July 2023


Marylen Edwards, Head of Lending BTL, explains the challenges buy-to-let borrowers are currently facing, the solutions specialist lenders are offering and how brokers can support them.

An unpredictable climate

While the initial panic that followed September’s mini-Budget may have subsided, some uncertainty remains in the buy-to-let market. With the wider economy still liable to change at short notice, the potential for unpredictability is high.

Despite noting that in March a total of 2,400 different deals were available to landlords either buying a property to rent out or re-mortgaging an existing asset – the most since July 2022 – this has since changed.  At the end of May, Moneyfacts once again reported that between the 22nd and 30th May the number of new landlord mortgages available had dropped by 405 deals – from 2,748 to 2,343. While this is certainly a situation that needs to be monitored, it is hopefully one that won’t deteriorate further and, it is still far less than the 55% drop we saw after the mini-Budget.

A can-do approach from lenders and brokers

As high street banks’ criteria remain strict, responsibility often falls to specialist lenders to assist where they can. In order to do this, they need to think outside the box to find solutions.

One reason for this can-do approach is the scenario that many landlords have found themselves in where tenants have not paid utility bills and the landlord has been issued with fines, defaults or CCJs. Often these charges only come to light when the landlord looks to re-mortgage. Even before the mini-Budget this could cause problems with high street lenders, however, since then their criteria has been tightened and this can be harder to rectify when faced with a deadline, which is often the case.

This recently happened at MT Finance where a landlord was looking to re-mortgage one of their rental properties. After having their application declined by a high street lender due to some adverse data which had come to light and then, discussing the case with their broker, we assessed the situation and took a common-sense approach to the case. As the client had proof that it was not their liability and we had assurances that the credit file would be updated, this gave us the confidence to proceed. As updating the credit file was going to take up to 90 days, we added a condition to the offer which stated that the credit file needed to be amended or notice of correction given prior to completion.

Why communication and collaboration matters

In order to ensure the success of cases like the above, it is vital that brokers and lenders collaborate and communicate as much as possible. The importance of communication particularly between third parties such as valuers and solicitors also can’t be overlooked. Having the relationship and being able to communicate can often be make or break for a case, particularly when a borrower has a tight deadline. Considering how vital this is, it can often be worth talking a case through with a lender’s business development manager or sales manager prior to submitting an enquiry. This will help provide the broker with an insight of whether this is the right lender for this particular case.

Flexibility on products 

As borrowers who are looking to either purchase a new investment property or re-mortgage an existing asset will be facing higher rates, some lenders are looking at ways they can make the terms more favourable. This includes slightly lower products but with higher fees. While the cost for the client will be similar on a payment perspective, the ICR on a cheaper rate allows them a greater capital release upfront.

Whilst it is important to be flexible, both lenders and brokers need to ensure that affordability is not affected. For landlords who are coming to the end of their current term and are concerned about re-mortgaging and the increased rates, it may be worth them looking at how they can maximise their yield. One way of doing this is by undertaking a light refurbishment of their property. There are multiple pros to this approach, including being less costly than a full renovation, it takes less time to undertake and, it can often be done without disrupting current tenants.

Passing higher costs onto tenants is becoming increasingly common in the current economic climate. In February, Landbay’s quarterly survey revealed that 44% of landlords intend to increase rent by between 6% and 10% within the next 12 months if their mortgage costs increase.

Giving the borrower options

One concern that should be considered is the number of landlords who will be looking to re-mortgage this year. With many of them use to low fixed rates, the current climate could be a shock, particularly for those who have post-2010 experience of smaller portfolios, more highly geared, giving them less options to offset costs against unencumbered properties or those with lower LTVs.

For those who are looking to ride out the storm before moving onto long-term finance, a bridging loan could act as a steppingstone. This would allow landlords to secure the short-term fix they need while we remain in a higher interest environment. To ensure borrowers are maximising bridging’s versatility, brokers should look to source one that has no early repayment charges or exit fees. This will allow borrowers to take advantage of more favourable buy-to-let mortgage rates as they become available.