manager Monica Lalisan Production Coordinator Loiza Razon Designer Khaye Cortez Head of Marketing Robyn Ashman

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Contents

EPC = Early Plea for Clarity

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uring this month’s Mortgage Introducer buyto-let roundtable, there was one topic that all panelists agreed could have taken up the hourlong discussion all on its own – the incoming Energy Performance Certificate (EPC) shake-up.

Under the current proposals, newly rented properties must have an EPC rating of C or above from 2025; meanwhile, existing tenancies will have until 2028 to meet the rule change.

Fears are looming over the sector that a substantial number of properties will ultimately be seen as unrentable, and potentially even unsellable, because they will fall below the C rating, with the panelists also in agreement that too many landlords seem blissfully unaware of the impact the proposed changes will have.

According to recent research by Shawbrook Bank, landlords, on average, expect the improvements they will need to make to their properties to cost in the region of £5,900. Yet among those landlords who have been proactive and have already been taking steps to improve their properties, the average cost has been £8,900. With only a minority suggesting they have sufficient funds to cover even the smaller of these totals, these are worrying times for landlords’ budgets.

Brokers too, it seems, have been stalling on the advice they have been offering – conscious that the timing of the proposal rulings could yet change, and therefore uncertain as to what advice they should be passing on. EPC to them, it appears, stands for an Early Plea for Clarity as they urge the government to offer clearer guidance.

Still, even without that clarity, advisers have a duty of care here – to make their clients aware of the changes that are coming and to try to map out where the financing to cover the necessary work might come from. Short-term bridging, for example, may be one viable solution, while in the longer term we may see a greater number of green mortgages come on to the market. Regardless, the onus is on brokers to raise the issue now, because preparation – however long or short – will be vital.

Paul Lucas

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4 Viability of BTL called into question Higher tax bills ahead for PRS landlords 6 Market reviews 10 Lorenzo Satchell Landlords: follow the sun to the UK holiday market 12 Barry Luhmann Taking a UTB approach to BTL 14 Ross Turrell Short-term lets worth looking into 16 Paul Brett Facing tech challenges head-on 18 Marcus Dussard The increasing importance of the HMO/MUFB 20 Andy Virgo Lending and the BTL market 22 Landlords, BTL investors, and renters face new reality How to negotiate inflation and high interest rates 23 Interviews MI talks with experts from Paragon Bank, London & Country Mortgages, and Hodge Bank 26 Round table: Challenging, changing – and robust Panel discusses the buy-to-let landscape, average tenancies, and issues within the market 32 Spotlight: A changing world MI speaks to Aldermore’s Jon Cooper

BTL I

Specialist mortgages with more ‘yes’ We’re not put off by the quirks and complexities.

Even if your client has credit blips, we may still be able to help.

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JULY 2022 BUY-TO-LET INTRODUCER

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FEATURE

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Viability of buy-to-let called into question Private landlords facing much higher tax bills

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he viability of the residential buy-to-let (BTL) business model has been called into question by Iwona Hovenko, equity research analyst of real estate, housing, and construction at Bloomberg Intelligence.

Hovenko said the model is seeing some difficulties with private landlords facing much higher tax bills and other hurdles, including the need for costly energy-efficiency upgrades triggered by legislation changes.

“This, combined with prohibitive transaction costs resulting from hefty stamp duties, may curtail the UK’s BTL market,” she said.

She went on to explain that there has been an exodus of landlords from the sector – leaving with the intention to sell. Propertymark data showed an accelerated outflow from March 2019 to March 2022, as 84 per cent of landlords who that withdrew their property from the rental market in those three years did so to sell.

“This is likely a result of the tightening regulation that has drastically curbed returns.

This has led to 49 per cent fewer rental homes per realtor branch in March versus the same month in 2019,” Hovenko added.

She said that while the tougher BTL rules were meant to help first-time buyers by reducing competition from property investors, the legislation may have backfired, as limited rental stock drives steep rent rises, meaning prospective buyers may find it tougher to save for a deposit.

At the same time, Hovenko said the demand for rentals may increase, given the stretched

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“The stamp-duty hike on nonprimary residences is a major barrier to new landlords entering the UK’s BTL market, and [that may] deter some private investors” housing affordability and mounting economic headwinds, which could deter some buyers.

According to Hovenko, the key changes in BTL tax legislation are the phaseout of the deduction of finance costs and the withdrawal of the automatic 10 per cent wear-and-tear allowance.

“The shift may render the investment moneylosing if the applicable marginal tax rate doubles to 40 per cent from 20 per cent, as almost all rental revenue is now taxable,” she said.

Higher-leveraged BTL portfolios may become unprofitable, especially as interest rates rise.

Private landlords with several leveraged properties, Hovenko said, could see the additional costs add up to a significant loss, triggering disposals, with proceeds potentially used to cut leverage.

Hovenko explained that the falling returns were also driving a ‘professionalisation’ of the BTL sector, with small private landlords exiting the industry and others with larger portfolios now operating as limited companies rather than private individuals.

In addition, she believes that a limitedwww.mortgageintroducer.com

FEATURE

MARKET

company structure could lower tax bills applicable to BTL landlords, yet she said a massive shift of private landlords to a corporate vehicle is unlikely.

“That is due to the high cost of transferring privately owned BTL properties to a company, given mortgage-transfer costs and the property taxes applicable,” she said.

Diving deeper, Hovenko said that a private landlord would crystallize a capital-gains tax on the sale, followed by the company having to pay stamp duty tax on the purchase of the property. That said, she detailed that about half of all 2021 residential-property purchases by investors were acquired via limited companies, based on data from Hamptons.

The stamp-duty hike on non-primary residences is a major barrier to new landlords entering the UK’s BTL market, and Hovenko believes it will deter some private investors and company buyers.

“On average, stamp-duty tax expenses in England and Wales for a higher-rate taxpaying www.mortgageintroducer.com

landlord are more than one-and-a-half years’ worth of after-tax rental income,” she added.

Following recent changes that have resulted in rising tax bills, Hovenko said potential landlords will have to wait much longer before making any profit on their property, especially in the most expensive regions.

“Ironically, that is where demand for rented housing is the highest, due to constrained affordability,” she said.

Looking to other financial challenges facing landlords, Hovenko pointed toward the government’s push for all privately rented homes to achieve an EPC rating of at least C in the coming years.

Based on the 2019–20 English Housing Survey, upgrading a home with an EPC rating of E to band C may cost £13,285, which Hovenko believes has likely risen further amid steep build-cost inflation.

She concluded that “renovation capacity may also not be sufficient to complete such a scale of works in such a short period.”

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Industry can do more to dispel limited company myths and misunderstandings Moubin Faizullah Khan CEO, GetGround

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nvesting in property through a limited company has become far more common in recent years. Tax changes introduced by the government, aimed at dampening the appetite to invest in property among accidental landlords, has resulted in a spike in interest in incorporation.

Recent statistics released by Hamptons make this clear, with a record 47,400 limited companies set up in 2021 specifically for the purpose of property investment.

That’s not just a jump of 14 per cent on the year before, but almost double the number established back in 2017 when those tax changes first came into force.

WHY SOME LANDLORDS DON’T INCORPORATE

There remain some landlords who might benefit from incorporation, and yet don’t go ahead with setting up a limited company.

There are a few pain points that property investors associate with the limited company route that act as a barrier – yet, in my experience, they are often unfounded.

First and foremost, it can seem a daunting prospect. Speak to landlords about incorporation and you will hear questions and concerns over holding board meetings, implementing management structures, or having to deal with Companies House.

The act of setting up a business appears to be intimidating, with the impression that landlords will have to adjust the way they operate in order to go through with it.

Of course, the reality is rather different.

A limited company is simply a structure through which to invest — the way land-

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“There are a few pain points that property investors associate with the limited company route that act as a barrier – yet, in my experience, they are often unfounded” lords go about appraising their portfolios and future investing strategies does not have to change.

Then there is the cost. It’s understandable that landlords may be concerned that the cost of setting up a limited company will be punitive, particularly if they are unclear about the potential savings that incorporation could provide to their business.

Again, though, this isn’t necessarily true. Some landlords might want to go down the route of appointing their own accountants and solicitors, but at GetGround we have set out to trim the process down through the smart use of technology. It means that the process of designing a limited company can take as little as 30 minutes, with the rest in place within a day. Not only is it fast, but it’s also budget-friendly, too.

There are other areas where the cost of investing through a limited company is far more financially appealing than some landlords assume. Take mortgage finance. The fact that limited-company structures mean that mortgage interest can be deducted as a business expense is a big selling point for limited-company investing, particularly as that deduction can balance out the slightly higher interest rate the landlord might have with a limited company buy-to-let mortgage rather than a traditional one.

However, even this price differential is becoming a thing of the past. The

increased demand from professional landlords to purchase property through limited companies has pushed mortgage lenders to do more to meet their needs.

That has not only meant far more lenders entering the market, delivering a greater degree of product choice, but also more competitive pricing.

As a result, not only has the cost of limited company buy-to-let deals fallen, but in some cases, lenders have aligned their pricing so that landlords pay the same interest rate, irrespective of whether they borrow as an individual or through their business.

ADDRESSING LANDLORD MISCONCEPTIONS

There are certain steps that, as an industry, we can take that will make the process of incorporation less daunting and more appealing to landlords.

