Give us BTL product innovation not more of the same deals, say brokers

A slight uptick in BTL product availability seen this month was a welcome sight, with deal numbers rising month-on-month in April from 2,844 to 2,883 following a fall of 276 BTL deals between January and February, according to Moneyfacts.

But brokers say that, despite the rise in deal numbers, a lack of innovation means the dire situation for landlords struggling to refinance or expand their portfolios remains the same.

Ash Jensen, director of Make My Mortgage, said: “Looking at the recent product releases, there’s nothing there that will be game-changing for many people. I wouldn’t class them as new products, they’re just changing rates with different fees, there’s nothing beneficial there.

“I think it’s more for publicity if anything to keep themselves in the forefront of your mind. The fees are so high. Some of the deals have a 1.5% or 2% fee. If you’re buying in London and need to borrow £300,000, those fees add up. The rates and fees are even higher for limited company buy-to-let. Yes there are tax benefits from owning properties through a company, but these deals are really restricting the market.”

Different combinations

Different fee and rate combinations make up the bulk of new deals coming to the market, say brokers. To secure a lower rate needed to pass the income coverage ratio (ICR), or to maximise your borrowing when capital-raising, some landlords need to pay a high fee, which can range from 1.5% of the mortgage to 7%. Some lenders will then allow landlords to add the fee to the loan without it affecting the stress test. Landlords searching for a low or fixed fee must accept a higher mortgage rate, which could scupper their chances of meeting the ICR requirements.

Adding more fee variations, which boosts deal numbers, is not improving the product landscape, say brokers, particularly for landlords with properties worth £250,000 or more.

Gaurav Shukla, senior mortgage broker and owner of Home Me Mortgages, said: “We’re just seeing more of the same from lenders where they launch a lower rate with a high percentage fee to help landlords bypass certain situations. But we’re not seeing the launch of better products, and the lower rates aren’t appealing because of the high fee attached to it.”

Shukla said a lot of his clients were sticking with the fixed-fee option rather than going for a percentage-based fee, typically around 3%, because they have high-value mortgages.

“They don’t want to add more than £10,000 in fees to their loan,” he said. “They would prefer to borrow less now and refinance again in a couple of years when everyone hopes rates will have come down.”

‘We’re lucky we have a rate switch market’

Opting for a rate switch with the same lender or sitting on their lender’s standard variable rate (SVR) until rates fall are the only two options available to some landlords who have mortgage balances too high to meet ICR requirements in a higher rate environment.

“We’re lucky we have a rate switch market,” said Damian Youell, mortgage broker and director of NeedingAdvice.co.uk. “There wasn’t one three or four years ago.”

While the market waits for the Bank of England to decrease rates, brokers say lenders should play around with their criteria, such as scrapping minimum income requirements, instead of playing around with rate and fee combinations.

Youell said landlords need lenders to change their affordability calculations, particularly for higher-value properties. “They are restricted by the rent versus the mortgage balance. The calculations don’t stack up in many cases.”

With a lack of product innovation coming through to the market, Youell says he’s looking to more specialist lenders such as Aldermore for his clients who want to expand their portfolios. While the lender may offer higher rates, Youell says they take a more flexible approach to their underwriting.

Howard Levy, director of property finance at SPF Private Clients, says having higher fee options combined with lower rates does help landlords pass stress tests, but he wants to see more innovation, such as the return of five-year fixed rates with three-year penalties.

He also wants to see lenders introduce more leniency to their stress tests, rather than using one standard stress test. “They should consider, based on the rents being collected, whether you’re making a profit across your portfolio. It needs to be cleverer than it is; it’s currently very linear.” Allowing landlords to use surplus rents on one property to pull over to another that needs a boost to pass the ICR was another example of innovation Levy would like to see.

If you are interested in learning more about the BTL sector, then register for The Buy to Let Forum, which takes place between 24 April and 2 May in Bolton, Birmingham, Cardiff and Reading.