Buy-to-let Introducer February 2022

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BUY-TO-LET

INTRODUCER www.mortgageintroducer.com

February 2022

The direction of travel for buy-to-let

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EDITORIAL

COMMENT

Contents Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Esha Gossain Esha@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42, 25 Old Broad Street London EC2N 1HN Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

MORTGAGE

INTRODUCER

Not your mother’s landlords…

4 Cover: Rising to the challenge Natalie Thomas considers how the BTL market has weathered change, and what this might mean for the future

decade or so ago, as a culture we coined the phrase ‘dinner party landlord’, to depict the kind of affluent individual who owned a buy-to-let property simply because someone mentioned how easy an investment it was over a glass of Chablis during the cheese course.

This image became synonymous, for many, with a lack of real investment in the market, and in the worst scenarios, a lack of interest in the tenants as well. Through a combination of the growing prominence of buy-to-let finance – which not only lend weight to the market, but provided options for entry for a much more diverse set of investors – and increasingly restrictive taxation and regulation which made for more work to get your money’s worth, the face of landlords has changed.

Now, with what has become known as the ‘professionalisation’ of the market, the seemingly feckless dinner party landlord image has been replaced with one that is more in tune with the movements of the sector. Whether it is the shifting yield landscape in different areas of the UK, the importance of considering incorporating as a limited company, the benefits of more complex properties such as HMOs, or any of the other myriad trends at play, even a seemingly casual landlord tends to be more tuned in these days.

There are always going to be exceptions to this rule, but the fact remains that this segment of borrowers, and the lenders that serve it, have come on leaps and bounds. With this comes the willingness and ability to tackle complex challenges, of which there are plenty ahead – from climate change to the housing crisis.

With the BTL market only getting more advanced as time goes on, it will be interesting to see what changes the next decade might bring. BTL I

10 Jason Berry Fast solutions to problems

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Jessica Bird Jess_JBird

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11 Louisa Sedgwick Turning the EPC tables 13 Ian Hall Landlord knowledge of EPC proposals 15 Sundeep Patel Short-term rental opportunities 17 Paresh Raja The BTL market in 2022 19 Paul Adams Paving the way to new opportunities 21 Ross Turrell Limited companies: A range of opportunities 23 Andrew Ferguson Specialist finance and the remortgage boom 25 Sara Palmer A bumper year for BTL remortgages 26 Time for innovation Buy-to-let Introducer’s panel discusses the trends set to take the stage in 2022 32 Complexity, change and challenges Jessica Bird and Louisa Sedgwick talk HTB’s offering

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Rising to the challenge Natalie Thomas looks at how the buy-to-let market has weathered change and challenges over the past two years, and what this might mean for the future

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o matter what is thrown at the buy-to-let (BTL) market, it always appears to rise to the challenge, often reinventing itself along the way. Whether through lockdown, increased regulation or complex taxation, the sector continues to attract investors both old and new.

All eyes are now on what will happen to demand post-COVID, and what impact the upcoming changes to Energy Performance Certificates (EPCs) will have on the market.

While both factors might cause investors to rethink their strategies, it should ultimately be good news for brokers and lenders, who will be called upon to offer guidance along the way.

THE SHORT-TERM OUTLOOK One of the key focal points in the sector over the next 12 months is set to be the remortgage market.

According to Paragon, industry data shows the number of 5-year fixed BTL completions in the six months to the end of March 2016 was 121% higher than the same period in 2015.

The market saw a huge surge in 5-year fixes in the run-up to the introduction of the BTL stamp duty surcharge in April 2016, as well as the new underwriting rules in 2017.

Neil Taverner, complex BTL specialist at Brightstar Financial, says: “I see a large proportion of remortgages happening this year. There were a huge amount of 5-year fixed rates taken out from 2016 onwards, [so] this side of the market will be busy.”

It will not just be the remortgage market alone, however, that helps fuel the sector.

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Off to a cracking start to the countryside decide it is not for them and sell and move back to the city, or rent their properties out and buy or rent in town.

Howard Levy director, SPF Private Clients

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he BTL market has got off to a cracking start this year, as would-be landlords continue to compete with owneroccupiers in a bid to be the first to purchase the low amount of stock that is becoming available.

Landlords are predominantly buying via limited companies for the tax benefits, as well as the improved stress levels that come with this ownership structure. One of the downsides of this is that rates for limited company BTL mortgages are still much higher than those bought in the landlord’s own name, even though lenders still obtain personal guarantees.

Remortgage-wise, it is becoming more difficult to refinance properties owned in the client’s own name due to the stress tests used by lenders, and especially in London, the yields not fitting at higher LTVs. Subsequently, we are seeing many small portfolio landlords looking to offload their two or three properties as the profit margins do not make it worth their while.

There is also less demand for let-to-buy finance due to the higher stamp duty payable if existing properties aren’t sold when the new purchase occurs – even if it is refunded when the original property is sold within three years.

LANDLORDS STICKING WITH WHAT THEY KNOW In terms of location when it comes to new investments, landlords seem to be concentrating on areas they already know well. With higher yields available outside London, many are purchasing HMOs that are already licensed and registered.

It remains to be seen whether – as pandemic restrictions continue to ease and workers are called back to the office – those who moved

Sebastian Murphy, head of mortgage finance at JLM Mortgage Services, says: “Rents are increasing again, combined with good projected capital growth in property values, which will lead many landlords to add to their portfolios. Having seen property values increase over the last couple of years, landlords will be looking to release this value via remortgaging and refinancing in order to fund purchases.”

Savvy landlords will also want to lock into some of the competitive deals available while they still can.

Figures from Moneyfacts show there were 3,528 products on offer to landlords in January this year – the highest number since its records began in September 2007, and 945 more than were available pre-pandemic in January 2020.

The average overall 2-year fixed BTL rate has started to creep up, however, with rates rising for the second www.mortgageintroducer.com

WHAT LANDLORDS ARE BUYING Freeholds are more popular than leaseholds, most likely because cladding issues are making it difficult to obtain lending on some flats. HMOs are also more prevalent, due to the superior rental yields achievable, while the popularity of holiday lets has been well documented as more people stay in the UK rather than deal with the hassle of travelling abroad.

Many landlords are finding that they now own HMOs, even if they didn’t set out with this intention, due to the changes that have occurred over the past few years.

Whereas many lenders were happy with three tenants on an Assured Shorthold Tenancy (AST) agreement, various changes mean more properties have become HMOs than used to be the case.

The added costs involved with fire regulations and enhanced smoke alarms, to name but a few, has meant that while HMOs are more expensive to set up, potential returns are also higher. This is encouraging more landlords to put up with the extra hassle that comes with going down this route.

UPCOMING ISSUES EPC rating requirements and green mortgages will mean that lenders and landlords will need to improve their properties over the coming years. This will no doubt mean that values will rise, enabling portfolio landlords to release funds as they renovate each property so that they can refurbish the next.

There is the potential for lenders to offer more competitive rates to those landlords who improve the EPC rating on their properties – some are already doing this, and we expect others to follow. Specific incorporation products, which enable clients to carry the same rate from their own name over to the limited company when they are in a position to incorporate, would also appeal to a wide audience.

consecutive month in a row, by 0.04% to 2.94% in January 2022.

The average overall 5-year fixed rate has remained stable at 3.18% since February 2022.

There are also now 28 products available at 85% loanto-value (LTV), compared with only four in November 2021, and no options at all in January 2021.

Joshua Elash, director of MT Finance, believes investors will be looking to tap into these rates before they potentially rise higher.

“The main drivers for BTL mortgages will be a combination of remortgaging and new purchases,” he explains.

“There is a huge volume of 5-year fixed-rate BTL mortgages coming to the end of their fixed period this year, so we would expect to see a flurry of remortgaging activity as investors lock in a preferential rate before → FEBRUARY 2022 BUY-TO-LET INTRODUCER

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“Savvy landlords will also want to lock into some of the competitive deals available while they still can. Figures from Moneyfacts show there were 3,528 products on offer to landlords in January this year – the highest number since its records began in September 2007, and 945 more products than were available pre-pandemic in January 2020” they start moving out in line with recent activity in the Swap rate markets and the movements in Sonia.

“Equally, the number of purchases will pick up as more investors return to the mainstream BTL market.”

How landlords are investing is also evolving, with brokers seeing a definite shift towards a limited company structure.

Mark Pattanshetti, associate director at Largemortgageloans.com, says: “We are noticing an increasing number of portfolio landlords crystallising the equity in their current portfolio with an aim of expanding their overall portfolio.

“There has been a significant increase in BTL property being bought in a limited company over the last 12 months, and we expect this to be the case for the foreseeable future.

“Our outlook for 2022 is strong; with a particular increase in the holiday let market, following the growth of staycations due to the pandemic.

“We also expect an increase in the rate of rentals, which will further fuel the investment into BTL property.”

HOT AND NOT The holiday let market has been one of the big winners of the ‘staycation’ trend. Many, however, predict that 2022 will be the year that investors fall back in love with city living.

Paul Brett, managing director of intermediaries at Landbay, says: “We are already starting to see a revival in interest in London, following the lull when COVID-19 came along with people moving out of the city.

“This applies to other cities too, especially those in the High Speed 2 [HS2] pathway. So Birmingham, for example, is gaining BTL traction.”

This is also playing a part in what type of properties investors are looking for, Brett explains: “Houses in multiple occupation [HMOs] have been gaining in popularity, and this will continue as workers move back into the cities and students return to universities.

“We are also seeing younger people showing interest in becoming first-time HMO landlords, with

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the attraction of higher yields compared to single units.”

While London might not offer as high yields as some other areas, it perhaps outpaces its Northern counterparts for growth.

Greg Cunnington, director of lender relationships and new homes at Alexander Hall, says: “London and the South East remain our main areas geographically, and it has been interesting to see that landlords are still very active in these areas.

“Low yields may have put them off, but the security of the high demand and estimated property value growth remain important.

“We have also seen a notable increase in professional landlords looking at HMO or student let properties – chasing higher yields and looking to diversify their portfolios.”

There seems to be a clear North-South divide when it comes to whether landlords are chasing yield or capital growth.

Ian Workman, managing director of commercial banking at Recognise Bank, explains: “The trend of landlords to looking beyond the big cities like London is likely to continue, as investors look for greater yield.

“Yield is always an issue in London and South East, so a move towards diversifying geographically is something we are seeing.

“The latest Office for National Statistics [ONS] data shows greatest growth in the East Midlands, while the South West remains buoyant – perhaps to do with the covid impact of people leaving the cities for more space and fresh air.”