The first is doing a better job of educating landlords around what is actually involved in setting up a limited company. It’s easy for these misconceptions and out-of-date attitudes to put landlords off pursuing what could prove an incredibly efficient way for them to invest. Across the sector, we need to be far more open in explaining what is involved, why it isn’t as scary as it may seem, and why it will make sense for some landlords to consider.

Alongside this education, we need to continue to embrace the technology that can make the actual process of incorporation easier. It’s not enough to tell landlords that the process is straightforward; it’s vital that we demonstrate just how easy it is, and continue to look for other improvements technology could provide that will ensure that setting up a limited company is quick, easy, and financially viable. BTL I www.mortgageintroducer.com

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Renters’ Reform Bill a winner for the PRS Adrian Moloney group intermediary director, OSB Group

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s an Irishman, I largely let the recent Jubilee celebrations pass me by, being rather more involved with the proceedings at the Epsom Derby. Apparently, Her Majesty took a different approach and avoided the races this year in order to pace herself for the parties. Fair enough, horses for courses – I always was more of a one for punting than bunting. But I did note with interest the queen’s speech last month and its updates to the Renters’ Reform Bill (originally proposed in 2019), which seeks to deliver a better deal for the 4.4m households in the UK’s Private Rented Sector (PRS).

The bill looks to improve the quality of around a million homes by extending the Decent Homes Standard from

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social housing to cover private rented property, and by placing a curb on non-compliant landlords.

As you know, the UK’s PRS fulfils a very necessary role in the UK housing landscape, providing homes for around 20 per cent of households.

But it seems that 23.3 per cent of the UK’s 4.5m privately rented homes are not currently up to the Decent Homes Standard, compared with 10 per cent of socially rented properties and 16 per cent of owner-occupied dwellings.

As buy-to-let lenders, I believe we have a responsibility to help improve the quality of the stock in the PRS. In fact, through careful property assessment and careful underwriting in our buy-to-let departments, we have already helped over the years: according to the English Housing Survey, in 2006, 47 per cent of privately rented homes did not comply with the Decent Homes Standard; the improvement in this rate means the journey has begun, albeit slowly.

The push for greater energy efficiency and EPC proposals for

rentals in recent years have also been instrumental in upscaling property, of course. But there is evidently more work to do. As an industry, we need to raise awareness of the issues, and buy-to-let brokers have an important role to play, not least in educating landlords about the broad range of financial solutions available to fund the necessary improvements – including bridging, which is too often overlooked.

The bill also proposes the scrapping of Section 21 no-fault evictions, which means landlords will have to use a Section 8 notice and provide “concrete and evidenced reason” before they can get rid of a tenant at the end of their fixed-term contract. This is a move that was first proposed three years ago, and now seems a sensible time to introduce it, particularly in light of Shelter’s warning that Section 21 evictions in Q1 2022 were up 41 per cent on pre-pandemic levels, following the end of the eviction ban. Landlords may not initially be keen to embrace a legal change that looks on the face of it to transfer power from them to their tenants. But in reality, the changes should not only work in tenants’ favour – they should also give landlords more powers to tackle rent arrears, get rid of serial antisocial miscreants, and reduce the notice periods for some offences so that repossessions can happen more quickly in instances in which the tenant is at fault. So this is potentially a win-win development.

The bill also proposes a new, dedicated ombudsman to settle tenant/landlord disputes in the PRS more quickly, and the creation of a property portal to “help landlords understand their obligations and give tenants performance information to hold their landlords to account.”

The government is expected to produce its proposals for future legislation for the Renters’ Reform Bill later this year, so we must wait for more details and a timetable for implementation – but if the bill helps to create a more stable PRS with better-quality homes, that has to be a horse worth backing. BTL I JULY 2022 BUY-TO-LET INTRODUCER

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Private rented sector in need of support, not discouragement Steve Cox chief commercial officer, Fleet Mortgages

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here’s no doubt that in recent months there has been a sense of disquiet around the private rented sector (PRS), despite the fact that, in terms of buyto-let mortgage business, activity levels remain very strong and there is a buoyancy to lending.

When it comes to portfolio ambition, those landlords who are investing for the long-term can see a strong future – hence the increase in remortgaging to release finance, and the continued quest to buy properties to offer up for rent.

Let’s be honest: It does not take a genius to work out that there is an ongoing shortage of supply in this space, which has pushed rents up, and that if landlords are able to surmount some considerable existing (and forthcoming) obstacles, then profitability can be achieved.

Propertymark’s latest figures reveal why rents are rising. It found that its members were registering 95 new applicants per branch in April, up from 78 in February; however, at the same time, they only had nine properties per branch empty and freely available to rent in the same month. And let’s be honest here – there is little sign that this is going to improve drastically anytime soon.

The perhaps wider point to be made here is around boosting supply, of course. As mentioned, existing landlords – where possible – are looking to purchase, but again, this is not easy in a purchase market that is also suffering from low supply.

Then there is also the issue of bringing new landlord blood into the market when the barriers to entry appear to be growing, and when the

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rumour mill has continued to stoke fears that the government will make it more difficult to become a PRS landlord, not less.

We already know there were plans to increase the additional home stamp duty surcharge from three per cent to four per cent, but this was pulled at the last minute. And there have been discussions about landlords having to replace kitchens and bathrooms within properties at a set interval – not forgetting the Renters’ Reform Bill, which is due to include the abolition of Section 21 evictions.

However, just recently, there appears to have been more of a step-backand-consider approach to a range of measures, which, quite frankly, do not appear to have been clearly thought through in terms of their potential to stifle further investment in the PRS. In the buy-to-let and private rental sectors, sometimes you simply have to believe the evidence of your own eyes and ears – or in this case, your own research.

The government recently published the results of its English private landlord survey, which revealed that 10 per cent of landlords plan to sell all of their properties and exit the market in the next two years, up from five per cent when the question was last asked back in 2018.

And the reasons why they are inclined to do this? Fifty-five per cent said it was due to recent legislative changes, and 53 per cent said it was because of forthcoming changes. In other words, the greatest influence on an exit is the growing number of government measures, some of which were mentioned above.

At some point, it was my hope that someone in power – or someone who had the ear of someone in power – would realise what this would actually mean.

They would begin to get a grip on the sheer number of properties this would take out of the PRS, just at the time

when more, not fewer, were needed.

Now, some might argue that it is likely that PRS properties put up for sale will go into the hands of other landlords, and of course some will. But not all. Because, of course, the government has followed a policy designed to move properties out of the PRS into owner-occupiers’ hands for pretty much the last decade.

In other words, a lot of properties put up for sale do not return to the PRS – hence why we see the very low number of properties available to rent outlined in the Propertymark research.

The good news is that we may well have reached a point where it is becoming evident that fewer PRS properties is a real problem for the housing market. The government’s own statistics have revealed that a tenant is 40 times more likely to become homeless because a landlord sells up than because the tenant is unable to afford rent. If that isn’t something that stops you in your tracks, I don’t know what would.

And this is perhaps why we have had recent related announcements from the government. It has said it is not considering rental caps in England – good news, as, again, this would simply precipitate more landlords selling up. Second, it appears that the Renters’ Reform Bill has been pushed back, and I hope that when the white paper is published, it will have a fuller consideration of the potential consequences of the policies that have been put forward.

As mentioned, we need policies that not only keep existing landlords (and their properties) in the sector, but encourage them to keep adding to portfolios, and that also bring in the new blood required to meet the overwhelming tenant demand that is not going away.

For too long, landlords have had to put up with policies that work against this; there is now an opportunity to think again, and to understand the true importance of the PRS. BTL I www.mortgageintroducer.com

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Building relationships requires work, but rewards make it worthwhile Jane Simpson managing director, TBMC

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urturing positive relationships between brokers and lenders requires work, but getting it right can deliver significant benefits for both parties. In addition to the obvious advantage of securing sales, close collaborative working can increase knowledge on both sides and facilitate valuable honest feedback, leading to informed decision-making.

Central to nurturing the relationship between brokers and lenders is the role of the BDM. In many cases, BDMs are the day-today point of contact, so they are key to how brokers see and interact with lenders and, as such, can have a significant influence over the mortgages written.

The Mortgage Intermediary Insight Report (MIIR), recently published

by Paragon, revealed that just under a fifth of brokers say they are at their maximum capacity managing the volumes of business they receive, with just over a third saying that they are near capacity.

This highlights how there are opportunities for lenders to gain a competitive advantage by supporting busy brokers, but the best ways to do this may have changed.

The widespread adoption of hybrid-working means that offices are rarely full, and that’s not always convenient for drop-in visits or multiple visits in one day. As a result, the BDM role has evolved, and building relationships through face-to-face interactions is perhaps not as common as it was in the past.

This means that while getting www.mortgageintroducer.com

the basics right, such as being responsive, remains important, BDMs must think differently about bringing value to brokers; those who are able to adapt to meet the specific needs of the different intermediary firms they work with are most likely to excel.

“The better brokers understand the way a lender does things, the more likely they will be to submit applications for mortgages that lenders are willing to write, backed up with all the necessary documentation.

This streamlines the process” For us at TBMC, helping to increase knowledge amongst staff is an area in which BDMs can add real value, an obvious example of which is training. Our staff are highly knowledgeable on different aspects of buy-to-let, but because we work in a specialist environment, there is much to gain from getting a deeper understanding of specific facets of lending. We find particular benefit in training that sits outside of the day-to-day rates-and-criteria remit – the impact of swap rates, valuation reports, or the assessment of credit files, for example.

