Specialist Finance Introducer Focus on the buy-to-let specialist market

Think long-term

Mark Whitear

director of commercial development, Foundation Home Loans

In a fast-paced mortgage market in which we are seeing significant changes to rates and pricing, particularly in the here and now, it is important not to lose sight of some of the longer-term issues that need to be addressed.

While we appreciate that, given the nature of today’s mortgage industry, everyone is trying to work within fast-changing parameters and perhaps second-guess what might be coming over the horizon, it is necessary to look a little farther into the future.

Indeed, you can marry up today with what may come, in the form of energy efficiency, carbon emissions, and the need to address both within the UK’s housing stock, particularly – as a priority – within the private rented sector (PRS).

While we have yet to have confirmation that all PRS properties will need to be EPC C and above from 2025/2028 onwards – for new/existing tenancies – we have to work as if this were going to happen. This will be especially pertinent for those landlords who are seeking to remortgage or purchase mortgage products right now, and they need to be made aware of how any changes will affect their ability to let these properties.

First up, for advisers who are in full education mode for clients, it’s important to understand why this is an issue. Twenty per cent of carbon emissions emanate from our housing stock, and we have the potential to reduce annual emissions by five million tonnes if all D-rated properties move to a C. This would also be a huge step toward meeting the COP26 commitment made by the UK to be net zero by 2050.

You can therefore understand why this bill was brought forward as a means to improve the minimum EPC banding for tenants – but it has become even more important given the focus on high utility bills and the ways and means by which we can keep these down.

Many landlords may not even be aware of what the EPC rating for their property is, but you can find each one online, and this not only covers estimated energy costs, energy efficiency, and performance in preventing heat loss, but it also gives ideas on what can be done to improve the level and the potential cost.

These costings can be highly important, particularly within a remortgage discussion where the landlord might wish to release some capital value in order to potentially pay for any work required to make those improvements.

The four key areas to look out for in an EPC are:  Points in bands: this is the points representation of the government’s standard assessment procedure (SAP) range, a calculation based on different aspects of the property relating to energy creation, storage, or use.  Letter grade: a simple representation of which SAP band the property falls in.

 Current: the current SAP score that has been calculated on the above aspects.  Potential: the property is also assessed on where changes could be made to improve energy efficiency.

If all recommendations are put in place, this could be the new score.

Advisers will be interested to learn that the average current energy rating for properties in England and Wales is D, with a SAP score of 60. Indeed, 51.5 per cent of all properties nationally are rated D or E, indicating that any new regulation designed to improve this to a C will eventually affect more than half of all property owners, including landlords.

This is why the buy-to-let market has become so vocal in this area, and why advisers are now increasingly able to access more green BTL products – such as we offer at Foundation – in order to support landlords not just in improving their properties, but also in purchasing those already at a C rating.

The big message here, though, is around securing the improvement that will be required for all properties currently below a C rating. Now, for some properties the score can be improved upon with some very simple and cheap solutions – such as installing energy-efficient lightbulbs or thermostatic radiator valves.

But for others, the improvements will need to be much more substantial in scale and cost. There are eight categories into which EPC rating improvements fall: loft insulation, wall insulation, glazing, draught-proofing, lighting, heating systems, renewables, and secondary heating systems.

Estimates have suggested that 48 per cent of homes could potentially benefit from a lower-cost measure such as loft insulation, cavity wall insulation, and hot water cylinder insulation. The rest would benefit from a higher-cost measure, such as solar photovoltaic cells, which would add over 10 SAP points but could cost more than £3,500.

The English housing survey states that 97 per cent of rental stock could be improved to band C at an average cost of £7,646. For those landlords who have multiple properties within a portfolio, that could undoubtedly add up for those homes that are currently below C; however, with advisers working through the finance options and using some of the equity that is likely to have grown in recent years, landlords can get on top of this and get their entire portfolio in a position to meet huge tenant demand both now and for the long-term.