Another potential positive development for the sector is an increased use of Permitted Development Rights (PDR) – namely converting offices to residential space.

“It is already used extensively in London and larger regional cities but as part of a review of opportunities for investors in smaller regional cities, empty offices in these locations could be repurposed,” says Workman.

“We are seeing lots of permitted use work going on, especially in London. More, and continued, working from home will mean tenants look at the flexibility of the space in a unit or the availability of a second or third bedroom for use as an office. Both are an opportunity and a challenge for landlords.”

OBSTACLES TO OVERCOME The sector might appear to be bursting with potential, but there are still a few concerns holding investors back.

“One of the big issues we have encountered – and which could continue into 2022 – is lenders requesting much larger deposits from landlord buyers on newbuild properties without any justification,” says Murphy.

“LTV limits for new-build need to be reviewed as a matter of urgency, as it contradicts many areas of lenders’ more recent policies with regards to homes being energy-efficient. Surely, they would want landlords to purchase more energy-efficient homes www.mortgageintroducer.com

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Subtle changes Aneisha Beveridge head of research, Hamptons

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he BTL sector has been subtly changing. Over the past five years, increased regulation, together with the tapering of tax relief available on mortgage interest, is bringing about an increased professionalisation of the sector.

Many smaller investors earning low yields have sold up, while those seeking higher yields are having to do their sums like never before. These investors are more likely to be full-time landlords, owning several properties, often wrapped up in a limited company.

Last year, according to Companies House, 47,400 new BTL companies were set up across the UK – the highest number on record. Much of this change has been driven by amendments to Section 24 of the Income Tax Act, which was introduced back in 2017 and meant that investors with properties held in their personal names were no longer able to claim mortgage interest as an expense.

This means that individual landlords are effectively taxed on turnover, while company landlords are taxed on profit.

The upshot of this is that for some – particularly higher rate taxpayers – it has become more profitable to move their BTLs into a company.

Nevertheless, most BTL businesses are still smaller landlords rather than larger institutions. The vast majority of BTL companies were set up after 2016, and only 20% of BTL businesses hold more than three mortgaged properties, a similar number to landlords holding homes in their personal name. While the number of companies being set up is on the rise, the rate at which they have grown has slowed.

In fact, it seems likely that 2021 will prove to have been the peak, and that fewer companies will be incorporated this year. Nevertheless, the numbers are still significant.

that meet regulations and can provide tenants with those same efficiencies.

“How, therefore, can lenders see experienced property professionals being of a higher risk than first-time buyers who only need to invest minimal deposits?”

Cunnington is also experiencing issues with the lack of availability of higher LTVs. “Being able to obtain a high LTV mortgage due to low yields remains an issue, with top slicing being key for many but not all professional landlords who meet the income requirements for this,” he says.

“Interest cover ratio [ICR] stress tests on like for like remortgages from the likes of Santander, NatWest and Godiva have been key for many landlords to obtain a competitive product.”

Taverner, meanwhile, believes that a shortage of properties could see the market operate at a slower pace in 2022. www.mortgageintroducer.com

Hamptons estimates that around half of all new landlord purchases last year used a company to hold their BTL, and 40% of these new purchases went into a company that was less than a year old.

London and the South East – the regions with the largest number of new buy-to-let companies – accounted for 45% of all new so-called incorporations.

This is not so surprising, given that higher rents here mean the tax advantages from incorporation are generally larger. Only the North East (-6%) saw fewer BTL companies set up in 2021 than in 2020. While the number of BTL incorporations has continued to grow, around 15,200 companies closed their doors in 2021, which equates to around 6% of all BTL companies up and running today.

Offsetting – or perhaps because of – what has undoubtedly been a tough tax environment for landlords over the past five or so years, has been the rapid rise in rents.

In the South, they have now passed the £1,000 per month mark.

The recent recovery in London rents, coupled with strong ongoing growth across Southern England has seen the gap in rents between Northern and Southern England grow from 35%, or £200 per month, to 50% or £350 per month over the last decade.

Looking ahead, one of the greatest challenges facing landlords will be the changes to the Minimum Energy Efficiency Standards.

The new regulations will be introduced for new tenancies first, followed by all tenancies from 2028, and this is beginning to impact on landlord buying behaviour.

The legislation will undoubtedly impact on the number of new landlords coming into the sector, but also, given that 95% of properties built over the last decade received an EPC rating of A to C, incentivise many to buy new or nearly new homes. It may result, too, in many simply leaving the sector.

All of these changes probably point to landlords having to work harder than ever before for their money.

Efficiencies of scale will become more important, meaning the days of buying a property as an investment to rent out on the side of a full-time job may be coming to an end.

Nevertheless, a fundamental lack of housing will also work in the market’s favour.

“At its simplest, the lack of housing stock, government targets for new-builds which have been consistently missed, and the macro supply and demand position, all suggest further opportunity for investors,” says Workman.

“Build to Rent is still very strong in terms of developers specialising in this sector. Institutional investor interest is also very strong, which in turn will affect supply and renters that smaller private landlords will target. Labour shortages and ever-increasing prices of raw materials will continue to put pressure on supply and contribute to keeping property values high,” he adds.

While some cities may be experiencing an undersupply of stock, there is the opposite problem in some Northern towns, due to perhaps over ambitious city centre developments. → FEBRUARY 2022 BUY-TO-LET INTRODUCER

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COVER Michael Bannister, digital marketing manager at Vincent Burch, says: “In some major cities, such as Manchester and Liverpool, we are seeing lenders have the opinion that there is an oversupply of stock, and are therefore expecting rental void issues.

“Property investors who are not necessarily local to the area and are looking to expand their portfolio outside of their general locality need to take great care when in this situation.”

As finding the right property becomes more challenging, there is a growing need for investors to balance their books.

Jason Berry, group sales and marketing director at Crystal Specialist Finance, says: “It is harder, but not impossible, for professional landlords to source residential properties which offer a decent yield and a fair capital growth.

“Separately, there are inevitable cost increases as minimum green property standards must be met.

Landlords need to factor these additional costs into their budgets sooner rather than later.

“Greener mortgages are coming. Currently there is not enough meaningful pricing or criteria difference, when compared to core product ranges, but this will change in time.”

TIME TO GO GREEN One of the biggest cost hikes on the horizon for landlords is the pressing need to make their properties fit with the growing green agenda. Come 2025 or 2026 – with specifics under consultation – the government will make it compulsory for landlords to hold a minimum EPC of C for each of their properties.

The regulations will apply to all new tenancies from this date, and existing tenancies from 2028, and could mark a significant increase in costs for landlords, whose properties are currently required only to meet an EPC rating of Band E. Bannister believes that the majority of more experienced investors will be aware of the changes, although he says some are only now learning of it.

“Depending on the age, type, and number of changes required for the property, many may need to take drastic steps to ensure their portfolios are meeting the new minimum standard,” he says.

“It really depends on the property, but talking to our clients and our own budding property investors in the office, we understand that the majority will have some work to undertake.”

He adds: “We believe that getting ahead is best, so for this reason we would advise all landlords – whether they have 100-plus properties, or just one – to get the ball rolling now.

“Ensure you have an updated report on all properties to highlight any changes you will need to make in time for the deadlines.”

Many lenders have already started to offer incentives on products directly linked to energy efficiency.

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“One of the biggest cost hikes on the horizon for landlords is the pressing need to make their properties fit with the growing green agenda. Come 2025 or 2026 – if speculation is to believed – the government will make it compulsory for landlords to hold a minimum EPC of C for each of their properties” “The recently coined ‘green mortgage’ is now becoming more common with several lenders,” explains Bannister.

“Brokers should be advising previous clients alongside new enquiries to consider these changes going forward, especially when considering refinancing.”

Those landlords that fail to implement the changes could be looking at fines up to £30,000. It also makes sense that those properties that have not met the requirements may not be able to remortgage.

Taverner predicts the market for EPC-related mortgages will start to get busier as the regulations draws closer, adding: “The new EPC regulations are on their way, and landlords will have to start preparing for the new requirements by completing the necessary changes to their properties to ensure they comply.”

Dale Jannels, managing director at Impact Specialist Finance, says education will be key: “Some [landlords] are great with upcoming changes and some not so.

“Education and priming the landlord on the availability of lenders who can help is vital. But they will also need guidance from a good broker who understands the BTL market and has access to all the products available.”

He adds: “Some landlords have had long-term tenants and may not have had reason to visit their properties for some time, so won’t know the true extent of the upgrades needed to bring them in line with the new regulations.

“The figures and estimates from lenders I talk to suggest anything between £10,000 to £15,000 per property would not be an unreasonable guesstimate.

“How long will it take to bring the property up to scratch? How easy is it to get hold of the relevant tradesperson to carry out the necessary repairs?

“Will everyone leave it to the last minute and risk being unable to rent their property out because the relevant specialist is already booked up somewhere else? I think there will be some very lastminute panics.”

The impending regulations might also see a shift in the purchase market when it comes to what type of properties investors are looking to buy. www.mortgageintroducer.com

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Pressing questions Meera Chindooroy deputy campaigns director, National Residential Landlords Association

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s the economic recovery from the pandemic continues, now is an appropriate time to pose some important questions about the private sector, and crucially, where it goes from here.

So, what’s happened over the past year? What’s being done by government to support renters and private landlords? What does 2022 have in store for both of these stakeholder groups?

First, the good news: in recent months, the rental market has started to pick up, especially in cities.

However, individual rent arrears have continued to rise. Recent Dynata research commissioned by the NRLA revealed that the average rent debt owed by tenants increased by 41% between May and December 2021.

Alongside this, the cut to the £20 per week uplift in Universal Credit is starting to hit tenants in receipt of benefits. YouGov research conducted on behalf of the NRLA in December showed that almost one in 10 landlords had a tenant who has had difficulties paying rent as a result of this cut.

In 2022, the government can – and must – take steps to reform the benefits system so that it better supports tenants at a time of increased hardship.

ENERGY EFFICIENCY AND BUILDING SAFETY To support the UK’s net zero carbon goals, the government is looking to increase the standards required of privately rented properties.

“Lots of landlords are looking at more modern properties with better EPC ratings,” says Murphy.

“Landlords are very aware of the impending costs to their portfolio if the current consultation is agreed.

Therefore, they are looking to head off any energyefficiency issues with new purchases that they might otherwise encounter with existing properties. We should expect more landlord interest in those properties which already have an EPC level of C and above.”

