Speaking on a panel at the Deal Catalyst’s Annual Investor’s Conference on UK Mortgage Finance yesterday, Peter Beaumont, The Mortgage Lender’s chief executive, said that there was a “specific problem” now when it came to remortgaging buy-to-let clients as many may not pass the interest coverage ratio and stress test (ICR).
He noted that previously when buy-to-let clients came to the end of their fixed-rate term, brokers would have remortgaged them away, rather than doing a product transfer.
Select buy-to-let lenders are non-bank lenders and use securitisation or wholesale funding, making it more challenging to do a product transfer due to the conditions on which the money is funded and whether the debt is sold on afterwards.
Beaumont said that this could risk creating a “mortgage prisoner” as they may be unable to remortgage, may not have a product transfer option and could be stuck on a high standard variable rate.
He noted that it was important to work with investors and issuers to see if these borrowers could be protected as otherwise they could go into arrears and stop paying.
Brokers more likely to select PT lender
Paul Fryers, chief commercial officer at Computershare Loan Services, said that in the past few years there had been an attitude change in the broker market as it was more common for them, along with networks and clubs to ask if buy-to-let lenders offer a product transfer.
“It’s becoming more of a conversation for the broker when they first recommend the transaction, and they are now more likely to select a lender that offers a product transfer” he noted.
Beaumont added that it was becoming the “norm” and part of that was “bleed-across” from Consumer Duty as the FCA had said that lenders should offer product transfers to their customers.
EPC legislation most likely delayed
Julian Cork, chief operating officer at Landbay, said that the government had said that policy at the moment was for all rental properties to achieve a minimum EPC rating of C by 2028, but that Secretary of State for Levelling Up Michael Gove had “repeatedly hinted that this was going to change”.
“He said that the government was asking too much too quickly and that they should relax the pace of reforms, however, we haven’t actually seen that turn into anything yet,” he added.
Cork noted that in Landbay’s quarterly survey of landlords, around two thirds of landlords have properties with a D, F or G rating.
“It’s going to be an awful lot of work to fix that and is it really achievable to do that in the timeframe required? So, I think it is going to be moved back,” he noted.
Peter Beaumont agreed that there were still “mixed messages” around when EPC legislation would come into force.
He said over the past few weeks, Gove said that they would be looking at delaying dates, with Andrew Bowie, Parliamentary Under Secretary of State at the Department for Energy Security and Net Zero, saying it would be months before final details were confirmed and then Baroness Scott saying that the government was committed to its deadline and it would not U-turn.
“But there’s an election next year, so I’m predicting that they will U-turn on that. There are 5.2 million private landlords and 60 per cent don’t meet the standard. What are they going to do?” Beaumont added.
Beaumont said that to take properties to a C or higher could be “very expensive” and it was a crucial question about how landlords would fund it, whether this was through savings, cash in their portfolio or other finance methods.
He noted that the ability to offer a further advance could be limited for some buy-to-let lenders as securitisation funding may not permit it.
“We are looking at that…we’ve got to be able to lend them money, finance those improvements they need to make and we have got to be innovative in the way we do that,” Beaumont added.
Encouraging EPC improvement
He added that the firm was working with Vibrant, which is one of the largest EPC providers in the UK to encourage landlords to find out their rating and improve their property.
“The reality is it’s a big issue. We’re trying to do what we can but what lenders are saying at the moment is ‘we’ll give you 10 basis points off if you’re EPC rating A to C’. That’s not really the solution because we’re all fighting for that 30 per cent of properties that have a better EPC rating,” Beaumont explained.
A spokesperson at TML said: “EPC regulations continue to be a topic of discussion as the UK strives towards its net zero goals. The Mortgage Lender is and will continue to look at how we can support landlords improve the energy efficiency of their properties and meet their future regulatory obligations. There are a variety of routes that we plan to explore to ensure we are offering possible solutions for our brokers and their landlord clients including further advances, other options and facilities.”