BDMs can provide benefit beyond the sales function, too, and broadening the remit to work with admin staff can bring an extra layer of support. In times of fast-paced rate changes, it can be key for a business to have a contact for which the admin team can just pick up the phone.

And it’s not just BDMs. Providing access to underwriters and back-office staff can offer a huge advantage

for lenders, sharing their breadth of expertise and really helping them to connect with their brokers. This is particularly true of specialist lending, where the added complexity of cases often means an in-depth conversation is needed.

Not only can direct conversations with underwriters result in a faster decision, they can also help the broker to learn and gain an understanding of the lender’s criteria, processes, and rates. The better brokers understand the way a lender does things, the more likely they will be to submit applications for mortgages that lenders are willing to write, backed up with all the necessary documentation. This streamlines the process and results in fewer frustrated clients, and thus can be a stronger sales tool than rates alone.

This shows how really getting to know the people, products, and processes of partner organisations can benefit all parties involved in mortgage lending. The onus shouldn’t be entirely on lenders, however, as brokers also have a part to play in nurturing this relationship.

The sector has faced some extraordinary challenges over the past couple of years, and although we can be proud of how we’ve responded and what has been achieved, it is inevitable that things won’t always go to plan.

Lenders are having to react to conditions brought about by the current economic climate, with things like fast-paced rate withdrawals increasingly common. This leads to frustrated brokers and disappointed customers, but it is important to remain professional and not blame individuals for decisions that are out of their control. Instead, by working together, we’ll be better equipped to find the best solutions for our customers. BTL I JULY 2022 BUY-TO-LET INTRODUCER

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FEATURE

TOGETHER

Sunny outlook for landlords tapping into the UK holiday market Lorenzo Satchell specialist account manager for London and the South, Together

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t’s no secret that the pandemic changed the face of the UK holiday industry, with restrictions inspiring UK holidaymakers to explore breaks closer to home. And even now, in 2022, demand for staycations remains high, making holiday lets an investment opportunity worth considering – particularly as properties suitable for residential lets are currently in short supply.

Last year we predicted that holiday cottages and apartments would be more popular than hotels, with multiple generations of families choosing to holiday together in self-catering accommodation. That trend seems to be continuing this year, with 47 per cent of Brits planning a UK holiday in 2022, and almost a third of those looking for self-contained rented accommodation like a holiday let, according to Together’s research.* In addition to strong demand, there are some other key benefits to landlords diversifying their portfolios with holiday rentals, not least that they can expect around 30 per cent more yield on a holiday let than on a traditional buy-to-let. There are also additional tax reliefs, with a furnished holiday let able to offset costs like energy and gardening against their profit, reducing a landlord’s tax bill.

Holiday let properties are rented under a licence to occupy, meaning the landlord, not the renting guest, is responsible for the energy bills. Therefore, holiday lets could be excluded from the upcoming changes to EPC regulations (which will require rented properties to have a minimum EPC rating of C from 2025). This means

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that older properties, or those of unusual materials that might be harder to make energy efficient, could be more suited to a holiday let than to a longterm residential lease.

SPECIALIST FINANCE TURNS CHALLENGES TO OPPORTUNITIES

The insecurity of a short-term lease compared to a long-term lease often means that high street lenders are wary of backing holiday let investments, meaning these cases might require a specialist lender who can review applications on a case-by-case basis.

Landlords’ incomes can also be more complex than that of the average buyer, with multiple sources of income and portfolio-level LTVs to consider. Moreover, these borrowers may be expats and foreign nationals, either with no UK credit history, a CCJ, or a missed payment.

Your landlord clients may not realise that specialist lenders can often work with all of these more complex factors.

For example, at Together we’re able to “top-slice,” factoring in the borrower’s other income if rental income alone won’t sufficiently cover monthly payments. We’ll also consider individuals with a lack of credit history, and small financial blips in many cases.

We’re also flexible on a wide range of property types – including some of the most appealing short-term lets, like timber-framed barns and thatched cottages, or properties requiring a change of use.

TURNING A PROFIT ON CHALLENGING PROPERTIES IN HOLIDAY HOTSPOTS

Holiday lets are most profitable in tourist destinations where demand is high. However, this increases property prices in these areas, meaning landlords can expect to pay over the odds for the right rental property. But there are bargains to be had with undervalued

properties, such as those in need of work being sold at auction, and commercial buildings that can be switched to residential use, providing some great opportunities and ROI. Specialist lenders like Together offer bridging loans, helping investors get the keys while they wait for a new, longerterm facility to be granted after they’ve completed necessary renovations. Portfolio landlords who’ve built up sufficient equity can secure their new loan against multiple properties, essentially enabling them to borrow 100 per cent of the new acquisition’s purchase price.

By working with experienced packagers, you can help your landlord clients gain access to the specialist finance options available, allowing them to seize opportunities and tap into the holiday trend that looks like it’s here to stay.

Steve Swyny, commercial director at packager First 4 Bridging, adds, “We’ve noticed an upturn in landlords looking to specialist lending to explore the holiday let market, partly because of the lucrative opportunities available, and certainly [because of] increasing consumer demand; flights are being cancelled left, right, and centre, and people are still worried about the coronavirus.

For many Brits, going abroad will seem like more trouble than it’s worth.

“We’ve seen a lot of demand for bridging finance to help our brokers’ clients buy in popular tourist hotspots such as Devon, Cornwall, and Norfolk.

With properties in these areas extremely sought-after, working with a specialist lender who can move quickly is vital to giving these clients a fast-mover advantage when they’ve spotted a worthwhile investment.”

For professional intermediary use only. *Survey of 2,000 UK participants conducted by OnePoll in December 2021 on behalf of Together www.mortgageintroducer.com

We could help your clients enter the holiday let market.

• We look at multiple sources of income when assessing affordability, and have no minimum income requirements.

• We accept a wide range of securities and property types across England, Scotland and Wales.

• We don't require a certain amount of landlord experience, or restrict the size or value of your client's portfolio.

Find out more togethermoney.com/partners

For professional intermediary use only

FEATURE

UNITED TRUST BANK

Taking a UTB approach to BTL Barry Luhmann head of BTL – mortgages, United Trust Bank

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nterest rates are increasing, there are more demanding EPC requirements coming down the tracks, and landlords’ yields are being squeezed by the cost-ofliving crisis. It doesn’t sound like the ideal time for a lender to launch into the BTL market. But then, United Trust Bank (UTB) has never played the short game at anything.

When UTB dipped its first toe into the mortgage market’s waters, it was because the team believed it could deliver a unique second-charge proposition to borrowers who were being sidelined by mainstream lenders. This sizeable underserved market presented a great opportunity to UTB and the many brokers who, at that point, had to let perfectly good customers go because criteria just wouldn’t flex enough to fit them in. That was 2015, and if you’ve had anything to do with seconds in the last seven years, you’ll know that UTB’s toe made quite a big wave and prompted us to add a range of first-charge mortgage options to the suite.

We began testing our BTL proposition and processes in April this year with a small

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number of broker partners who had given feedback during the research phase. By the beginning of May we had increased the number of intermediaries able to submit BTL proposals to 25, including 3mc, Positive Lending, Impact Specialist Finance, TFC, Connect, and Brightstar.

This gradual approach to launching has served us well in the past. We can iron out any wrinkles as the volumes steadily increase rather than opening the floodgates and risk being overwhelmed. We’re using the same slick journey and intuitive fintech tried and tested on our other mortgage products, so we know they work really well.

Ours is a fully digital, paperless process that streamlines the deal through to completion. Intermediaries start by submitting their case via a BTL portal on our website, following which a full decision in principle is produced and returned to the broker with a list of any requirements. A mandated case owner is allocated (to whom the broker can speak), and a full valuation is instructed.

The borrower/s will use the UTB app to confirm loan details and complete their virtual biometric ID, and when all this is done, all being well, the loan will be approved and the offer issued online to the borrower and broker, ready for the solicitors to do their bit.

Our obsession with improving efficiency and speed with tech whilst maintaining

the human touch where it adds value has had impressive results across our mortgage offering. For example, we estimate we’ve reduced our app-to-offer time by 40 per cent, shaving around 15 days off the mortgage process.

One criterion UTB has always been particularly flexible on across its mortgage product range is property and construction type, and the new BTL product suite is no different. As long as it’s a permanent structure, there isn’t much we won’t lend on – providing it values up, of course.

Our funding, which largely comes from retail deposits, doesn’t carry the same restrictions as many other lenders have to adhere to, particularly if they’re using warehouse loan facilities, for example. The same applies to the customers to whom we can lend. There’s no minimum credit score requirement in our underwriting, and we believe that most borrowers with a minor financial blip on their record don’t deserve to be categorised as adverse forever. UTB has lent millions to customers many lenders wouldn’t touch, yet our loans in default are no greater than industry average. This greater flexibility and our common-sense underwriting are key differentiators for us.

We’re confident that our unique approach, great application journey, and product choice will secure us a reasonable slice of the BTL cake. We can offer loans of up to £1m at a maximum 75 per cent LTV and £500k to 80 per cent LTV to individuals and SPVs, with two- and fiveyear fixed-rate options available. There’s no minimum income requirement, and there are three competitively priced categories, depending on property complexity. The first is aimed at standard BTL properties; the second is available for more specialist BTL, such as HMOs of up to six rooms, MUBs of up to six units, and holiday lets; and the third is tailored for complex BTLs, including HMOs of up to 10 rooms, MUBs of up to 10 units above less-desirable commercial units, and properties of nonstandard construction. We think that should just about cover most borrowers in the specialist category.