THE BIGGER PICTURE Although there are many matters to consider that are specific to the BTL sector, there are also wider trends at play that could impact this market.

“We may see more base rate rises coming from the Bank of England, with nervousness around the potential future increase in payments this might mean from borrowers,” says Workman.

“The cost of living challenge could push more tenants into default, especially if rents increase because of www.mortgageintroducer.com

It is due to respond to its consultation proposals that would require landlords to take steps to ensure their properties achieve an EPC ‘C’ rating – with a £10,000 cost cap per property – from 2025 for new tenancies, and 2028 for existing ones.

The current minimum energy efficiency standard for BTL properties is a band E and a £3,500 cap, so this will be a challenging target for many landlords. That’s why the NRLA has proposed a package of financial and taxation measures which can help landlords meet these costs.

We also know that many landlords are confronted with unsafe cladding, and questions about what support – if any – they may receive from government to help them fix this. We will continue to push the UK government to confirm that individual landlords will not be singled out for exclusion from any funding package.

REFORM ON THE HORIZON Last October, stakeholders across the private rented sector (PRS) were told by ministers that the government wanted extra time to create a ‘balanced package’ in its rental reform white paper, expected last autumn. The recent Levelling Up White Paper recommitted the government to reform of the sector and set out a new timeline for the proposals on rental reform of this spring.

The commitment to end Section 21 repossessions, consideration of a national landlord register, and a new requirement for privately rented properties to meet the Decent Homes Standard were all reiterated in the Levelling Up White Paper. These are significant proposals, which require further scrutiny over the coming months.

Despite the doom and gloom of the past two years, we expect that the housing market will stay resilient throughout 2022.

That being said, it is crucial that the government takes a strategic approach to its proposed reforms, ensuring a fair and inclusive sector that works for both landlords and tenants.

rising mortgage costs. One thing we have seen is more experienced landlords taking contracts with agencies that provide a rent contract where they are paid, even if not fully rented. This is at a lower overall rent, but provides a certainty of income for landlords.”

Nevertheless, these issues do not appear to have rocked lender interest in the sector.

“All the rumours suggest there are possibly half a dozen new lenders likely to enter the BTL market this year, and that’s after 2021, when we also saw a number of new entrants,” Murphy concludes.

“It is a highly competitive sector, and that looks unlikely to change, which is good news for advisers and landlord borrowers. What we may have to see though, especially from the new entrants, is something slightly different.

“The sector is very well-served, so this may be an opportunity for something outside the norm, something innovative, that can help them secure market share.” BTL I FEBRUARY 2022 BUY-TO-LET INTRODUCER

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Fast solutions to impending deadlines Jason Berry group sales and marketing director, Crystal Specialist Finance

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ollowing 2021’s G7 and COP26 summits, a renewed sense of urgency was added to the global ambitions of staving off dangerous climate change.

The Glasgow Climate Pact now dominates domestic agendas in terms of reducing global greenhouse gas emissions and reaching environmental targets. As part of this commitment, UK government legislation to decarbonise the way we heat and power our buildings risks leaving unprepared landlords at risk.

The government’s Clean Growth Strategy (CGS) in 2017 set out its policy that properties have an Energy Performance Certificate (EPC) band C or above for new tenancies in the private rented sector by 2025, and for all tenancies by 2028.

TROUBLE AHEAD FOR BROKERS AND LANDLORDS

With the encroaching deadlines to ensure buildings have fully compliant EPC certificates, brokers and landlords alike risk having properties devalued – or even declared unrentable or unsellable – within a matter of years if action is ignored now.

In Crystal Specialist Finance’s report, ‘Mortgage Broking in the Post-Pandemic World’, 30% of landlords said they planned to make improvements to, or convert, existing properties they currently rent out during 2022.

Alarmingly, this still means huge complacency, or ignorance, exists with the majority.

With markets slowly rebounding to pre-pandemic levels, we would

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therefore urge brokers to have a key focus on their clients with buy-to-let property, particularly where a new tenancy is due to commence.

These customers are most exposed to the 2025 deadline, whilst existing tenancies have until 2028.

Those who fall beneath an EPC rating of C will be required to cover costs to meet EPC targets by funding remedial works.

These works include the replacement of boilers and heating systems, replacing windows to double or triple glazing, and installing energy-efficient white goods.

“Despite what seems like a rough deal for private sector landlords, there are opportunities for savvy brokers to capitalise, and in some instances increase property valuation. Whether it is for buy-to-let clients who are looking for a quick purchase at auction, or landlords with upcoming new tenancies where compliancy remedials are required, there are specialist lenders well placed to help them capital raise fast” This all means that a significant number of buy-to-let properties will need energy efficiency upgrades within the next few years, or will risk not being rentable.

Lastly, brokers should be careful not to lock buy-to-let clients into fixed rates that extend beyond 2025 without paying due attention to a property’s

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EPC rating. Once locked into any fixed rate, options to satisfy legislative requirements will become limited.

Effective foresight and immediate consideration are therefore absolutely necessary to fend off future problematic remortgaging issues.

TURNING PROBLEM INTO OPPORTUNITY

Despite what seems like a rough deal for private sector landlords, there are opportunities for savvy brokers to capitalise, and in some instances increase property valuation.

Whether it is for buy-to-let clients who are looking for a quick purchase at auction, or landlords with upcoming new tenancies where compliancy remedials are required, there are specialist lenders well placed to help them capital raise fast.

In that sense, bridging finance can be an ideal solution for those who find themselves required to upgrade and ensure their properties carry an EPC rating that passes inspection.

The bridge exit can then be to take a buy-to-let term loan after the work has been completed, and to potentially move onto a lower rate with one of the many ‘green’ mortgages that lenders are now offering.

MULTIPLE INCENTIVES

These can come with multiple incentives, such as cheaper interest rates or cashback deals, which are usually only reserved for those with ratings of C or above on efficiency factors such as heating, insulation and energy conservation.

In short, those brokers who take early action to educate and encourage their landlord clients to improve their buy-to-let property’s energy efficiency will stave off many costly pitfalls, plus undoubtedly enhance their own professional reputations with their proactivity.

The benefit of playing a part in meeting the global net carbon zero targets is an added bonus – and who doesn’t want to feel like they’re successfully doing their bit to beat climate change for our future generations. BTL I www.mortgageintroducer.com

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Turning the EPC tables Louisa Sedgwick managing director for specialist mortgages, Hampshire Trust Bank

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recently found myself reading a policy paper which included some government responses to a Housing, Communities and Local Government Select Committee report that was published in October 2021, following its inquiry into local government and the path to net zero.

Now, I’m not a regular on gov.uk by any means, but this particular piece caught my eye, as it feeds into my passion around how we – as a lender and as an industry – can improve the sustainability of our housing stock.

I won’t repeat this verbatim, but I would like to highlight a particular passage around measuring energy efficiency. The initial report made the recommendation that the government should review the metrics used to measure energy efficiency in homes.

It felt that this should include considering how Energy Performance

Certificates (EPCs) are calculated, how embedded carbon could be better incorporated into the calculations of the carbon emissions of properties, and how the in-use performance of properties can be accurately measured.

The report suggested that the government should introduce measures to close the performance gap, including post-occupancy evaluations, which assess whether the actual energy output of new properties meets the standards promised by the developers once they are being lived in.

This is particularly important, as evidence indicates that new homes can lose 50% more heat than expected.

Interestingly, within a long government response to these recommendations, it was suggested that an Environmental Impact Rating will be reintroduced onto the EPC to score the building based on its estimate CO2 emissions.

It also added that recent consultations on policies that use EPCs – such as minimum energy efficiency standards in the private rented sector (PRS) and requirements for lenders to improve the energy performance

There are innovative solutions to help landlords turn the energy efficiency tables on older properties

www.mortgageintroducer.com

of homes they lend to – have sought views on alternative metric options, for example using both a cost-based and carbon-based metric, to encourage property owners to prioritise costeffective measures. The government responses to these consultations will be published in due course.

Like any such initiative, the devil is always in the detail – but it’s encouraging to see these areas under review, even though action will clearly speak louder than words.

What we do know is that around 60% of the UK’s housing stock is still rated D or below, and that UK housing stock accounts for around 15% of the country’s total carbon emissions. These figures need to change, and quickly.

Encouragingly, we’ve seen the mortgage market take some positive steps over the past 12 to 18 months when it comes to addressing the green agenda. Awareness has been raised around improving the energy efficient nature of our homes, and this was even before the great energy price hike, which has really served to drive the cost implications home.

Lenders have also been more proactive than ever in rewarding properties which already sit at the higher end of the EPC ratings.

Again, these are welcome steps in the right direction, but this still leaves question marks over what more can – and should – be done to support the 60% of properties which have an EPC rating of D or worse.

The fact remains that there are huge numbers of properties which need upgrading, improving and refurbing so they can move up the EPC ratings.

Thankfully, there are innovative lending solutions out there to help homeowners, landlords and investors to turn the energy efficiency tables on these older properties, and even offer a host of longer-term benefits in the process.

It’s vital that product offerings continue to evolve in order to help facilitate a greener future for our housing stock before it’s too late. BTL I

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BUY TO LET’S GO GREEN Reduced rates for energy efficient properties with our green buy-to-let product range.

Applies to properties with an EPC rating of C or above.

Landbay.co.uk

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Landlord knowledge of EPC proposals Ian Hall head of sales – North, Landbay

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wo out of three ain’t bad,” as the legend that was Meatloaf sang. This could also apply to landlords’ awareness of green mortgages. Landbay recently conducted a landlord survey, which showed that just over two-thirds (69%) of buy-to-let (BTL) investors knew about green mortgages.

It’s good news that most landlords are aware, but that still leaves 31% in the dark that their mortgage could be on a discounted rate if they own properties with an Energy Performance Certificate (EPC) rating of A, B or C. When asked if they would consider upgrading their properties for a lower interest rate, three-quarters of landlords (74%) said yes.

A similar number of landlords that had heard of green mortgages were also aware of government proposals for EPC changes in the rental sector.

The current proposal is that all new tenancies on rental properties must have a rating of A, B or C by 2025, and existing tenancies by 2028.

That leaves 26% of landlords who don’t know about these proposals, but it is important they do, as regulations may be breached if these rules come into force.

HOUSING STOCK RATINGS

Most new-build houses and flats (96%) are A to C rated, with 83% being in B. So, intermediaries could easily discuss green mortgages with their BTL newbuild clients as a sensible option.

