Moneyfacts recently reported that the number of BTL mortgages on the market has reached an all-time high of 4,144 deals, which is the highest since its electronic records began in November 2011.
Nicholas Mendes, mortgage technical manager at John Charcol, said that an increase in BTL mortgages is “definitely a welcome shift for landlords”, especially after a few “challenging years” with “rate volatility and much tighter lending criteria”.
“More choice always drives more competition, and we are already starting to see that reflected in rates edging down. That being said, while rates have softened slightly, affordability remains a real hurdle for many landlords, particularly those coming off ultra-low fixed rates from a few years back.
“Even with more products on the market, tighter stress testing means that deals simply do not stack up as easily as they used to, especially for single-property landlords or anyone looking at higher borrowing levels,” he explained.
David Hollingworth, associate director for communications at L&C Mortgages, said that “lenders have certainly not deserted landlords”, adding that they have been “putting more effort into developing products for what has been a market that seems to be in a state of flux”.
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“BTL landlords have had to deal with changes in the tax treatment of interest, stamp duty surcharges and tougher criteria at a time when interest rates have risen. Lenders have therefore brought more product variations into their ranges to try and cater for the varied range of landlord.
“There’s still a lot that are sticking with their investment and continue to refinance their properties. Lenders have looked to implement more varied approaches to the rental coverage requirement that they apply depending on the individual profile of the borrower,” he noted
Hollingworth said that this can see the rent requirement alter depending on the tax status of the landlord, the product they are selecting and whether they are borrowing on a like for like basis, which can give “more flexibility”.
“Nonetheless the amount of purchase activity has remained relatively low and there’s a lot more remortgaging as landlords grapple with the higher rate environment,” he added. “The vast majority are still fixing their rates, and the bulk tends to be split between two and five years.
“There has been a slight shift to two-year deals which may signal that landlords are finding the current rates a little easier to deal with and are hoping for better rates in the future, but it is a small increase, and many are still favouring the medium-term security and criteria of five-year,” he said.
‘Hefty arrangement fees’ more common
One area outlined is product fees, as some lenders offer “attractive headline rates” but these are paired with “hefty arrangement fees”, Mendes noted.
“We have seen cases running into the tens of thousands of pounds. It is not just about chasing the lowest rate anymore. Brokers have to really drill into the total cost of borrowing to make sure the deal genuinely works for the client,” he said.
Hollingworth said that “more deals will now carry a bigger range of fees”.
He explained: “Big fees can help to drive down the headline rate which can be useful for those landlords that needed an option as high rates made it near impossible to meet the criteria.
“Flat fee products remain in place for those that may still have a rent that is adequate, either because of a more modest gearing or because the increases in rents have helped to keep pace with the lender’s requirements.”
Limited company BTL and specialist lending growing in popularity
Mendes said that there is also a “noticeable swing towards specialist lending” in the BTL market as the “simple single-let model is not delivering the returns it once did”.
“More landlords are pivoting towards houses of multiple occupation (HMO), holiday lets, and multi-unit blocks, anything that can generate stronger yields. But these deals are rarely straightforward. This is where brokers really come into their own. It is about knowing which lenders are active in these niches, how their criteria stack up, and how to structure the deal so it actually gets over the line,” he said.
Mendes said that he was continuing to see more landlords move to limited company BTL structures, which can be more tax efficient, but it was “not as simple as just getting a limited company mortgage”.
“There are wider considerations around tax, accounting, and responsibilities that landlords need to fully understand. This is where brokers are adding value beyond the mortgage. We are increasingly acting as that connector between the client, their accountant, and sometimes even legal advice to make sure it is all set up properly,” he said.
Mendes noted that portfolio landlords were shifting to a “more active portfolio management”, so it was “no longer just about securing the best rate on one property” but about “stepping back and asking whether it makes sense to release equity here to reduce borrowing elsewhere, to fund energy improvements, or to finance the next purchase”.
“Brokers who take that more holistic approach are the ones who are really going to stand out in this market,” he said.
Hollingworth agreed that limited company lending is “increasingly prevalent for those purchasing new investment property”.
“We are certainly seeing limited company take a growing share and more lenders look likely to move into that space. Coventry Building Society is a great example of a big BTL player now offering limited company loans and I’d expect to see more of the big brands looking at how they can play a part in the limited company market.
“That has been well served by the specialist market and will no doubt need that specialist touch but the bigger lenders will no doubt want a slice of the pie, which should add competition. As the limited company market matures there will be a growing number of landlords looking to refinance for example and Coventry certainly set out to offer compelling options to that profile,” he said.
Phil Daffern, head of lender relations at SimplyBiz Mortgages, said structure of property ownership, specifically taxation arrangements, was a popular topic with its firms.
“We get many queries around taxation and structures of ownership that clients propose. My advice here is to partner with a property tax expert and avoid being one to your clients as this has many inherent risks including your own PII,” he added.