Add the final pieces of the jigsaw – the experience we have on the team and our dedication to delivering outstanding service – and we think it’s a winning proposition.

But I guess brokers and borrowers will ultimately be the judge of that! www.mortgageintroducer.com

UTB MORTGAGES FOR INTERMEDIARIES

R E M O R TGAG E

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PURCHASE

MBE

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O LET BUY T

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RED

Are you ready to do more?

More products with the same flexible approach When specialist knowledge, flexible lending and strong broker relationships combine, you get a special effect! With the roll out of our new Buy-to-Let product, there are even more options for UTB intermediaries, all offered with a flexible, common-sense approach to lending.

• Self-employed and complex incomes • Non-standard property types • Adverse credit and no minimum credit score Call 020 7031 1551 or email mortgages.enquiries@utbank.co.uk To register with UTB visit utbank.co.uk/intermediaries/mortgages This information is strictly for the use of intermediaries only.

U T B A N K . C O. U K / F I N D YO U R  B D M

FEATURE

CHL MORTGAGES

Short-term lets: More than just a holiday Ross Turrell commercial director, CHL Mortgages

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he coronavirus pandemic certainly played a major role in the UK staycation boom, which resulted in a rapid escalation in demand, and therefore prices, for holiday accommodation in tourist hotspots round the UK. Those rising prices are still proving highly attractive to people with second homes and to landlords looking to diversify their portfolios and maximise yields.

Demand for holiday lets from a rental and ownership perspective continues at pace. Data released in April by Suffolk Building Society outlined that 17 per cent of adults in the UK contemplated buying a holiday let property during the pandemic. It was suggested that younger people led the trend, with those aged 18 to 34 most likely to have thought about buying a holiday let property within the past 24 months.

Two urban areas had the highest number of prospective landlords, with those living closest to London at 32 per cent, followed by people in the West Midlands at 19 per cent.

In addition, according to its inaugural holiday letting report, Sykes Holiday Cottages said it had experienced a 78 per cent increase in owner enquiries up to April 2022 compared to the same period in 2020. Thirty-nine per cent of enquiries in 2022 had been from those completely new to holiday letting, whilst nine per cent were experienced holiday let owners. As well, a quarter of UK holiday homeowners started letting during the pandemic, whilst nine per cent have been letting for 10 or more years. A quarter also used to run their properties as long-term lets.

The top reasons given for buying a

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short-term let included supplementing existing income and greater flexibility.

In the longer term, the report said that it expected demand to return to larger cities, as people had opted for coastal or rural breaks during the pandemic.

It added that the demographics were also shifting, with younger guests working remotely and travelling for longer periods, which it said would “increasingly drive the market forward.”

This is certainly a shift away from the more traditional BTL market for many landlords and the appeal of much higher potential for yield over a shorter period of time continues to make this an attractive option for investors.

While the ongoing popularity of UKbased breaks has been the driving force behind the rise to prominence of shortterm lets, it is certainly not the only factor.

Short-term lets offer access to flexible accommodation, which can be a viable option for those waiting for their new homes to be constructed or refurbished after a sale, for contactors embarking upon projects away from home, or for people in a variety of other situations.

The approach, criteria, and policies regarding these types of properties will vary from lender to lender, and that is a factor of which advisers need to be aware and on which they need to be fully versed.

Here at CHL Mortgages, we define short-term let as holiday lettings and serviced apartments. Short-term lets are acceptable when the valuer confirms a few specific points, including the ICR calculation fits on the market rent based on an AST, and there is demand for the property from both owner-occupier and investor-buyers.

Not all lenders have the underwriting capacity or appetite to offer shortterm lets, and so these largely remain the domain of specialist lenders and building societies that incorporate a manual underwriting process and

a flexible approach. As a lender, we recently took the decision to enter the short-term let marketplace on the back of adviser feedback with the introduction of a new five-year fixed product range up to 75 per cent LTV. This includes the provision of dual fee bands to help provide landlords with more control over upfront costs. The response to this launch has been overwhelmingly positive amongst our ever-growing band of intermediary partners.

At this juncture, it’s prudent to point out just how important the advice process is for such product types. In addition, landlords also need to be realistic about the rents they can expect to achieve; the highs of the past two years will not necessarily be sustainable over the longer term, as the demand for international travel will inevitably grow. If you’ve seen and read some of the stories emerging from airports across the country in recent weeks, however, then you will doubtless agree that there are even more reasons for people to stay within the UK borders over the summer months and beyond. www.mortgageintroducer.com

FEATURE

LANDBAY

Bringing systems in-house Paul Brett managing director, intermediaries, Landbay

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echnology is vital to today’s mortgage market, but functionality can vary widely, from clunky legacy systems that have seen better days to state-of-the-art technology.

Most lenders use software as a service (SaaS) providers to run their systems, so they can concentrate on the business of lending. There are many positives to outsourcing your IT to a specialist firm, but we think it’s even better to have our own technology experts in-house.

Up until May 2022 we outsourced our origination system, but, being a fintech lender, we wanted to bring all our technology in-house, and have spent the last 18 months creating our own origination system.

Intermediaries have been involved in the creation of our broker portal from start to finish. This was imperative to ensure we could make the application process as ergonomic for the intermediary and applicant as possible. Our new broker portal has been designed by our

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own technology experts with input from intermediaries to understand what you, the intermediary, want and don’t want.

Features requested by intermediaries have been included, and we are very proud of what we’ve created. We have also received fantastic feedback from our intermediary partners, and we thank you for that.

“Our new broker portal has been designed by our own technology experts with input from intermediaries to understand what you, the intermediary, want and don’t want. Features requested by intermediaries have been included, and we are very proud of what we’ve created” EASY-TO-USE APPLICATION SYSTEM

To start with, there is a simple login via a magic link that does not require a password, and faster registration with

reduced steps and processing time.

The portal is intuitive, making it much quicker to fill in the application form and access eligibility results. The form asks only relevant questions and provides a tooltip on exactly what the questions mean. Rules are running in the background as the form is filled in and shows available products based on the answered questions. It’s easy to sort and filter products; the system can also see unavailable products and specify why they are unavailable. This ensures no time is wasted by trying to apply for a product for which the client is not eligible.

If a client has multiple properties, you need to submit only one decisionin-principle to full application. You may then simply clone the remaining cases, amending property details as required. You can get a full view of all your cases and the stage each is at in the application life cycle with advanced search and filter options.

REBRANDING

The launch of our broker portal coincided with a rebrand and refreshed website. Our new, friendly strapline is “Your lending partner,” which we feel reflects the trusted relationships we have with our customers and intermediary partners. Our new branding positions us as a customer experience company designing better ways to buy-to-let, and our vision is to be the go-to funding partner for the private rented sector.

Our website also has a new look and content, including buy-to-let guides, handy top tips for a faster application, FAQs, product criteria and rates, BDM contact details, and much more.

Being one of the few lenders using its own technology, built in-house, means we don’t have to rely on third parties, and we have full control over updates and new functionality. We are always happy to listen to feedback, which we will act on if it is feasible, as we want our system to be easy for all our intermediary partners to use. www.mortgageintroducer.com

FEATURE

HAMPSHIRE TRUST BANK

Is the year of the HMO/MUFB ahead?

Marcus Dussard sales director, specialist mortgages, Hampshire Trust Bank

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espite the spiralling cost of living, rising interest rate environment, and overall worsening UK economy, the buy-to-let market is not showing any signs of losing its attraction for the serious property investor.

In fact, the cost-of-living crisis, brought on by rising inflation and record energy costs, is playing into the hands of some elements of the landlord community. With affordability continuing to be a serious issue for would-be first-time buyers, competition for rental properties remains high, especially in cities and commutable areas. Tenants are looking for affordable but good-quality rental options, and consequently, demand for houses in multiple occupation (HMOs) and multiunit freehold blocks (MUFBs) is strong.

It is important to understand fully the distinction between the two. HMOs are strictly defined under regulation: if at least three tenants live there, forming more than one household, and they share toilet, bathroom, or kitchen facilities with other tenants, then that’s an HMO. (If at least five tenants live there, then that’s defined as a large HMO).

On the other hand, an MUFB is a single building with multiple separate, independent residential units owned under a single freehold title; no unit is subject to a lease. If tenants have to exit their units to use the bathroom or kitchen, that’s not an MUFB. Due to the strong tenant demand for well-presented, cost-effective rental properties, HMOs and MUFBs can offer better yields to landlords than traditional rental properties. This is especially the case in areas where there is a large and established student population and/or wellpopulated urban areas.

At Hampshire Trust Bank, we’re seeing landlords use the increased

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equity in their portfolios to finance the purchase or conversion of properties for HMO/MUFB purposes. They are both remortgaging existing portfolios and using bridging finance to achieve this. Either way, the broker should ensure that the landlord has accurately calculated the costs of refurbishment and/or conversion, especially at a time where costs for materials and labour are increasing considerably.

We expect demand for both HMOs and MUFBs to remain strong over the next 12 months. The choice of which route to go down is up to landlords and their analysis of the demography and local authority’s stance in the area where they are thinking of investing.