Newer second-hand properties are also often rated B or C, but the UK has a large amount of ageing housing www.mortgageintroducer.com

stock that is not energy efficient. More than half (55%) of older housing has an energy efficiency rating (EER) of D to G, with the D band at 40%.

FUTURE INVESTMENTS

These EPC proposals are making landlords think about their future investing strategy.

We asked those landlords in our survey who have not thought about upgrading their properties what they plan to do.

The government proposals are not set in stone, so until they become legislation, 43% of landlords surveyed will continue to let their properties.

their properties to bring them up to at least a C rating, 74% would like to do this as soon as possible. The other 26% would prefer to wait until nearer 2025.

There are understandable reasons for this. Some upgrades may be relatively easy and not too expensive, but many will cost a few thousand pounds.

However, another issue will depend on the work needed and potential disruption to tenants.

Replacing gas boilers with heat pumps, for example, could take anything from a day to a week to install, depending on the complexity and size of property.

REMORTGAGING

Not all landlords can afford to pay for the work that will be needed, but one option is to take equity out of the property through remortgaging.

Many properties will have risen in value, especially considering the high house price growth over the past year.

The latest Office for National Statistics (ONS) figures show a 10% rise in the year to November 2021, an annual increase of £25,000.

There are a large number of buyto-let mortgages due for refinance this year, which gives brokers the opportunity to broach the subject of EPCs and upgrading properties.

Landlords may not want, or be able, to do this now, but discussing the subject opens their mind to consider various options over the next two to four years.

“Not all landlords can afford to pay for the work needed but one option is to take equity out of the property via remortgaging. Many properties will have risen in value, especially considering the high growth house price growth last year” Just over one in three (31%) said they will sell up, and the other 26% are unsure for various reasons. For example, it depends on whether it is financially viable to upgrade, or if grants will be made available to help make properties more energy efficient.

For those who are thinking of buying more property in the next 12 months, 36% said they will only purchase at an EPC rating of A, B or C. A few more landlords (38%) are willing to buy a property rated D or below and bring it up to at least a C rating. However, 26% said the EPC rating will have no influence on their buying decisions.

Our survey indicated that for those landlords who did intend to upgrade

INTERMEDIARIES CAN PLAY THEIR PART

It’s a good idea for intermediaries to keep up to date with what is going on in the wider housing and mortgage market. If you are reading this article, you no doubt do that.

If you were not aware of the EPC proposals, there is a good reason to find out more. Intermediaries are in a great position to start a conversation about EPC ratings with their landlord clients, whether that be for house purchase or for remortgaging.

Showing an understanding of the wider issues can only be a good for enhancing the intermediary-client relationship. BTL I

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Short-term rental opportunities Sundeep Patel director of sales, Together

S

taycations in the UK are set to be as popular this year as they were last. This could provide landlords and property investor clients the ideal opportunity to diversify their business in 2022, by exploring what the UK holiday let market has to offer.

RISE OF STAYCATIONS

The new year is here, and with various travel restrictions still in place, many Brits planning their 2022 holidays will once again be shunning overseas travel in favour of staying in the UK. According to a new survey by Together, almost half (47%) of the 2,000 Brits polled said they were planning a staycation this year. Of those taking their break in the UK, 60% had no plans to travel abroad at all in 2022.

With holidaymakers seemingly reluctant to dust off their passports, the UK holiday market could appear more attractive to property investors.

The same survey by Together also found that more than a quarter of those planning a staycation are hoping to stay in a holiday let, such as a self-contained cottage, lodge, or Airbnb apartment.

This comes at the same time as the news that holiday property owners made a third more money in 2021 than they did back in 2019, according to data from rental agency Sykes Cottages, due in part to a 35% increase in occupancy rates.

With a growing number of Brits opting to holiday closer to home – a trend that will most likely continue due to factors beyond the pandemic, such as the nation’s collective desire www.mortgageintroducer.com

to reduce its carbon footprint – those considering investing in a holiday let in 2022 could see great success, particularly if they choose a location which has proven itself profitable for those already in the market. Family cottages in Cornwall, for example, can fetch far more than accommodation in Europe, which could also attract foreign national investors.

GROWING PORTFOLIOS

Many landlords will have benefitted from the appreciation in house prices last year, and could be in a position to release some equity, either by remortgaging or getting a second charge loan to expand their portfolio further, using the money as a deposit.

Therefore, expanding and growing their portfolio could be the ambition for many of our brokers’ clients in 2022, and exploring the short-term rental market could be a popular choice – especially when holiday lets are set to be so profitable.

“With a growing number of Brits opting to holiday closer to home, those considering investing in a holiday let in 2022 could see great success, particularly if they choose a location which has proven itself profitable for those already in the market” Furthermore, changes soon coming into force around the minimum energy efficiency ratings for traditional longterm rental properties – and a less than favourable response from many landlords so far – could form another reason for your investor clients to diversify their portfolio.

As it stands, rented homes in England and Wales need to have an Energy Performance Certificate (EPC) rating of E or above, but the government has plans to increase the requirement to a C rating for all new tenancies by 2025, and all existing tenancies by 2028.

If the property is found to fall short of the required rating, landlords could face a hefty fine, plus the cost of having an unlettable property on their hands.

RETURN ON INVESTMENT

If your clients are already planning to invest in renovating an existing or newly acquired property, taking out a larger loan – or a second charge buy-to-let mortgage – could support them in making the required efficiency improvements at the same time, minimising the cost and disruption of doing it later down the line.

However, for those who are concerned about seeing a return on their investment, or simply aren’t confident about making the changes required, turning a property into a short-term holiday let could offer landlords a lucrative alternative.

Current government guidance suggests that a holiday let wouldn’t fall under the new EPC rules, because the energy usage costs would – in most cases – be the responsibility of the landlord and not the holidaymakers occupying the property.

There’s a lot for landlords to consider in 2022, and an experienced broker can help them understand the specialist lending options available. With Together, your clients can enjoy the same rates on a holiday let mortgage as that of a traditional buy-to-let.

We can also lend to borrowers using non-standard properties as security and to a broad range of customers, including limited companies, sole traders, the self-employed, expats or those who face the issue of an adverse credit history.

Whatever your clients’ financial needs, we can assess each application on a case-by-case basis to find the right type of finance for individual property investors, allowing them to seize the myriad of opportunities which exist out there. BTL I

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The buy-to-let market in 2022 Paresh Raja CEO, MFS

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ast year saw the property market take an interesting turn as house prices grew, inflation hit 5.1%, and the number of buy-to-let (BTL) companies in the market increased by 14% from 2020, according to Hamptons, with a staggering 47,400 created in 2021.

Despite this growth, tenant demand remains high, and the Office for National Statistics (ONS) found that private rental charges rose by 1.8% for tenants over the year leading up to December 2021.

But what does all this mean for the buy-to-let market and its investors?

In order to gain a keen insight into this topic, Market Financial Solutions (MFS) recently conducted an independent survey among 2,001 UK adults. Out of the respondents to the survey, which took place between 1 and 4 January 2022, 899 were renters, 1,102 owned one property and 209 owned two or more.

RESULTS AT A GLANCE

Our research showed a continual thirst for property over the next 10 months, with 18% expressing the intention to purchase during 2022. In fact, 20% of existing property owners were looking to purchase.

Narrowing this down even further, 14% are looking to sell their current property to buy a new home, whereas 6% have expressed direct interest in investing in a new property.

FEELING AMBITIOUS

One thing our survey determined was that the property market is showing no signs of slowing down during 2022.

In fact, it found that almost one in five (18%) UK adults intend to purchase property this year – which could equate to around nine million people. www.mortgageintroducer.com

What makes 2022 a particularly good time to invest in buy-to-let is the potential increase in property value.

Large companies such as Savills, Rightmove and Halifax have all forecast a rise in house value between 1% and 5%.

Our survey results share similar conclusions. Out of the 2,001 respondents, almost two-thirds expect house prices to increase in 2022, while 38% think they will rise up to 5%, 18% think by 5% to 10%, and 7% think it will be even higher.

Clearly, buy-to-let investment still holds significant appeal and will remain in high demand in 2022, as many Brits are looking for opportunities to invest in bricks and mortar.

Indeed, 16% aspire to develop a buyto-let portfolio over the course of this year, 19% of which were men, with women seeming less likely to invest, as the percentage falls to 12%.

WHY NOW?

As we enter 2022, one of the major outstanding questions stems from the unknown long-term implications of the COVID-19 pandemic.

Buyers continue to ask what this could mean for the real estate sector as a whole. The short answer is that the pandemic has changed what matters to buyers when looking for a home, as agreed by 40% of our participants.

Those who particularly felt this change in home desire were young adults aged between 18 to 34 (53%).

Interest rates were another concern, along with the aforementioned rise in inflation and continual house price growth. A quarter (24%) of current homeowners said they are worried that rising interest rates will affect their ability to secure or repay a mortgage – again, this view is more commonly felt amongst younger adults (46%).

MOVING FORWARD

Nevertheless, MFS’ research demonstrates the unwavering confidence that the UK public has in bricks and mortar.

The UK public still has faith in bricks and mortar

The desire to own a property, or develop an investment portfolio of them, is common among the majority of the population, which translates into significant demand that consistently outstrips supply.

2022 is poised to be another year of high activity and interest across the UK property market. With this firmly in mind, we have officially launched our new offering to the wider public, after our well received soft launch back in October 2021.

BTL investors must consider the skill, experience, and flexibility of potential lenders. Many property investors will not satisfy some tick-box application methods – perhaps they live outside the UK, are buying as a limited or offshore company, have complex income structure, or are first-time landlords. These are the investors that need to look more closely at the lender they are choosing to work with.

Building on our 15 years’ experience as a specialist lender working with property investors and brokers, we are now applying this same expertise, speed, and flexibility in the BTL mortgage space. Our loans provide optionality and breathing space between bridge exits or initial purchases and future long-term financing. BTL I

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BUY-TO-LET INTRODUCER

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Paving the way to new opportunities Paul Adams sales director, Pepper Money

R

ecent years have been difficult for everyone, as COVID-19 has created an environment of intense uncertainty – and property investors have not been unaffected by this shifting landscape.

A recent report into landlord behaviour found that the most significant issue faced by landlords during the pandemic has been the need to reduce rents, with many saying their tenants had financial problems and struggled to pay in full or on time.

As the economy has recently recovered, the report says many of those tenants re-established their incomes, and landlords have recouped some, or all, of those losses. However, they do still feel this could put them at a disadvantage when securing a remortgage or new loan to expand their portfolio.

