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BTL2022: EPC legislation and product volatility key challenges for buy to let

  • 20/04/2022
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BTL2022: EPC legislation and product volatility key challenges for buy to let
The buy-to-let market exceeded expectations during the pandemic with gross lending reaching pre-credit crunch highs but upcoming headwinds around Energy Performance Certificate legislation and product volatility are key challenges.

Speaking at The Buy to Let Forum at the AJ Bell Stadium in Salford, Phil Rickards (pictured), head of BM Solutions, said in March 2020 he was very fearful about how the buy to let market would fare during the pandemic.

“I really thought I could bring my retirement plans forward because I couldn’t see how the market could function.”

“Valuers could value, we had to relocate all of our processing teams to working from home on laptops and the market shut down for weeks and I thought it was the end of the world.”

However, he said that the market defied expectations with buy-to-let lending hitting a peak of £45bn, which it said it was on a par with 2007.

Rickards said that whilst the sector was “resilient” that there were significant headwinds, such as upcoming legislation which would mandate that new tenancies would have to have an EPC of C or higher.

He said that figures showed that 2.5m private rented homes didn’t meet minimum proposed EPC standards.

Recent figures from the Department of Levelling Up and Housing also show that 23 per cent housing is estimated to be “below standard” in the private rented sector

The regulatory burden of the buy-to-let sector was also cited as the most common reason for landlords selling up, Rickards said.

“My worry is, of course we’re going to lose those bad landlords, but we don’t want to lose the good ones. We need a well functioning private rented sector.”

He added that there may be additional financial burdens on landlords, both from improving the quality of housing stock and the possibility that landlords may not be eligible for cladding redress, which is still being debated by the government in the Building Safety Bill.


EPC legislation vital discussion point for brokers

Rickards urged brokers to speak to landlords about upcoming legislation on EPC ratings, even though it is not yet law, especially if they were considering a five-year fixed rate.

He added that this was especially vital in the buy-to-let sector as over 90 per cent of such business was intermediated.

He said that the proportion of EPC rated properties rated C or high over the past 10 years has improved from two in 10 to four in 10.

“We’ve done 40 per cent of private rented properties in ten years. I’m not a mathematician, but how the hell are we going to get through the other 60 per cent? This is a big challenge for landlords.”

He said that it was an even bigger challenge considering that a vast majority of private rented sector property was pre-war terraced properties. He added that there were additional challenges in getting tradesmen as they were in low supply and high demand, which also meant pricing was higher.

Rickards said that he had noticed a shift to new build properties from landlords, who wanted to purchase a property that was already A, B or C rated.

He said that this raised questions as to whether this should be banned as it could be taking property away from other buyers, especially first-time buyers, who may have to go for worse-rated properties that may be harder in the future to secure a mortgage on.

Product volatility due to swap rates changing daily

Rickards said that it had been seeing fewer buy-to-let products on the market and lenders withdrawing at short notice.

He added that this was partially due to swap rates changing “daily” and recognised that this was very challenging from a broker perspective.

“This has been a huge challenge for us. Swap rates are moving at an unprecedented level and we’ve done our best to try and maintain product ranges where we can and I know it’s tough for you guys out there.

“I just asked you to bear with us. It’s a factor of the economy and the way rates are right now and I thank you for your patience.”

He added that BM Solutions had had its biggest year since 2007 and its biggest year ever for product transfers.

Rickards said that it had an “appetite to lend” bit that it was “very difficult to process because of capacity”.

“Capacity is a big problem for lenders. We’ve still got our staff working from home, they are still working with laptops which is not ideal, but we are proud of what we are trying to do to support the mortgage market,” he said.

“Brokers are incredibly important, landlords need your advice more than ever. This is an incredibly complex market.”

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