One important consideration for landlords on whether to go down the HMO or MUFB route is licensing: multiunit freehold blocks do not need to be licensed, unlike HMOs. While there are national building regulations, health and safety standards, and minimum space and services requirements that will need to be satisfied, local authorities may also have their own requirements for HMOs. For example, planning consent will be required – and consent may well not be a given – if the property is classed as an HMO and is in an area where the local authority has imposed an Article 4 direction. This is usually because it has deemed an area to be overpopulated, which creates issues

in terms of infrastructure and services.

For example, in an area with a considerable student population, the local authority may be more disposed to issue an HMO licence. In a quieter residential neighbourhood, and where there are more owner-occupied properties, an MUFB may well be preferred by the council.

Such decisions are happening regularly and can be on a ward- or borough-wide basis. For example, last year Bromley council in London voted through two Article 4 direction schemes in the Biggin Hill and Darwin areas. They also approved a second Article 4 direction that will cover the whole borough from 1 September 2022 – “Too many people” was the cry!

Landlords’ costs and potential yields can be significantly affected by such decisions, so it is advisable for a landlord to meet with an area’s planning officers to get an idea of where they stand before deciding upon which route to take.

At Hampshire Trust Bank, we don’t have a view on which strategy a landlord should take; we lend on both HMOs and MUFBs, and provide both buy-to-let and bridging finance as a way to achieve this.

We also believe that the underlying factors in the property market are such that both routes can be extremely beneficial to landlords in the right cases. They just need to do their homework properly before making their decision. www.mortgageintroducer.com

FEATURE

LENDINVEST

Reliable lending in an unreliable BTL market Andy Virgo buy-to-let director, LendInvest

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ver the past couple of months it has felt like nothing but change in the buy-to-let market.

As interest rates have changed and wider economic challenges have begun to bite, it has felt like lenders left and right have been withdrawing products, changing rates, and generally signalling they aren’t willing to do business.

This is obviously unwelcome news in a still-busy buy-to-let market; we’ve already seen how much remortgage business is out there and will continue to be out there and demand for highquality housing never really goes away.

Also, if lenders put themselves first, it leaves landlords potentially looking for security and reliability in a changing market with few options.

Navigating the current market requires reliability – from the person taking your

‘‘Lenders have a responsibility to their partners to not withdraw from the market when things get tough’’ call to the application and through to delivery – but it also requires lenders to be present.

THE POCKETS TO KEEP FUNDING

Over the past couple of months, capacity to fund deals as competitively as was the case last year has become more of a challenge.

Buy-to-let lenders who have diversified their funding lines have been better placed to manage the impact of changing interest rates.

Our four securitisations and longstanding relationship with global lending partners like JP Morgan, Citi Bank, and NAB mean we entered this period with plenty of cash on hand to continue every type of buy-to-let project.

PITCHING YOUR PRODUCTS AT CLIENT NEEDS

Being available is the first step; the next one is ensuring the products you have in the market are what your brokers and their clients need.

Our regional BDMs work closely with their broker partners, understanding the needs of their landlord clients.

So far this year we’ve seen a lot of demand for remortgage products and future-proofing properties against upcoming EPC changes and any further economic challenges.

Landlords have also been using this time to consolidate and improve their portfolios. As house prices have risen, we’ve seen more invest in their properties to improve yields as well as meet EPC requirements.

This is where lenders who have bridging products and a smooth transition process can also meet landlord needs.

So what are the right products for these needs?

Hassle free bridge-to-let and refurbishment funding Special buy-to-let rates that reward landlords already meeting EPC requirements Long-term products, five-, seven-, and 10-year, which will future-proof investments against further instability in the market RELIABILITY AT EVERY STEP

The bar for being reliable is not just offering products and funding them – it is about being available to your brokers and their clients and responding to their needs.

Lenders have a responsibility to their partners to not withdraw from the market when things get tough.

From the BDM on the other end of a call or coming into the office, to the case managers and underwriters available at every step from application on, reliable lending is as much about the people as the products.

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www.mortgageintroducer.com

Fund every Buy-to-Let, reliably As the market changes, our approach remains the same: diverse funding, broad criteria, large loans and the expertise to deliver every type of Buy-to-Let deal.

Property finance made simple.

lendinvest.com/intermediaries LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Office: 8 Mortimer Street, London, W1T 3JJ. Your client’s property may be repossessed if they do not keep up repayments on their mortgage.

For intermediaries only.

FEATURE

RENTING COSTS

Landlords, BTL investors, and renters face new reality

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andlords who locked into a mortgage at the height of the COVID pandemic will reportedly be hit with the highest buy-to-let interest rates since 2015.

According to a report in the Daily Telegraph, landlords face paying more than £1,600 extra a year, while investors who remortgage will be hit with a double whammy of having to pay thousands of pounds extra in interest as well as funding eco-upgrades to their properties in line with regulations.

That’s because in May, interest rates rose from 3.22 per cent to 3.4 per cent for a two-year fixed buy-to-let loan product – the highest in seven years, according to analyst Moneyfacts – while the average five-year rate has increased for the third month in a row, up from 3.42 per cent to 3.56 per cent.

The report noted that lenders had replaced rates with higher pricing daily following the Bank of England’s decision to increase rates to a 13-year high from 0.75 per cent to one per cent in an effort to curb inflation.

However, according to separate research by GetGround, a buy-to-let company and management platform, investing even partially through limited companies can help landlords mitigate the impact of rising inflation better than if they were to invest in property in their own names.

Three-quarters of those surveyed (76 per cent) said that limited companies allowed them to adjust more easily to rising inflation, while a similar proportion (73 per cent) revealed that limited company investing made them feel more protected against inflation.

The findings come as property investment through limited companies reportedly continues to grow, with GetGround revealing that up to 81 per cent of UK landlords with the companies it surveyed hold at least a quarter of their property portfolio in limited companies.

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Moubin Faizullah Khan, CEO of GetGround, said, “Whether it’s because of its financial, administrative, or timesaving benefits, it’s unsurprising that a limited-company structure is recognised as a useful defence mechanism against the impact of inflation.

“In this unprecedentedly high inflation environment, limited companies prompt greater responsible investment, too. By moving to a limited-company structure, landlords reduce the costs of running their property investments, making them better placed to keep rents at an affordable –while still profitable – level.”

GetGround’s research also suggested that landlords with single investment properties or smaller portfolios were less likely to choose limited company structures than those with larger portfolios.

Faizullah Khan added, “At a time when some smaller landlords might question the long-term viability of property investing, the industry can and must do more to dispel myths and misunderstandings that surround limited-company investing.

“Gaining a better perspective on the investment structure could be the deciding factor for many of these people when they consider whether or not being

a landlord continues to be the right thing for them.”

RENTERS HIT FINANCIALLY

Meanwhile, according to new research

by Play Like Mum, the average cost of monthly rent for a three-bedroom house has now risen to £1,287, representing a 47.4 per cent increase in 10 years.

Analysing historical data based on factors such as renting, bills, and broadband from the past 10 years, the study attempted to calculate how the cost of housing had changed over the last decade.

It found that housing as well as rental prices had increased rapidly during that period. Since 2011, the average monthly cost of renting a family-sized house or apartment has risen by £414, representing a 47.4 per cent jump.

The data comes after another report revealed that the number of UK rental properties has soared by more than 1.1 million over the last 10 years.

There are now roughly 10.5 million rental properties – accounting for 35.7 per cent of all UK dwellings – compared to about 9.4 million a decade ago, according to research by specialist rental platform Ocasa.

www.mortgageintroducer.com

INTERVIEW

BUNGALOW DEMAND

The rise of the (rented) bungalow?

Market for traditionally unfashionable single-storey homes set to grow, research shows

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ungalows could come back into fashion over the next decade amid a projected increase in the number of private tenants who are over the age of 55 and prefer the practical benefits of single-storey homes, research shows.

The Where Next for the Private Rented Sector? report, conducted on behalf of Paragon Bank by the Social Market Foundation (SMF), found that homes headed by a person over the age of 55 will account for more than a quarter of all privately renting households by 2035.

It added that nearly one in 10 rented homes in the UK could be a bungalow in the next 10 years, reflecting the country’s ageing population, which is expected to increase to 74.3 million by 2039.

But although bungalows offer practical benefits, particularly for older tenants who prefer not to have to climb stairs, they have fallen out of favour in recent years.

According to recent data, less than one per cent of new builds were bungalows in 2020 (1,833), representing a 23 per cent drop compared to 2019 and a whopping 80 per cent reduction compared with the 9,347 bungalows that were built in 2000.

However, Paragon’s survey of more than 1,300 tenants in the private rented sector (PRS) showed that the percentage of people living in a bungalow is expected to treble from three per cent to nine per cent in 10 to 15 years’ time.

Additionally, while 18 per cent of households are currently privately renting and headed by somebody aged 55 or over, that figure is expected to rise to 27 per cent of households by 2035, according to the SMF’s projections.

Richard Rowntree, Paragon Bank managing director of mortgages, said the evidence suggested that the demographics of private renters was

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shifting and that the profile of tenants “is getting older.”

Consequently, landlords will have to meet the challenge by “providing the right homes for older tenants.”