However, the immediate outlook for landlords is more favourable than in the recent past. The latest UK Rental Market Report by Zoopla found that strong rental demand in Q3 last year pushed rental growth to its highest level in 13 years. Zoopla also says that rental demand is running well ahead of supply, as has been the case for more than a year.

In the short-term, the report says the post-lockdown bounce back in demand has eroded available supply, but there is a longer-term structural issue at play as well. Since the introduction of the additional 3% stamp duty for buyto-let (BTL) investors in 2016, and other tax changes, levels of landlord investment in the market have fallen.

These changes mean that, whilst demand for property from tenants has

www.mortgageintroducer.com

grown, the supply of rental properties has fallen away, leading to a structural undersupply of rental properties across the country that will support rental growth in 2022 and beyond.

In addition, the strength of economic recovery means that tenants’ ability to maintain rental payments looks positive and sustainable. Despite the pandemic, the employment market remains relatively robust. According to the report, affordability of rent across the UK remains in line with the five-year average, at 37% of income even with rental growth.

“The outlook for landlords looks set to be one full of opportunities, as there continues to be more potential tenants than available properties” Another statistic in landlords’ favour is their choice for a mortgage to finance their BTL investment. The number of BTL mortgage products on the market has increased substantially in the past two years, according to data from Moneyfacts, which says that 2022 began with the highest number of BTL mortgage products available since September 2007.

So, the outlook for landlords looks set to be one full of opportunities, as there continues to be more potential tenants than available properties. Plus, with affordable and sustainable rents, there is greater choice in the mortgages available to help landlords make the most of those opportunities.

At Pepper Money, we constantly strive to make it as easy as possible for new customers to experience our award-winning service and access our straightforward mortgages.

We are playing our role in helping pave the way to new opportunities for

landlords as we continue developing and enhancing our BTL proposition.

We recently made several improvements to our buy-to-let criteria, including reducing minimum income requirements to £15,000 for existing landlords and lifting some restrictions around limited companies.

We also introduced additional changes to make our BTL proposition accessible to a broader group of customers. These include allowing gifted deposits, reducing the required time in their current role from six months to three months, and the time required for continuous employment from 12 months to six.

On our limited company BTL proposition, we removed the restriction for the main director to be a homeowner, and will now allow deposits into a BTL Special Purpose Vehicle (SPV), as cash or property transfer, from another limited company.

We are also now able to allow rental income as a standalone income stream for professional landlords with 11 properties or more, and we have increased our maximum loan from £1m to £2m and aggregated customer exposure from £3m to £4m.

This raft of changes will open up our proposition to more customers, empowering them to make the most of the opportunities presented to them.

What’s more, our transparent and hands-on approach to underwriting supports these improvements to our criteria and addresses one of the main concerns for many landlords.

Because we don’t use credit scores to make our lending decisions – and because we review each case on its own individual merits – we can make positive lending decisions even where landlords may have experienced fluctuations in rental income, or even if they have missed credit commitments or mortgage payments as a result.

At Pepper Money, we recognise the opportunity ahead for property investors, which is why we are providing new options for brokers to place applications for their BTL customers and continue to work on further improvements to our range, which are due to launch later this year.

Watch this space. BTL I

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Strong yet flexibile.

At CHL Mortgages we know that every borrower and every property is different.

We take a flexible common sense approach to criteria, considering the merits of each case and working with you to provide robust specialist buy-to-let solutions for your clients.

Here are some areas we may be able to help you with*...

Portfolio Landlords

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Year 1 Remortgages

Local Authority Leases

View and download our Buy-to-Let Criteria Guide at

Find your BDM

chlmortgages.co.uk/intermediaries 01252 365 888 FOR INTERMEDIARY USE ONLY.

sales@chlmortgages.co.uk * Subject to detailed criteria and underwriting

CHL Mortgages is a trading name of Capital Home Loans Limited, used under licence by CHL Mortgages for Intermediaries Limited. Registered office: Admiral House, Harlington Way, Fleet, Hampshire, United Kingdom, GU51 4YA (Company No 12954007).

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Limited companies: A range of possibilities Ross Turrell commercial director, CHL Mortgages

T

he limited company buyto-let (BTL) sector has seen remarkable growth over the past five years. Landlords feeling the pinch from the actions of a succession of Chancellors have taken advantage of limited company structures to both successfully manage their existing portfolios and purchase new properties.

According to Companies House, there were 47,400 new BTL companies incorporated last year. This is the highest number on record, and highlights how landlords have reacted to a more onerous tax environment by moving properties into or buying new ones via a limited company vehicle.

According to analysis of this data from Hamptons, there was a 14% rate of growth in new incorporations for buy-to-let in 2021.

These landlords are using limited company structures to cover a variety of investment vehicles, including houses in multiple occupation (HMOs), multi-unit freehold blocks

(MUFBs), new-builds, ex-local authority and commercial properties.

Hamptons revealed that the number of live BTL companies in the UK reached 269,300 in 2021, and that 61% of these companies have been set up since the withdrawal of mortgage interest relief, which has been tapered down since April 2017.

These new limited companies haven’t been left sitting idle. Around 50% of all new landlord purchases last year used a limited company vehicle for their buy-to-let, while 40% of these limited company new purchases went into a company that was less than 12 months old.

Drilling down into the data, Hamptons has established that smaller landlords have been largely responsible for last year’s limited company growth, as opposed to larger institutions, which constituted the majority of buy-to-let company owners pre-2016.

It found that just 20% of buy-tolet businesses hold more than three mortgaged properties, while a similar amount of landlords hold properties in their own name.

Taking a regional view, it is perhaps unsurprising to find that 45% of new BTL limited company incorporations set up last year were in London and the South East. In fact, there was growth

Using a limited company vehicle has proven to be a tax boon to portfolio landlords

www.mortgageintroducer.com

everywhere across the country except in the North East, where there were 6% fewer buy-to-let companies set up in 2021 than in the previous year.

RECOGNISING DEMAND

Lenders have recognised the demand for limited company buy-to-let products, and many have entered the market over the past few years.

At CHL Mortgages, we decided that this would be a core component of our proposition on launch and our experience enabled us to identify areas underserved. For example, we will accept up to four director or shareholder guarantors, and also allow deposits from intercompany loans, directors loans and shareholder equity injection. We will also lend to first-time as well as experienced landlords.

Our focus on landlords who use a limited company is reflected in how we treat such customers.

We acknowledge that brokers or those who are new to limited company buy-to-let have to get to grips with the fact that the legal process can be significantly different.

It is critical that brokers ensure that their clients are happy with the legal advice and support that they can draw upon when they need it. That is why we allow borrowers to choose their solicitor, and do not insist on legal firms from a restricted panel.

The different elements that a limited company structure and application process require mean it is imperative that buy-to-let lenders work to support advisers and their clients all the way from pre-application right through to completion.

Lenders’ business development managers should be there to assist mortgage advisers throughout, helping to demystify the process and remove complexity where possible.

That way, the significant growth we’ve witnessed over the past decade should be able to continue unhindered.

At CHL Mortgages, despite our terrific first year of new lending, we aren’t resting on our laurels and are expanding our business development manager team to ensure advisers have the support they need when they want it. BTL I

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Specialist finance and the remortgage boom Andrew Ferguson MD – buy-to-let, West One Loans

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022 presents an unmissable opportunity for brokers, as a significant number of existing residential and buy-to-let (BTL) clients reach the end of their current mortgage deal in the next few months. CACI Data has estimated there is a loan value of £119.57bn up for remortgage between January and June this year.

borrowers to remortgage, as they rush to lock in currently available low rates.

In November 2021, the approvals for remortgages with new lenders alone rose to 44,500, the highest number since before the pandemic according to Bank of England data.

To maximise the opportunity the remortgage market presents, brokers are going to increasingly need to look to specialist lenders for solutions that will meet the complex needs of their buyto-let clients.

Here we look at two types of buy-tolet borrowers that specialist lenders, like West One, are best placed to help.

PORTFOLIO LANDLORDS

“We do not undertake a formal stress test on background portfolios, the property simply needs to be self-financing. No additional verification like E-Tech or enterprise data management is required, and there is no cap on the size of the portfolio. We can consider portfolio exposure limit of up to £10m” In 2017, new underwriting standards were introduced by the Prudential Regulation Authority (PRA), drawing a greater attraction to 5-year fixed-rate lending in the BTL market.

As a result, there was a significant increase in the number of mortgages taken out over that term. As these 5-year fixed term mortgages begin to come to an end, brokers have an opportunity to support their clients and generate additional business.

Fears of further base rate rises from the Bank of England could also drive www.mortgageintroducer.com

With demand remaining high and rental prices continuing to rise, many landlords are looking to expand their portfolios. However, for a number of high street lenders, portfolio landlords can be an uncomfortable risk.

Finding a lender that can offer suitable interest cover ratio (ICR) to maximise the amount of potential borrowing without heavy underwriting on the background portfolio can be a challenge. A specialist lender is more likely to take a pragmatic approach to the risk.

Here at West One, our approach to background portfolios is simple. We do not undertake a formal stress test on background portfolios, the property simply needs to be self-financing. No additional verification like E-Tech or enterprise data management (EDM) is required, and there is no cap on the size of the portfolio. We can consider portfolio exposure limit of up to £10m.

CREDIT BLIPS

Since the 2017 PRA changes, the finances of millions of borrowers have been impacted by the pandemic and ensuing lockdowns.

While most high street lenders will make an automated decision using

your credit score, a specialist lender has more products available for borrowers with a blip in their credit history.

At West One we do not use a credit score, instead our underwriting is based on a credit assessment and each case is assessed individually on its merits.

We are able to accept satisfied or unsatisfied defaults and county court judgements (CCJs) up to £500 across our product range, subject to full underwrite.

WHY WEST ONE?

We lend on a wide variety of property types to a broad range of borrowers, whether borrowing in individual names or through a limited company.

Our expert team is committed to delivering cases with speed and flexibility. We apply an individual approach to underwriting to ensure we review each case on its own merits, ensuring we support clients with the smooth and secure remortgage they require.

WEST ONE IN ACTION

We recently worked with a client that had a portfolio of four BTL properties and was looking to remortgage an existing buy-to-let in order to raise funds for the purchase of another.

The client had some minor credit blips, and this – coupled with his portfolio landlord status – meant that he was unable to access the normal high street lenders.

As a result of our broad product range and ability to manual underwrite cases, we were able to accommodate the client’s credit profile.

In addition, as we do not stress test the background portfolio, the client’s relatively low income was not an issue for us, whereas some other lenders would have been unable to progress this case any further.

