Guide to BTL remortgaging in 2021: Changing yields

Jonathan Stinton is head of intermediary relationships at Coventry for intermediaries

Perhaps the biggest impact of the coronavirus pandemic on the housing market was the suspension of all activity in April and May 2020. Home moves and lending were legally suspended, effectively putting the market on ice.

However, there are more wide ranging consequences which pose concerns for landlords, many of whom are now seeking to remortgage in 2021. Changing rental yields are one such consequence of the crisis and in some cases for your landlord clients, it might make the chance of finding the same good deal on their next mortgage a tougher challenge.

Coventry for intermediaries makes residential mortgage rate cuts

In the next in the series of BTL FAQs, I will talk about the challenges that up and down rental yields pose for landlords, and how intermediaries can help them to navigate through the market.

FAQ No. 2: “My rental yields have dropped in the last few months – how can I still get a good deal when I remortgage?”

London properties have been affected the most, with many reconsidering a move to the capital and others leaving to lockdown in the countryside. Some of the latest figures, which come from lettings agency Benham and Reeves, show that the average London rent fell by 3.1% in 2020, with landlords experiencing a corresponding 0.2% drop in yields.

However, the impact of coronavirus hasn’t been confined to the capital – it’s affected landlords across the UK. More than a third of British landlords have seen a reduction in rental yields and nearly half are even having problems collecting rent. This presents challenges for landlords who might be hoping to use additional funds to expand or renovate their rental properties.

But coronavirus hasn’t just reduced yields either. In rural parts of the country, some are seeing a rise in rent values. This has been driven by remote working and buyers anticipating that the daily commute is a thing of the past. Data from Hamptons International – the estate agents – shows that the growth rate of rural rental values in October 2020 was more than triple the national average.

Changing yields can complicate the remortgage decision for Buy to Let customers. Should they remortgage to potentially get a better rate if yields have risen? What if their yields have fallen – for these customers, a product transfer with their existing lender could help them to secure a good deal even if their circumstances have changed.

Thankfully, lenders are also taking steps to ensure that landlords can both maintain their portfolios and get a great deal at the same time, and it’s important that intermediaries and lenders are working together so everyone is up to speed with the market and what’s on offer.

At Coventry for intermediaries, for example, we’ve reduced our buy-to-let stress rate from 5% to 4.5% on our products with a five year fixed rate and longer. This will help to improve affordability calculations and open up more options for landlords.

Changing yields will undoubtedly raise questions from landlords when it comes to the remortgaging conversation, so it’s crucial that they’re supported in the coming months. Not only for their own security, but also for the security of their tenants who rely on Britain’s private rented sector.

Want more answers to landlord FAQs? Read the first in Jonathan Stinton’s series here.