Although the buy-to-let (BTL) market has been slower to react than mainstream residential lenders following the Bank of England’s recent rate hikes, it is only a matter of time, according to Jane Simpson, managing director of TBMC.
As soon as one lender raises its rates, Simpson warned, the rest will follow suit.
“We have 40-plus lenders on our panel – there’s a lot of lenders in the space, and they’re all fighting for the same business, so they all need to keep up with their peers,” she said.
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“There’s reluctance to move up [rates] and put themselves out of the game, but eventually they will get pushed, and once one lender moves they will probably all move. That’s probably a given.”
Simpson said that brokers should take the opportunity to capitalise on the low-rate environment and speak to their clients now.
She added: “There’s some really good rates out there, and although the bank base rate has gone up, we haven’t seen a massive change [in BTL]. So, it’s a really good time to have a look and see if there’s something out there that that landlords can tie into. It could be a good opportunity to raise funds at the moment while the cost of funds is cheapest, if they want to release some equity, purchase some more properties.”
Simpson went on to say that this would be particularly important in the light of upcoming Energy Performance Certificate (EPC) legislation. Although this is still in consultation, the upshot will almost certainly be an expectation for all landlords to make improvements to their properties, which will require access to additional funds.
Simpson said that all landlords need to keep the 2025 deadline in mind, and the different finance avenues that might help them once the changes have been cemented.
A further area that brokers should be considering in 2022 is remortgage business.
This is partly true due to the high number of five-year fixes coming to an end this year, but also, Simpson added, because of ongoing issues with housing stock.
“We’ve got a problem with the housing sock, so there is a lack of new properties coming to market,” she explained.
“I read some research that there’s 29 buyers for every property that comes up. So, for the next year, we’re probably likely to see remortgage business being a massive part of where lenders and brokers get their business from, because of that stagnation of purchases.
“This will also mean that they need to keep remortgage rates as low as possible to try and attract the business.”
Brokers are also more likely to have a key role due to the increasing complexity of BTL cases. For example, with increased taxation and regulation, clients are more likely to have portfolios rather than single properties, and an increasing number are trading as limited companies.
In addition, houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs) and other complex structures tend to provide greater yields, which increasingly taxed landlords are looking for in their droves.
Simpson explained: “Because of the nature of our business, we’ve always seen a lot more complex properties and queries coming through to us, but we’ve definitely seen an appetite for more portfolio landlords coming through, and limited company enquiries, and a lot more HMOs and MUFBs.
“There is a change to the private rental sector becoming a bit more professional, with professional landlords, larger portfolios, and potentially complex properties that are going to give them better yields.
“We’ve also had these tax changes coming in for landlords, and now that’s started to settle I think over the next year we’ll see landlords really being able to assess what’s better for them, whether it’s more tax efficient for it to be in their personal name or under a limited company.
“Obviously it’s really complex, so they need a tax advisor but brokers could really help there as well by giving them both rate options and then having those discussions, helping your customer understand both routes.”
The search for higher yield in the face of greater taxation, the need for inventive solutions to the housing stock crisis, and the pressure to make quick EPC changes, might bring in more specialist sources of finance, such as bridging.
Again, Simpson noted that brokers must be well-versed in all the options available to clients, particularly as bridging lenders are starting to take advantage of the opportunity by bringing out BTL-specific products.
She adds that landlords might previously have been “scared of bridging,” and so brokers must be able to understand this avenue and the clients it can be useful for.