By taking a pragmatic approach, we were able to find a suitable product for the client despite their recent credit blip, and successfully remortgage their property.

To find out more about our products and services, please talk to a member of our broker support team on 0333 1234 556, or email btlbrokersupport@ westoneloans.co.uk. BTL I

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REVIEW

MARKET

A bumper year for buy-to-let remortgages Sara Palmer head of distribution, TML

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series of regulations for portfolio landlords, introduced at the end of 2016 by the Additional Property Registration Authority (PRA), have fuelled a flurry in remortgage activity.

The past five years have seen a significant increase in portfolio landlords seeking remortgage deals for their properties. In 2016, for example, just over 3,000 5-year fixed rates were taken out, and in 2017 this figure was just short of 5,000.

Between 2017 and 2018, the number of 5-year fixes taken out was in excess of 10,000.

2022 could well be a bumper year for landlords looking to remortgage, as it marks the five-year anniversary of the PRA’s change in underwriting standards, which saw huge numbers lock into longer-term deals that are now coming to the end of their terms.

Competition in the UK’s rental sector has been pushing prices up – demand for homes has been outstripping supply for some time – and as a result, landlords will be wanting to maximise existing portfolios, and perhaps even add to them during the year.

THE RULE CHANGE IN A NUTSHELL

Prior to the additional regulations being imposed, lenders would focus on the rental income and property value when underwriting a buy-to-let mortgage.

Now, for landlords with three or more buy-to-let properties, all lenders have to collect and validate details of the entire portfolios, including property values, rental income and www.mortgageintroducer.com

existing mortgages. The change has been made so that lenders have a full understanding of the landlord’s financial circumstances and the impact of any new lending on their finances.

For landlords and brokers, the challenge here lies in the information required. All of the details of the landlord’s finances must be submitted at the application stage, which means the whole process will be more detailed and potentially take more time.

STATE OF THE MARKET

The updated regulations, although time consuming, have not put a dampener on the buy-to-let market.

In November, the volume of remortgage completions rose by 15%, the LMS Monthly Remortgage Snapshot shows, with 59% of those that remortgaged opting for a 5-year fixed rate product.

In 2021, gross buy-to-let lending hit £44.5bn, according to the Intermediary Mortgage Lenders Association (IMLA), with 2022 expected to hit similar levels.

“While rising interest rates will have an impact on landlords, there are other challenges that brokers should ensure their clients are aware of – regulation costs, higher taxes and the removal of some tax benefits” Between December 2016 and January 2018, the number of 5-year fixed rate mortgages written rose threefold, according to industry data, and with many of those loans maturing this year there is an opportunity for brokers to engage with existing clients and attract new ones.

There is also soaring inflation and rising interest rates this year, pushing borrowers to seek new loans sooner rather than later.

The window for landlords to bag a good rate before the market moves is getting smaller.

While rising interest rates will have an impact on landlords, there are other challenges that brokers should ensure their clients are aware of – regulation costs, higher taxes and the removal of some tax benefits.

Since April last year, for example, landlords offering privately rented homes were told they must meet minimum Energy Performance Certificate (EPC) of Band E. This regulation made it illegal to rent out homes below that unless landlords have a limited exemption, with any found in breach facing a £5,000 fine per property, per breach.

FINDING THE DEALS

Lenders, however, have been rising to the challenge and many have been making significant changes to their buy-to-let offerings.

The Mortgage Lender (TML), for example, recently announced rate cuts to key areas of its product range.

For standard buy-to-let properties, the 75% loan-to-value (LTV) 5-year fee saver 5-year fix has been cut from 4.10% to 3.44%, while the 75% LTV 5-year fix for houses in multiple occupation (HMOs) or multi-unit blocks (MUBs) has been reduced from 4.20% to 3.55%.

The product, focused on HMOs, was added to TML’s range in October 2021, to provide landlords looking to purchase or remortgage those buildings access to competitive rates.

Other lenders have made similar moves in slashing rates, demonstrating that – while the high inflation and rising interest rate environment may well pose a problem for landlords – there are deals to be had.

Now is the time for brokers to engage with new and existing landlord clients, in order to ensure that the finance arrangements they have in place are the most suitable, in an environment of rising rates and increased competition among lenders. BTL I

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Time for innovation Jessica Bird outlines Buy-to-let Introducer’s round-table discussion, which considered the rising complexity of this market, and the trends set to take the stage in 2022

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n 2019-20, the private rented sector (PRS) accounted for more than 4.4 million households in England alone, according to the Ministry of Housing, Communities & Local Government’s English Housing Survey. Statista reports that the money being generated in aggregate annual rental costs paid by tenants increased from £27bn in 2000, to £86bn in 2020.

This continues, then, to be a market on the rise – but what should lenders, brokers and borrowers know about the challenges yet to come? Buy-to-let Introducer spoke to representatives from Hampshire Trust Bank (HTB), Landbay, West One Loans, Together, Market Financial Solutions (MFS), Pepper Money, Sirius Finance, CHL, The Mortgage Lender (TML), and The Buy to Let Broker, to find out.

INCREASINGLY COMPLEX While there are always going to be straightforward cases, the fact is that the UK housing market as a whole is becoming more complex as time goes on, and buy-to-let (BTL) is no exception.

This might be due to the pandemic, with its resultant changes to buyer demand, the increasingly acute housing shortage causing developers to become more inventive, or increased regulation around issues like Energy Performance Certificates (EPCs).

Andy Valvona, national account manager at CHL Mortgages, says: “There’s no doubt that market is becoming more complex, and we have to look back and think about why that is.

“We’re seeing an increased demand for [rented] accommodation, mainly because of the shortage and the cost of the housing stock in general.

“Landlords are also facing the pressures of increased taxation and increased regulatory requirements, so they are looking for ways of restoring their profits – at higher yielding properties.”

The hunt for higher yields, he adds, has brought semi-commercial properties into the fore, as the stock of these is higher than ever following a shift in the use of high streets post-pandemic.

“Developers are getting more and more inventive with what they’re doing with retail premises, so there’s lots of change happening in the market at the moment,” Valvona adds.

As a result of this increased complexity, there is a growing trend that landlords are likely to be full-time, portfolio owning, and often incorporated as a limited company, rather than the more ‘casual’ borrowers of the past who might have one or two properties to supplement a separate full-time income.

Paul Adams, sales director at Pepper Money, says that this means landlords are increasingly in a position to take on more complex properties.

He explains: “There’s all sorts of things that fuel that, but one of the things we’ve all seen in the markets that we’re in, is that a lot of it is driven by confidence.

“The more BTL landlords become more professional in what they do, they’re also becoming more comfortable and confident in taking on more complex types of investments, because they understand it better.”

Lorenzo Satchell, specialist account manager – Central London at Together, adds: “The last two years have seen a significant increase in [houses in multiple occupation (HMOs)] and semi-commercial assets. Landlords have taken a holistic view on their portfolios to see how they can create more yield, and

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BUY-TO-LET we have particularly seen this with properties in the North, from a lending perspective. Currently, the average yield for an HMO is circa 6.8%, 1% above the average rental yield at 5.8%.

“Landlords are also liking the fact that HMOs provide separate tenancy agreements, which reduces the risk of rent shortfalls should there be any rental voids.

“Semi-commercial has seen growth – particularly during and coming out of the pandemic – as we are now seeing a facelift of the high street, with the retail demise to be replaced with coffee shops or bistros with flats above, creating stronger yields and a balance of commercial with residential surety.”

Fodi Christodoulou, senior associate at Sirius Finance, confirms this picture from the broker perspective: “For my enquiries this year already, I’m getting a lot where they’re looking at a semi-commercial property where they can provide further residential units.

“My enquiries on that side have really grown, whereas before I was getting a standard kind of house or flat – it’s definitely changed. I’ve never done so many HMOs, and semi-commercial is really growing.”

THE ROLE OF THE SPECIALIST The upshot of this is that that a ‘cookie-cutter’ approach is going to work for fewer and fewer cases.

Adams says: “Lenders are trying to find way to individually take these scenarios and underwrite them, consider each case on its own merits, so that we can work in partnership with the brokers that landlords are going to. That involves a lot of communication, so I think I think lenders are trying to embrace the opportunity as much as landlords and brokers.”

This need for individual underwriting and an ability to handle complex cases has led to a rise in specialist BTL lenders, according to Andrew Ferguson, managing director of buy-to-let at West One Loans.

“Even if the government pushes it back, there’s got to be some responsibility from landlords about green efficiency, and from lenders as well” IAN HALL

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“Whoever would have expected to have a load of empty Debenhams? The risk around commercial is just too great because of these unforeseen situations” LOUISA SEDGWICK This move has also been driven by the increasingly stringent taxation environment landlords have found themselves in.

Ferguson explains: “If you go back to George Osborne’s budget changes in 2016, it’s driven the need to save money on taxation through utilisation of things like corporate vehicles or [special purpose vehicles (SPVs)]. Then you’ve got the drive for increased revenues through properties like HMOs, multi-unit freehold blocks [MUFBs], and short-term holiday lets, to name a few, where the rental income opportunity tends to be a lot stronger.”

These trends, Ferguson says, have driven the growth of specialist BTL lending from perhaps 25% of market share in 2016, up to about 50% currently.

The availability of BTL products has also grown exponentially, and the specialist deals available to borrowers have diversified to fit their changing needs.

Sara Palmer, head of distribution at TML, says: “It’s worth noting, then, that the advice that brokers are there to give is paramount. As things get more complex, the need for that advice grows, and obviously we as the specialist lenders have a duty as well to make sure we educate the broker community on the complexities of this market, and make sure that they fully understand what’s available for their customers and where to go.

We’ve got a big duty to help with that.”

Satchell agrees: “It’s not just the lender education, it’s broker education. These fall hand in hand as this market is growing, whether it’s HMOs or holiday lets, brokers as well as lenders need to take a specialist view, and look at these transactions on a pragmatic basis.

“Obviously, from a broker’s perspective, this is about understanding what lenders they need to go to, in order to get the best results for their customers.”

Palmer adds: “We have seen a much higher demand from landlords for a more diverse product offering →

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“If you go back to George Osborne’s budget changes, it’s driven the need to save money on taxation through the utilisation of things like corporate vehicles” ANDREW FERGUSON when you talk about HMOs – in particular for fee saver options and cashbacks, for introducing those offerings into the HMO and MUFB ranges. We’ve definitely seen more demand there.”