He said, “Bungalows are typically regarded as unfashionable, but they offer practical benefits for people who may not be as mobile as they once were, and certainly have their place in the PRS. Landlords are not yet buying this type of property in scale, but we would expect that to accelerate to match forecast levels of tenant demand for bungalows in future.”

Speaking to Mortgage Introducer, he conceded that bungalows had an image problem, but added that the public’s perception was changing.

“If you think ‘bungalow,’ you typically think of your traditional sort of cottagey- type chalet/bungalow that’s in the middle of nowhere, but I think that this outdated sort of ‘70s or ‘80s bungalow view is changing, definitely in terms of the old, adult-type of stock.”

Paragon highlighted a possible shift in that direction. Last year, landlords purchased 3,370 bungalows with a buyto-let mortgage, compared to 1,844 in 2017, showing “strong growth in the number of bungalows purchased by landlords over the past five years,” although the bank stressed that the figures remained low as a proportion of total properties acquired.

The government’s English Housing Survey also shows there are currently 141,000 bungalows in the PRS in England, representing 3.3 per cent of the total number of rented homes.

Rowntree said the research showed that people looking to downsize to a bungalow had limited choices, as there “isn’t really a great deal of bungalow stock available.”

Richard Rowntree

This could be because bungalows are also more expensive to develop due to their larger footprint, an added challenge to an already acute home-building crisis.

According to Crisis and the National Housing Federation at Heriot-Watt University, 340,000 homes a year will be needed by the mid-2020s to solve the shortage backlog in England alone.

But the latest figures show that only 216,000 homes were built during 2020–21.

Paragon’s research also found another significant shift in property type toward semi-detached homes, expecting an increase in demand among renters from the current 20 per cent to 25 per cent in the future.

Conversely, demand for terraced homes and flats is expected to drop. Just under a third (30 per cent) of tenants currently live in a terraced home, with 20 per cent saying they expected to rent this type of property in the future.

JULY 2022 BUY-TO-LET INTRODUCER

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INTERVIEW

RENTAL MARKET

Buy-to-let market UK – a solution to a crisis?

Pandemic brought about a renewed focus on homeownership

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he buy-to-let market has undergone numerous changes in recent years due to government alterations as well as adjustments led by the financial state of the market.

“The buy-to-let market has been buffeted, to say the least, in recent years, with changes to tax relief and tighter criteria being implemented by mortgage lenders,” said David Hollingworth, associate director of communications at London & Country Mortgages.

Hollingworth believes that the pandemic brought a renewed focus on homeownership as people sought more space and considered whether working from home could broaden their scope to buy. For the most part, this meant a shift away from city centres and saw people focusing more on larger properties on the outskirts of cities.

This affected both the residential and buy-to-let markets as the desirability of many rental properties in city centres dropped because people were no longer required to go into the office five days a week. He explained that while people do still want to buy property, the race for space has only seen prices rise farther.

“However, buy-to-let has shown perhaps surprising resilience and has proven it can continue in very consistent fashion throughout, despite these various hurdles,” said Hollingworth.

Hollingworth believes this helps to underline to landlords some of the benefits of investment in rental property, both existing and potential new purchases.

“Many will have secured low fixed rates to help protect from the rate rises now feeding in, which suggests that many have not got plans to jettison their properties,” he said.

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David Hollingworth PRESENTING A SOLUTION TO A CRISIS

For those who secured a new mortgage at the height of the pandemic, once their terms conclude it is expected they will be hit with the highest interest rates since 2015. The Bank of England has continued to increase the base rate, with it reaching one per cent in May and expected to hit 2.5 per cent by the end of the year. On top of this, inflation has reached its highest level in 40 years, with many anticipating this to get worse due to the cost-of-living and energy bills crises.

“It also means that the affordability challenges that have blighted first time buyers’ hopes of getting on the ladder for many years are only heightened,” added Hollingworth.

“That is especially true as we have emerged from the impact of the pandemic, when the ability to save was enhanced.”

According to Hollingworth, with

everyone facing substantial increases in the cost of living, that ability to save could be curtailed. He believes that, as such, the buy-to-let market has an important and ongoing role to play; with property prices continuing to rise due to a lack of supply, many, whether they want to or not, are turning to the rental market for housing.

Hollingworth explained that at London & Country Mortgages, he has seen lenders review their approach, so there is more variance on offer now, depending on the individual circumstances.

He concluded by saying that “that is not to say that it will necessarily be plain sailing, and the potential for the ante to be upped on the required Energy Performance Certificate [EPC] rating in coming years could heighten landlord concerns about how much they may need to invest to meet any new stipulation.” www.mortgageintroducer.com

INTERVIEW

HOLIDAY LETS

Holiday-let lending rising Rise continuing despite removal of restrictions

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he popularity of holiday lets has continued to rise, fuelled by the staycation boom.

“We’ve continued to see a substantial increase month-on-month in holiday-let lending since launching into the market in 2019,” said Emma Graham, business development director at Hodge Bank.

Over the course of the pandemic, Graham said she saw business increase by 154 per cent, with customers opting to purchase second homes for their own personal use, as well as letting them on a short-term basis for lucrative yields.

Looking to the future of holiday-lets, Graham believes the picture is bright for the market and expects to see this continue.

At the height of the pandemic the government introduced travel restrictions, and this meant that many members of the UK public looked close to home for holiday destinations. As a result, there was a boom in the number of landlords or potential landlords looking to purchase properties across the country with the intention of letting them out.

Graham said that you only have to look at the flurry of lenders that have recently started supporting the market to confirm that this is viewed as a growth area.

The dynamics of the market are also changing – Graham explained that lenders have historically lent in areas such as Devon, Cornwall, and the Lake District, but are now seeing a lot of activity in larger cities, particularly across the north of England, where short-term lets can accommodate weekend breaks now that restrictions have eased.

A recent Holiday Letting Outlook Report from Sykes showed that 39 per cent of enquiries this year to date have been from consumers who are new to the holiday let market, with bookings looking stronger than ever.

With travel restrictions having been

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removed for the most part, Graham said the popularity of holiday lets has still not dropped off.

“In fact, we continue to see a very healthy appetite for our holiday let offering,” Graham said.

She believes this has been helped by the past restrictions, as people have had an opportunity to reconnect with the UK and have a new appreciation for the country they call home.

“Before the pandemic, our research showed people were accustomed to taking one UK break a year, but we are now seeing more people opt for two UK breaks a year alongside their standard overseas trip,” she said.

She also believes that the new way of working, for many who live in the UK, feeds into this.

“With hybrid working becoming the norm, people working remotely can be more flexible with their leave, and this is also helping to drive the market forward,” Graham added.

Turning to what impact continued base-rate rises will have on holiday lets, Graham said the rate environment will inevitably have an impact across all areas of the property market, but she does not think it will adversely affect holiday letting.

Even if demand wanes slightly, Graham believes consumers will still get a healthy return on their investment, especially when letting their property out over peak times.

“It is also worth noting that the majority of business we have written has been on a five-year fixed-rate basis, so the majority of customers will not be subject to variable rate rises in the short term,” Graham said.

When focusing on the future and new opportunities for the holiday-let space, Graham said that innovation is important and, in the short term, she

thinks there are opportunities from a refurbishment perspective.

Although an Energy Performance Certificate (EPC) rating is not currently required where furnished holiday lets are concerned, this is something that could change in the future.

New EPC regulations coming into force from 2025 mean rented properties will need to have a certification rating of C or above.

“The majority of lenders in the market expect properties to be lettable from day one, and some additional flexibility here would help investors improve both the energy efficiency as well as specification of their properties, which will in turn increase the potential for a stronger rental yield,” Graham concluded.

Emma Graham

JULY 2022 BUY-TO-LET INTRODUCER

25

ROUNDTABLE

BUY-TO-LET

Challenging, changing – and robust Jake Carter delves into Mortgage Introducer’s latest roundtable discussion, which looked at the current buy-to-let landscape, average tenancies, and issues within the market

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he buy-to-let industry has undergone many changes in recent times, with increased regulation and alterations forced by market conditions and the pandemic.

Borrowers have increasingly looked to diversify their portfolios and attract higher yields; however, they have, in turn, incurred changing demands from tenants.

The market can only cater to so many niches, so Mortgage Introducer, in association with Aldermore Bank, asked experts from United Trust Bank, LendInvest, CHL Mortgages, Market Financial Solutions, and Aldermore Bank itself about what is next for the industry.

ASSESSING THE CURRENT BTL MARKET Steve Hewitt, national key account manager at Aldermore Bank, emphasised that when you assess the current buy-to-let landscape, you have to look back over the last 10 to 12 years to gain a full understanding of the picture.

Hewitt said that as much as the buy-to-let market had been affected by tax changes, stamp duty, and various other developments, one of the biggest issues in the sector remains on the horizon.

“I think the biggest thing coming out of the conversations we are having this year is around EPC ratings,” he said. “We know, from a government perspective, they are going through this consultation period at the moment in terms of the changes for EPC due in 2025, and we will have to wait for the final outcomes to be announced.”

There are challenges for brokers, too, he said, because the full facts are not yet available, making it harder to offer comprehensive advice.

“We are just trying to understand the best way to be

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able to handle those changes that are coming down the track,” he said. He believes that providing the right education on EPC is the responsibility of everyone in the industry – lenders and brokers alike.

Michael Cook, chief mortgage officer at Market Financial Solutions, pointed to the levelling-up agenda as an area that is having a big impact on the buy-tolet industry.