Working with lenders like Foundation, and accessing our green product range and the information we have in this area, can help advisers and their clients to meet both their short-term finance needs and their long-term property responsibilities. The best time to have that conversation is right now. MI

All change!

Steve Cox

chief commercial officer, Fleet Mortgages

How best to sum up the recent period within the mortgage market? It has been eventful, to put it mildly, and I can’t help but reflect that the market turbulence has been somewhat difficult to get our collective heads ‘round.

First, though, a word of warning regarding this article. As is the nature of writing for editorial deadlines, this piece is written far in advance of the time you will actually get to see it. That makes it incredibly difficult to write, because I am effectively trying to second-guess what will happen over the course of the next three to four weeks.

We work in a fast-paced market at the best of times, and, as has been shown all too starkly lately, that pace of change can render even the most nailed-down certainties completely redundant.

So forgive me, but I will try to stick to generalities and won’t venture to predict what might happen between now and the time you read this. Certainly, from both a political and economic point of view, I’m fully expecting a lot of water to have flown under the bridge by the time you get the magazine in your hands.

However, back to the here and now – at least what it is for me in this moment. The new chancellor, Kwasi Kwarteng, has just announced a decision not to take forward the scrapping of the 45p rate of tax, which leaves me wondering just what measures of his mini budget will actually become law.

It is clearly apparent that the ‘new’ government got this wrong, and the markets – and by the looks of it, backbench Conservative MPs – decided that these measures could not continue to live once they touched the reality of most people’s lives.

Moving on to our mortgage market, it is also apparent just what considerable short-term change this has catalysed. Let’s, however, begin this by acknowledging the great universal truth: the market had always anticipated rates going up over the course of the next 12 months.

However, what has clearly knocked the market sideways is how dramatically and quickly the anticipation of what rates might be in the future changed. We went from an anticipated rise in the bank base rate to 3.5 or 4 per cent within a year to closer to six per cent (in a much shorter period), and given this, it is no wonder that mortgage lenders were left in a situation where they had to pull rates and products while they attempted to get their collective heads around what rate they should be pricing at.

Again, as I write, across all sectors of the mortgage space lenders are slowly coming back to market, but the rate differential between what was available just a couple of weeks ago and what is here now is significant. It is no wonder that we have seen considerable (payment) shockwaves from both existing and would-be borrowers as they face up to the new rate reality, and what that might mean for their monthly payments.

Quite frankly, no-one would have believed we would get to these rates in anywhere near this timescale – over the course of days, rather than weeks or months – so it is no wonder that advisers have been left holding the baby, attempting to find solutions for those who are understandably horrified at the increase, or potential increase, in their monthly mortgage payments.

Again, by the time you read this, I would hope we will have seen something like a semblance of normality returning to the market, but – from a price perspective – it at least looks likely we will see some considerable short-term pain before we can begin to move forward on firmer footing.

Certainly, in the buy-to-let space, we have seen a similar reaction to that Quite frankly, no-one would have believed we would get to these rates in anywhere near this timescale – over the course of days, rather than weeks or months – so it is no wonder that advisers have been left holding the baby

of residential peers in that fixed-rate mortgages were the first to go while we ascertained at what level we could continue to lend. However, from Fleet’s point of view, we have been able to continue offering a number of tracker products at competitive rates, while looking at what our wider product range might contain when we bring this back to market.

Undoubtedly we have seen a significant cut in the number of mortgage products available, both residential and buy-to-let, but we should continue to stress that this is not because lenders lack appetite to lend. Far from it. We want to lend, but have to be absolutely certain of the price at which we can do it.

I appreciate that this has not made the lives of advisers – or their clients – particularly easy. And I doff my cap to the adviser profession. I can only imagine what you have been going through in recent weeks, and I’m sure that without professional mortgage advice, the situation would have been 100 times worse for many people.

We, however, remain utterly committed to the intermediary space, and it is my sincere hope that by the time you read this, a lot of the upheaval will have been eased, and we will begin to resemble a more normal market again, with plenty of new products and rates that provide clients not only with the mortgage finance they need, but at a price they can live with. M I

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