Matt Hardman, director at The Buy to Let Broker, says that the specialist BTL market has risen to the occasion, adding: “We all know sometimes clients come to you with bizarre circumstances or a lack of deposits, and you can’t do anything, but for most sensible propositions, there’s always an outlet.

“If anything, I would say that with the current lenders and brokers out there, education has to be driven towards clients. The more the clients are educated, the more we will get the right types of deals through the door, and the more we will make sure clients go in with their eyes wide open to a transaction.”

Hardman also argues that, although the deals might have more moving parts, with the right approach, this does not mean that this market has to be more difficult.

“I don’t think BTL is complex if you’re doing it properly,” he explains. “If you’re asking a client, have you thought about a limited company? Have you had tax advice? We just need more resources within brokers, and more brokers who are willing to get really invested into BTL and do it properly.”

SHIFTING INVESTMENTS Following permitted development (PD) changes that eased the conversion of commercial space into residential properties, and the shift in the use of high streets, city centres, retail spaces and office blocks, a new side of the market has been opened up.

However, Louisa Sedgwick, managing director for specialist mortgages at HTB, warns: “We’ve seen a growth in change of use, turning some of these office blocks into residential flats, and some of them are doing particularly well, but many are not.”

For example, whether it’s access to natural light, or the growing appreciation of outdoor space, there are factors that need to be considered when developing residential housing.

One of the other shifts Sedgwick has seen in the market is a move towards property clubs and investment clubs as a vehicle for BTL investment. In addition, she highlights an influx of overseas investors, who might not have as detailed an understanding of this market.

Education continues to be important here, to ensure that this investment helps, rather than hinders, the UK market.

Satchell adds: “This is a market that Together has always considered. We have seen an increase in foreign investors return to London during 2021, and also some of the other cities around the country, including Manchester and Leeds, which can create higher yields for investors.”

Mike Cook, CMO of MFS, confirms that he has also seen a rise in foreign national and offshore company investment, particularly in the £10m-plus Prime London market, though less so for mixed use or semicommercial properties.

Cook adds: “In Prime London, for example, yields aren’t as strong – you certainly need a specialist approach, a proper specialist, in that it’s not a £2m to £3m property, and it’s not going to achieve 140% rental [income cost ratio (ICR)].

“Thankfully for brokers, most of them are only available to brokers, so it is that gateway through to those types of lenders and getting to know what they do – otherwise it is a minefield.”

The matter of changing priorities, particularly when it comes to the high street and UK retail, is also having an effect in the commercial BTL world. For example, lenders’ perspectives around what makes for a stable commercial tenant will likely have been shaken.

“We are now seeing a facelift of the high street, with the retail demise to be replaced with coffee shops or bistros with flats above” LORENZO SATCHELL

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“You’ve got a great opportunity for independent specialist lenders – it’s the nimble lenders that can move into these areas” MICHAEL COOK

Sedgwick says: “I think it’s the uncertainty and the unknown aspect of it. Whoever would have expected to have a load of empty Debenhams units on most high streets? The risk around commercial is just too great, because there’s unforeseen situations that emerge as we go through life.”

While there have certainly been some losses, footfall in town and city centres is starting to pick up, although due to ongoing restrictions there is still a lack of foreign visitors boosting numbers in the UK’s major cities.

“It improves each month, but all those things do drive retail, and therefore the demand on the leases and the yields are not that great on commercial property compared to what they used to be,” Cook explains.

“So it’s a tricky underwrite, as some of the big banks get whacked on their risk weighting and the amount of capital they have to put aside for those types of properties, and indeed BTL increasingly.”

He adds: “It’s cat and mouse. You’ve got a great opportunity at the moment for independent specialist lenders, more so than the subsidiaries of the high street – it’s the nimble lenders that can move into these areas.”

GREEN BTL The big conversation when considering the next few years of BTL is the question of green finance. Although the government is still consulting, 2025 looks set to see new tenancies subject to an EPC rating of C or above, with 2028 the deadline for existing tenancies.

Most landlords will need to act now in order to upgrade their properties in time.

First, though, Ian Hall, head of sales – North at Landbay, highlights the need for education, saying: “We did a survey in mid-January among landlords, and 30% didn’t even know some of the changes were coming in 2025, 40% of those landlords that knew about the changes were going to raise their monies

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from buy-to-lets, and 70% of those landlords that were going to do it on a BTL didn’t know there were green products out there in the market.”

For lenders, Hall highlights that any 5-year lending taking place now has to factor in the fact that the landlord will likely have to reduce their EPC during that fixed rate period.

He adds: “Lenders are going to take that on board, and even if the government pushes it back in regards to delivering by 2025, there’s got to be some responsibility from the landlords about green efficiency, and from the lenders as well.”

Hall also notes that this goes beyond addressing the climate crisis, as fuel poverty is likely to rise significantly, and energy efficient housing will help tenants keep their bills down, in addition to maintaining the property.

Hardman suggests that lenders are going to have to focus on “slick processes for further advances” in order to factor in the likelihood that lenders will need funds for imminent improvements. For portfolio landlords, he adds that lenders should consider how to ensure it is easy and viable to raise money across multiple properties for potentially expensive work.

Refurbishment products will likely be a key factor in helping the landlord community address these expectations, as will bridging loans and refinancing.

Adams suggests that this will trigger a trend of remortgages over product transfers, as landlords look to capital raise.

Hardman adds that this calls for more innovation in the market, saying: “I’d love it if we had a more joined up situation. With the bridge-to-lets or the bridge and then refinance, it isn’t joined up enough for some clients who want that certainty that the rug isn’t going to be pulling out from underneath them.

“I always felt that the right thing to do in that circumstance was to say, this is the rate at the point →

“The more BTL landlords become more professional, they’re also becoming more comfortable and confident in taking on complex types of investment” PAUL ADAMS

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BUY-TO-LET you take the deal, and once we’ve been out and reinspected it, we drop the rate by 1%. There’s then a pure incentive for the landlord to get the work done.

“There’s loads of different product innovation we can do within that.”

Palmer points out the vast number of rental properties in the UK built pre-1940 alone, and therefore the importance of focusing on improving stock.

“There’s a risk here that there are going to be properties that are unrentable when this comes into force, and so it’s really vital,” Palmer explains.

“We do have products that are cheaper if you’re A to C, but what innovation are we going to have for those that aren’t A to C? We need to get products that help people get up from an E or D, to really see some traction on this.”

THE PRESERVE OF THE PROFESSIONAL With all the changes taking place across the BTL market over the years, the UK is seeing a shift away from the more ‘casual’ approach to being a landlord.

“Eight to 10 years ago, somebody might tell you they’ve got a buy-to-let, and think it’s a licence to print money,” says Ferguson.

“The regulation was less onerous, the tax benefits better. Now, it’s a lot more marginal, and though you can still make it work on the right property, the good people must also be very diligent and very professional.”

Although it is important to have a diverse borrower base, and there will always be those who prefer to invest in, as Valvona puts it, “asset classes that they can look at and touch,” this increase in full-time, ‘professional’ landlords is beneficial.

Valvona continues: “There’s a lot of these landlords that are looking at the returns that they’re making on their existing properties, and with interest rates rising, perhaps they’re coming up to the end of their deals and looking at renewing on a more expensive rate.

“Will they, with the increase in taxation that they’ve suffered over the past few years if they’re high rate taxpayers, want to remain in the market? This year could see a number of those ‘amateur’ landlords leave the market, which means that those properties will be freed up for either owner-occupiers or professional landlords.

“From a specialist lending point of view, there’s good news there, because that means more business for us.”

“Education is just absolutely key for helping brokers, so they can help landlords understand what’s coming down the road, and what we need to do about it” SARA PALMER 30

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“Developers are getting more and more inventive with what they’re doing with retail premises, there’s lots of change happening in the market” ANDY VALVONA

Satchell agrees, adding that professional landlords are better placed to help improve the UK’s housing stock: “We’re seeing it already – portfolio landlords are refinancing their portfolios now for further investments, which they’re buying in bulk, and that seems to be common practice.

“There’s a lot of opportunities out there, whether it’s dilapidated properties or EPC ratings that are not coming up to standard – people are getting rid of that stock, and they’ve got opportunities to buy.”

Cook confirms that this is also a trend among younger individuals, who see being a landlord more as a career than a sideline investment, and are showing interest in building their own portfolios as a result.

Sedgwick suggests that the market should start seeing the difference as being between portfolio and non-portfolio investors, while Hardman agrees that the distinction is perhaps no longer apt, saying: “We see a lot of people come to the market and they are quite professional in the way they approach it, even as a first-time landlord.”

“It’s a good thing that there’s that level of education,” he continues. “It’s good for the economy, because you end up with people who are looking at it more from a professional, entrepreneurial perspective, almost from the get go now, whether they have a portfolio or not.

“They have got the structures correct and their ducks in a row a bit more, which is not the case if we go back historically.

“It’s a good thing, there’s a decrease in ‘dinner party’ landlords, that are not committed to the market and are not thinking about strategy, and are not actively looking after the tenants as well as they should be.”

However, Sedgwick suggests that we might not have seen the end of the casual investor, who might have little understanding of the machinations of a complex market. Instead, this might rear up in the holiday let market, following the ‘staycation’ boom spurred on by travel restrictions during the pandemic.

However, this market has complications of its own, and it is often not simply a case of having a holiday home that earns money on the side.

The panel points, for example, to increased maintenance costs compared with Assured Shorthold Tenancies (ASTs), and the difficulty of management over a distance if the landlord does not live in the vicinity. www.mortgageintroducer.com

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BUY-TO-LET This all sits against the background of regulation around the number of days a property can be let, and the potential trouble of proving affordability and rental income to a lender in order to access finance, not to mention the danger that demand might dip once international travel opens up fully again.

THE YEAR AHEAD At the start of February, the Bank of England increased the base rate from 0.25% to 0.50%, the first backto-back rise in interest rates since 2004. Residential lenders were seen almost immediately to start raising their own rates. Adams notes that there has not been as quick a reaction from the BTL market.

However, Ferguson believes that this is simply a case of no one wanting to be “the first to move,” and that rate increases are likely imminent in the BTL market.

Hardman agrees: “Lenders are readying themselves, and once someone does break cover, if it’s a decent sized lender, then everyone else is going to have to react to that.

“It’s not necessarily that they need to react from a pricing perspective, but actually because they’ll need to probably react from a service perspective, if someone steps away from the top of the sourcing systems.”

Looking to other future trends, Hall says that new lenders drawn to this market should cover some of the areas that are currently underserved, or might end up so in the future.