“Landlords are getting whacked from everywhere, and I think you can believe the Telegraph headline ... that Michael Gove has pretty much declared war on buy-to-let landlords,” he added.

Touching on opportunities within the market, Cook said with many now returning to officespost-COVID, he believes landlords can profit from city location rental properties.

Meanwhile, Andy Virgo, buy-to-let sales director at LendInvest, pointed out that the market has proven to be robust despite challenges.

“There is a tremendous amount of opportunity for brokers and for lenders when it comes to those borrowers coming off the five-year fixed rates that are maturing following the PRA changes back in 2017,” he said.

“We are funded differently from lender to lender and some of us are in a different position from others. I think we are all going to arrive at the same place eventually when it comes to the interest rates we charge. However, the cost of funds and the significant pipelines that we have – that is a challenge for lenders, brokers, and clients alike.”

Barry Luhmann, head of buy-to-let mortgages at United Trust Bank, outlined that, from his experience so far this year, it had been very busy in the market.

“Increasing rates are going to make it a very different www.mortgageintroducer.com

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BUY-TO-LET year from what we have seen in probably the last 10 or 12 years,” he said.

“I am expecting a lot of remortgage activity on the back of the five-year fixed rates concluding, as well as from borrowers trying to lock in a long-term rate.”

Andy Valvona, national account manager at CHL Mortgages, concurred with Luhmann and added that when any industry is faced with a challenge, it is about getting your head around it and understanding the situation thoroughly.

“Products are being withdrawn very quickly, so brokers who are transacting business, particularly with portfolio landlords, are finding it very tough to recommend the product and then actually get everything they need together to be able to submit a mortgage application,” he said.

“So I think that is the biggest issue on brokers’ minds at the moment [whom] I have spoken to – and of course, they are all asking for more time before products are withdrawn by a lender,” he added.

He went on to say that lenders within the buyto-let space need to figure out what they can do to make things easier for the brokers and, in turn, their customers.

ISSUES WITHIN BTL MARKET Looking to what issues buy-to-let clients have been raising with brokers and how they have been addressed, Virgo said landlords are facing two main problems.

“The primary one is the cost-of-living and how the pressure is being applied to tenants and their ability to pay rent,” he said.

“There has been an increase in less than tier-one applicants, and so there is a need for us to look at our lending products and make sure we cater for those landlords that have a misdemeanour in the background but ultimately are the ones who are paying their mortgages.”

Moving on to the second core issue, Virgo explained that there is a need for longer-term certainty due to the cost-of-living situation, and he believes seven- and 10-year fixes could help resolve this.

Luhmann had a slightly different take on the issues

“Any property coming to market right now is being snapped up very quickly, even given the price increase and cost-of-living crisis” STEVE HEWITT

affecting the market right now and said that, from the perspective of a new lender, he had encountered many unusual cases coming through the door and each needed an individual solution. He added that many customers are coming to lenders after having been declined for a mortgage and are asking whether there is any possible solution.

“We know this is a very busy market,” he said.

“There are lots of specialist lenders in this space, but we are finding quite a niche in just being very flexible on property.”

“I think the issues that are being raised right now are mainly short-term problems,” Valvona added.

He said he had seen many clients not wanting to lock into a fixed-term mortgage for longer periods, despite the rising Bank of England base rate.

“If clients do need to raise some money in a couple of years’ time, it may take three years to carry out the improvements to the property from an EPC perspective; I think there may be some clients who are taking a view that they do not want to fix for that long,” he said.

He also reiterated the earlier point about broker education.

“I believe we do have a lot of education requirements in the market,” he said. “It is quite interesting, really, that some brokers are very clued up on buy-to-let and some are not.”

Valvona also returned to EPC ratings as a key issue – particularly from the perspective of landlords →

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BUY-TO-LET having to invest in their properties in order to improve their ratings to a C. “Landlords are like the rest of us and are likely to leave these improvements until the last minute,” he said. “A good, well-informed broker will be reminding them of exactly what they need to do.”

Meanwhile, for Hewitt the main focus is just how busy the market has been.

“I think one thing that we have seen over the last number of months now is we have gotten busier, busier, and busier,” Hewitt says.

He went on to add that it had been relentless in terms of the level of business that had been coming through.

“It may not necessarily be reflected in terms of the service from the lender, but conveyancing is one of the areas in which I have seen a lot of questions and queries for solicitors to answer regarding how quickly clients can get their property completed,” Hewitt added.

From a conveyancing perspective, Hewitt believes that if everyone involved within the process knows what they are up against in terms of the timescales, then it becomes much easier for a deal to progress.

“Service is one of the critical things, especially when you are trying to get things done very, very quickly, and a lot of the time there are tight time constraints, so it is important that the deal progress smoothly,” Hewitt said.

“The other thing that we have seen is that tenants are looking at the cost-of-living crisis, and therefore want properties that are more energy efficient, as they will pay less in bills.”

“Stay abreast of the changes that are coming down the road and educate yourself and educate your clients” ANDY VIRGO

Hewitt believes people are questioning how much they should spend on a property to improve its energy efficiency. As such, it is important to try to understand where the market is going to be in a few years’ time.

He believes that more energy-efficient properties will always move faster, now and in future.

Cook said that a lot of clients at Market Financial Solutions are high net worth and have an array of weird and wacky requirements, and he added that all the professional property developers believe service comes up as a key issue time and time again.

“It is amazing how many horror stories you still hear ... on turnaround times,” he added.

“You have now got the changes coming in related to EPC ratings, which have been a big dominator this year.

“However, the government has also reformed a new deal for tenants in Scotland, and there is legislation coming in in Wales that changes tenancies completely, with landlords now having to take a test, essentially, to get a qualification to be a landlord.”

As such, he said that Wales had seen one of the biggest exits of landlords in the UK, which he believes is a worry, with a similar pattern beginning to develop in Northern Ireland as well.

Virgo, meanwhile, noted on the EPC issue that many lenders have EPC-related products that reward landlords for selecting the right type of property. On the flip side, however, the challenge some lenders are going to face is how they can help existing borrowers who require further advances to do work on their properties.

“If you look at some publications, they talk about the average cost being circa £10,000 to get your EPC rating up,” he said. “That is all well and good if you have got a property in London and the South East; you could remortgage and you are easily going to be able to raise an extra £10,000 worth of equity or slightly more to get the work done.

“However, what about those properties in Wales and the North East and North West – are those going to have enough equity to raise an extra £10,000 or justify spending £10,000 on a property?”

Hewitt added, “Buy-to-let landlords will have to deal

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“It is amazing how many horror stories you still hear that brokers are having from lenders on turnaround times” MICHAEL COOK

with this over the coming years, whether they look to re-evaluate their portfolio, [or]vsell it off and take the equity out of that and then reinvest that money back into a newer property that fits within the EPC standards; or do they do the work to the property?”

He explained that properties in the north of England may only be worth £60,000, £70,000 or £80,000, so doing £10,000 worth of work may not actually add £10,000 worth of value to the property.

TENANCY LENGTHS Recent industry analysis suggests that the average tenancy now stands at 23 months, a significant increase.

“There are various schools of thought on this. If a landlord is looking for surety of tenancy, then the longer a tenant is in there, the better, because one thing that landlords do not like is having a rental void to deal with,” said Valvona.

“On the other side of the coin, though, if you have got a quick turnaround in tenants, you are able to adjust your rental more easily depending on what your costs are – and in a rising interest-rate environment, that is quite important.”

According to Cook, there is a rush from landlords to offer all-inclusive deals; however, he believes that increases in energy bills may make such contracts rare in future.

“At the moment rents keep rising and rising and rising; you could almost agree a stepped increment at the start,” he said. “But then some tenants would

probably reject that, although even the longer-term tenancies will likely be charging a bit more if the market rents go up.

“From a lender’s perspective, it is not a bad thing to have a long tenancy – you just need to make sure it has got the correct exit clauses.”

Cook said that more and more lenders are interested in reviewing the terms of the tenancy as part of the initial underwriting.

“The lengthening of a tenancy stay is great. The challenge is the cost of living and the cost of fuel at the moment, what with gas, electricity, and food continuing to rise in price,” said Virgo.

“We have just come out of the best part of two-and a-bit years of issues with COVID and lockdowns, and people’s needs are different now from what they were with the increase in people working from home or hybrid working,” added Hewitt.

He explained that he had seen people increasingly wanting to stay in the same place for longer periods.

Luhmann concurred with his colleagues and added that he believes it is important for a tenant to have surety of their residency and that, ultimately, that is also good for the landlord.

“I understand the perspective of shorter tenancy and being able to adjust rental prices more accurately, but this is the price you pay for a surety of tenancy,” he added.

He explained that as a landlord, you do need to manage rents correctly, but that there is a middle ground that is beneficial for all parties involved.

SUPPLY AND DEMAND There is a significant disparity between supply and demand. With limited properties available and an increase in new tenants registered at branches, Luhmann said the best way to resolve the issue is to build more properties.

“There is a supply and demand imbalance because not enough homes are being built at the moment, and the best way to rectify this is to build more properties,” he noted. He went on to add that it is also about →

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BUY-TO-LET converting existing buildings from commercial to residential and adapting property on the high street.

Hewitt agreed with Luhmann that converting old buildings is a good way to narrow the gap between supply and demand.

“Any property coming to market right now is being snapped up very quickly, even given the price increase and cost-of-living crisis,” he said.