He says: “We need to have the agility and that flexibility to make sure that if there are lenders coming into the market, they cover some of those spaces or offer some bespoke criteria that we know we’re not covering – maybe the ability to do retentions or further advances, to accommodate what landlords might want in the future.”

Sedgwick agrees with this, saying: “A lot of the specialist lenders have to rely on the capital markets, and they restrict a lot of lenders as far as retentions and further advances are concerned.

“So that causes the problem in itself, that if you just lend on what you can see today, fast forward three years and you might not be able to support that landlord.”

For commercial BTL, Cook warns that the end of March, at which point the moratorium on evictions ends, might bring a sharp shock.

“That’s storing up a risk around those that struggled during COVID to pay commercial rents,” he explains. “So that’ll be interesting, particularly with the larger lenders that have a lot of exposure in in that sort of space.”

Nevertheless, Cook adds: “It’s a big market – commercial in its entirety is an over £50bn a year market, and separate to BTL it’s a £1.5trn property market. It is a huge market and is – by its very nature – incredibly specialist and incredibly broker driven.”

When it comes to the green agenda, Sedgwick points to the conclusion of the BEIS consultation on EPCs around April. www.mortgageintroducer.com

“This year already, I’m getting a lot of enquiries where they’re looking at a semi-commercial property where they can provide further residential units” FODI CHRISTODOULOU

Palmer agrees: “This year is a pivotal year for the conversation. We saw it really starting last year, and it’s going to ramp up hugely, because over 60% of properties are rated D and below, so the problem is significant, and three years isn’t long.

“Not only have landlords got to get up to speed and get the properties ready, but lenders need to analyse their books.”

Among the other trends that will shape this market, Satchell raises the issue of cladding, which he says the government needs to take the lead on.

Christodoulou agrees that there needs to be a more unified approach to the issue, saying: “Depending on who you apply to and what type of valuation they do, it might be that the cladding isn’t raised.

“I’ve had clients where the valuer has been sent out, and of course, has mentioned the cladding, which the freeholder doesn’t think they have to do anything with, but then they won’t lend on it. But then [another major bank] goes and does a desktop valuation on it and it flies through fine. Where does it end?”

Valvona highlights surging energy bills, which together with inflation will likely have an effect on affordability and tenants’ ability to pay their rent, and therefore landlords’ ability to pay their mortgages.

Overall, it seems the BTL market is facing a year of change. This might be spurred on by the shifting residential, working or commercial landscapes that are now the norm, or enforced by regulatory change in order to tackle to climate crisis and the cladding issue.

While some of these might be pain points, others are only likely to spur the market on, and through all of this, landlords will continue to need the support and expertise of a dedicated buy-to-let lending market. BTL I

“The more the clients are educated, the more we will get the right types of deals through the door, and the more we will make sure clients go in with their eyes wide open” MATT HARDMAN BTL I

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HAMPSHIRE TRUST BANK

Complexity, change and challenges Jessica Bird and Louisa Sedgwick discuss how HTB progressed its offering in 2021, and what the buy-to-let market has in store for 2022

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or Hampshire Trust Bank (HTB), 2021 was a year of various advancements and milestones, perhaps the most notable of which was the launch of its PUMA for Intermediaries portal.

Where previously the lender relied more on manual processes, email and telephony, this marked a move towards providing a user-friendly interface for the broker to upload documentation and manage their case through to completion.

While this kind of tool is relatively common in the mainstream market, it is less so in the complex buyto-let (BTL), semi-commercial and specialist arena.

Louisa Sedgwick, managing director for specialist mortgages at HTB, says: “It’s a really good tool, which we are evolving all the time.

“It’s also great for the team, because of course it allows them to interact with brokers better, as they can capture a lot more customer information upfront, and make a quicker and more robust decision based on that information.”

Updating and improving this technology is an ongoing process, to ensure that it is continuously being enhanced for the benefit of brokers, customers and the HTB team.

This tech advancement has been in the works for some time, and Sedgwick says that it was more an evolution than a bolt from the blue.

“It was already on the radar, but it was chivvied along by the fact that we weren’t seeing brokers face-to-face,” she explains.

“In one respect, COVID-19 has been a really positive factor for HTB, because it has pushed on some advancements that we were looking to do anyway.”

One of the other big news items from 2021 was HTB’s launch of a new set of products, with a 5-year fixed rate, but the option to leave after two years with no early repayment charges (ERCs), which Sedgwick adds is proving popular with brokers and their landlord clients.

This product launch was particularly notable because, Sedgwick adds, HTB does not need to constantly

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update its offering, due to its ability to take a flexible, case-by-case approach.

LESSONS FROM THE PANDEMIC One of the key takeaways from the past two years, says Sedgwick, is the advent of hybrid working. Indeed, HTB has itself seen the benefit of a more flexible approach to office attendance.

“We’ve got a large head office in Central London which almost everybody would have commuted to daily, some of the team travelling some fair distances to get to the office. “[Hybrid working] has helped the culture within the business, because people have the flexibility to work from home with the added advantage of enjoying coming into the office – the team are incredibly respectful of the fact that HTB allows them to enjoy a hybrid working solution.

“There’s a great atmosphere, and people are obviously enjoying spending time with their colleagues, so I think that we’ve learned that not everybody has to be in the office every day.”

Any shift away from the office also brings with it changes to city centres and high streets. Sedgwick notes that this provides an opportunity for BTL investors to capitalise on those available properties, whether permitted development (PD) conversions or semicommercial, but warns that these properties may be impacted by lower rental yields given the more recent supply-demand changes driven by the pandemic.

This change to the way we work is inherently tied to the topic of technology, which was spurred on by the necessities of the pandemic.

“Technology is advancing enormously,” Sedgwick explains. “Go back two or three years, and you couldn’t possibly have done an [automated valuation (AVM)] on a BTL property, because the rental assessment didn’t stack up, whereas now you can.”

There are still some anomalies when it comes to an assessment of assets like houses in multiple occupation (HMOs) or multi-unit blocks (MUBs), where a physical www.mortgageintroducer.com

SPOTLIGHT

HAMPSHIRE TRUST BANK Louisa Sedgwick

BTL I

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FEBRUARY 2022 BUY-TO-LET INTRODUCER

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HAMPSHIRE TRUST BANK valuation is still vital, but the sector is advancing fast.

Another interesting after-effect is the growth of the holiday let market, following a rise in staycations while international travel remained restricted.

Far from being a flash in the pan, Sedgwick suggests that this trend will continue even as travel restrictions continue to ease. However, she warns that this is an increasingly complex area, with heavy regulation dampening what might be seen as the more ‘romantic’ appeal of making money off a holiday cottage.

The increasing role of professional, portfolio landlords will likely come into play here, and brokers and landlords will need to be mindful of ongoing changes to regulation on the subject.

MARKET TRENDS While other market chatter has 2022 pegged as a big year for remortgages, Sedgwick suggests that due to the busy events of 2021, and how much of the remortgage market in fact went to product transfer during the year, people may have to do more to build up the remortgage market than they might expect.

Instead, it is the green agenda that Sedgwick sees fundamentally shaping the year to come, and it is vital that BTL lenders cement their own approaches to green finance.

Indeed, it is difficult to look to the future of the BTL market without considering Energy Performance Certificates (EPCs) and their effect on landlords.

Sedgwick points towards the outcome of the government’s BEIS consultation on the subject, which closed on 8 January and should emerge in the early summer, as a pivotal point for the market in 2022.

“That will sharpen everybody pencils around what’s going to happen with EPC’ in the PRS,” she says.

“I suspect that this will be one of the biggest noises that we will hear coming out of this year.”

This consultation will give landlords, brokers and lenders a sense of the direction of travel for EPCs and the green housing agenda in general, but Sedgwick says that lenders need to go further than this, and really think about how their loan books can have a positive impact in improving carbon emissions.

For example, while EPCs are at present the best option for understanding energy efficiency, there are other avenues that should – and most likely will – be explored.

Sedgwick says: “We should be influencing landlords to buy greener, whether that’s through the government or an enhanced product offering, but the new properties are not the problem.

“The greater problem is the existing housing stock, and that’s where we need to focus our efforts, which is why – going back to the point around remortgage opportunities – if we can give them something to enable them to go out and improve the properties, that’s going to be a much better solution than just giving somebody

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a discounted mortgage product because they’ve got a C-rated property.”

Due in part to the complexity, pressure and cost of asking landlords to address the energy efficiency of the UK rental housing stock, in addition to various other factors, Sedgwick notes that the sector is seeing an increase in portfolio and limited company landlords, instead of more casual, one-off investors.

This, she adds, ultimately means that tenants benefit from being more effectively looked after, while lenders and brokers benefit from borrowers that understand the market and its complexities.

HTB is also seeing an increase in complex property types, such as semi-commercial and HMOs, as well as greater overseas investment in UK BTL. Sedgwick says: “I think there is still a place in PRS for the amateur landlord, but I do think that the growth is likely to be within the professional portfolio sector, and that’s HTB’s bread and butter.”

CORE VALUES With 2022 and beyond shaping up to be full of complexity, change and challenges, Sedgwick reinforces the importance of flexibility and innovation, which sit at the core of HTB’s proposition.

One of the tenets that underpins HTB’s approach to lending is the importance of relationships and a ‘handson’ approach, which Sedgwick notes is particularly important when dealing with cases at the complex end of the market, as HTB does.

She explains: “One of the things that I find really refreshing is that we’ve got an underwriter group who are really happy to pick up the phone to brokers and help them place business, which you wouldn’t necessarily see elsewhere. “[The deals are] complex, which means it’s interesting, but we approach them with a common-sense view, looking at the property on its own merits.”

With no two deals being entirely the same, particularly when it comes to complex the buy-to-let market, this flexibility is key, as is the ability to keep close contact with the broker and build an understanding of the story behind each case.

“We have a lending policy of course, and we have underwriting guidelines, as does every lender,” Sedgwick adds. “But we try where possible to flex our approach to suit the needs of the customer, without exposing ourselves to any additional risk.”

In terms of HTB’s approach to BTL lending, Sedgwick notes that as it deals with the more complex side of the market, the drive is not to provide a cheap and cheerful proposition, but to offer prices and products that fairly cater for the needs of the borrowers.

For Sedgwick, having joined the business in 2021 herself, HTB holds a position as a retail-funded bank, with great security, but more specifically, that has “lots of enthusiasm, motivation, and willingness to innovate, as well as massive growth aspirations.” BTL I www.mortgageintroducer.com

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