“I think the answer is to build more properties, but it is about it being the right properties and in the right location. We have seen a lot of building over the last 10 years in terms of apartments, and the city life is something that is starting to slowly feed back into demand.”

According to Cook, property investors have been buying office blocks with the intention of converting them, but he explained that it comes down to desirability – the properties have got to look good for people to want them.

“They have got to look good, feel good, sound good – and they cannot be cramped or still resemble an office building,” he added. He believes that it is down to the private rented sector to take it on itself to improve properties to a good standard.

Meanwhile, Valvona believes that the answer to balancing supply and demand is a political question and not one for lenders and brokers.

“We have seen the demise of the Help to Buy scheme, which has meant fewer people are able to buy properties and therefore more people want to rent,” he said.

Valvona believes, facilities are needed to help people develop properties, whether on a light-refurb or heavy-refurb basis. Funding for developers – and how to provide this – is also an essential part of the mix. He has seen this topic debated many times by industry experts, and there is no one clear-cut answer.

“COVID has meant tomorrow’s tenants are still on the verge of making the move out from their home, or from whatever property they were stuck in, so that rush of tenants coming to the market has returned now that they have managed to save some extra cash for a deposit,” Virgo said.

“I am expecting a lot of remortgage activity on the back of the five-year fixed rates concluding, as well as from borrowers trying to lock in a long-term rate now” BARRY LUHMANN GREATEST BROKER MISTAKES When looking to the greatest mistakes made by brokers when discussing buy-to-let mortgages with their clients, Cook points to tax advice or the lack thereof.

In addition, he mentioned limited company issues and the supply for this type of mortgage as an area in which brokers often make mistakes.

Valvona agreed with Cook that taxation advice is a regular error, with brokers often misinformed after being drawn into a conversation by their clients.

He explained that brokers will often recommend a taxation specialist to their clients, but in some cases, customers push their brokers for tips on tax that can, ultimately, be incorrect.

“I think if we are honest, we have all had those conversations with brokers in which they have strayed into advice without really realising it,” he said.

“The second mistake I think brokers are making is recommending a five-year fixed rate or even a seven-year fixed to a client on a property that has a low EPC rating without adequately going into the client’s responsibilities in bringing it up to a C.” Luhmann explained that as far as he has seen, landlords have been coming to lenders with low-rated EPC properties.

He believes that education is key and explained that brokers need to inform their clients of the potentially imminent government changes.

“I think there is a lack of care, a lack of education,

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BUY-TO-LET people not reading the guides, or talking to the BDMs – whatever they are doing or not doing is wasting their time,” he added.

Virgo believes that the top challenge brokers are faced with is keeping up to date with what is happening in the market. He said there is so much complexity out there now that just relying on sourcing systems for the cheapest rate is not the way to go.

“Going for the cheapest prices is doing a disservice to the customer in not necessarily pitching them in with the right lender,” he said.

“According to Hamptons, in 2021 there were 47,400 new limited-company SPVs set up in the UK for property, and that is 14 per cent up from 2020 and double the number of SPVs that were around in 2007,” he added.

Virgo said this demonstrates the market is becoming more complex and lenders need to be able to deal with the complicated structures that exist, such as limited companies.

Hewitt, meanwhile, looked back on Valvona’s and Virgo’s points and added that he believes education is incredibly important – and even more so with the market continuing to become more complex. He noted he had seen applications coming to lenders when they had not followed the correct structure, which slowed down the process and added further unnecessary hurdles.

TIPS FOR BROKERS Hewitt said the best thing brokers could do is take advantage of the free resources available to them, with

“Landlords ... are likely to leave [EPC] improvements until the last minute.... A good, well-informed broker will be reminding them of exactly what they need to do” ANDY VALVONA

Specialist mortgages with more ‘yes’

many companies and operating systems in place to assist their transactions.

“We are a free resource – anywhere else in the industry and in any other industry you would have to pay for the training,” he added.

Cook went on to say that there are many changes coming down the road for brokers with which they will need to be familiar, which will in turn help them provide a suitable level of service to their clients.

“Setting up an SPV correctly in the first place, before it is registered at Companies House, is essential because you cannot change it later,” he noted as an example.

Cook gave an example of his own – noting that if you do not get the inheritance tax-planning right when you set it up, you cannot change it later because the lender will not let you, so there could be a drastic negative impact from this if it is done incorrectly.

Virgo, meanwhile, believes it is important for brokers to reach out to their portfolio landlords and talk about their five-year-fixed opportunities and the upcoming EPC changes.

“Stay abreast of the changes that are coming down the road and educate yourself and educate your clients,” he added.

Luhmann also believes that keeping informed and improving education standards, and therefore the education of clients, is the best approach for brokers.

Valvona added that brokers should also be reaching out to their BDMs and using them as a resource.

“You have got to stay up to date with what is going on in your area and other areas. If you have got a client who has a portfolio landlord that is looking to buy properties in the opposite end of the country, you need to do some research on what is going on in that particular area as well,” he said.

Valvona explained that a simple conversation between brokers and the other moving parts within the process can help to resolve many issues that arise during a transaction, and he believes education is the key to addressing this. So while EPC perhaps remains the biggest talking point in the market, it is the three Es that really matter: education, education, education.

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ALDERMORE

A changing world Amid thinning margins, rising rates, and EPC changes, Jake Carter talks to Aldermore’s Jon Cooper about navigating BTL waters

T

he buy-to-let (BTL) market has seen rapid change over the last few years, with regulations altering, the pandemic, and the current state of the economy among the influencing factors.

With buy-to-let rates rising thanks to the Bank of England upping the base rate, Jon Cooper, head of mortgage distribution at Aldermore, is expecting to see this trend continue.

The Bank of England increased the base again rate in June, raising it to 1.25 per cent, and it is expected to increase further over the remainder of the year. Six members voted in favour of a 0.25 percentage-point rise, while three voted for a 0.5 percentage-point hike.

Cooper explained that as margins continue to be squeezed for landlords, he believes more consideration will be given to limited company ownership structures for new acquisitions, but he said that receiving the right tax advice will be key.

“Landlords will have to pass on cost increases from rate rises to tenants at some point, although many will likely hold out for as long as possible,” Cooper said.

He said this will add to the financial strain tenants are experiencing due to the inflationinduced increase in the cost of living affecting prices for food, fuel, and utilities. According to the Office for National Statistics, 87 per cent of adults in the UK reported an increase in their cost of living in April 2022, with energy bills rising substantially, and many are struggling to keep up with their payments.

ENERGY FOCUS A small silver lining of climbing energy bills is that there has been a flood of landlords and

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residential homeowners looking to improve the energy rating of their properties in order to reduce costs. The move is well-timed, given that the government is currently – although this has not yet been confirmed – planning to introduce the new Minimum Energy Performance of Buildings Bill, which will require a minimum EPC rating of C for new tenancies from 2025, and for all rental properties by 2028.

As rental properties in the future will be required to have an EPC rating of C, Cooper explained that while there has not yet been a rush from landlords

“[Tenants are experiencing] financial strain due to the inflationinduced increase in the cost of living affecting prices for food, fuel, and utilities. According to the Office for National Statistics, 87% of adults in the UK reported an increase in their cost of living in April 2022, with energy bills rising substantially, and many are struggling to keep up” to begin improving their properties, the awareness of the need is there.

“This is especially noticeable among largerportfolio landlords, but there is hesitance to invest in upgrading existing stock until full details of the requirements are published,” he added.

According to Cooper, landlords are targeting www.mortgageintroducer.com

Jon Cooper

SPOTLIGHT

ALDERMORE properties that are already C grade for new acquisitions – which could place added focus on new builds. However, he stated that so far there has not been a rush to sell properties with low ratings.

However, he explained that because landlords are targeting those higher-rated properties for new rental homes, he believes this will potentially limit the availability of energy-efficient housing stock for first-time buyers.

“It is catch-22 at the moment as CGT bills and other costs incurred from disposing of the property will have to be taken into account, which may end up being more than the cost of the upgrade work in the first place,” he said.

“A small silver lining of climbing energy bills is that there has been a flood of landlords and residential homeowners looking to improve the energy rating of their properties in order to reduce costs. The move is well-timed, given that the government is currently ... planning to introduce the new Minimum Energy Performance of Buildings Bill”

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PLAYING UNDER NEW RULES While interest rates have continued to creep up, Cooper said that he has not seen a rush from landlords to remortgage or sell. “I have [however] seen an increase in clients moving to owning property in limited company ownership structures [instead of] personal names,” he said.

As the rules and regulations behind the buyto-let market become tighter and tighter, Cooper pointed to BDRC data that has shown a continued rise in the number of landlords intending to sell their properties and exit the marketplace.

Finally, turning to the future of the buy-to-let market, Cooper said that he is expecting limited-company ownership structures to become more common.

He explained that, unlike in 2008, lenders have funds available to lend providing affordability criteria is met, and, according to Moneyfacts, the number of buy-to-let mortgages available in the market has increased by over 1,000 to 3,374 over the last 12 months.

In addition, he is expecting demand for tenancies to continue to remain high, given the current UK average house price of £290,000, which is approximately seven times more than the average salary earned by the average 30-to-39-year-old.

“The high cost of living is reducing the amount that can be saved from disposable income to go toward deposits, which is something I anticipate continuing in the future,” Cooper concluded.

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