It’s ‘vital’ that brokers can access ‘whole range’ of BTL options – Ward

Finance options in this sector are many and varied, competition is still strong and different landlords will have different needs. Therefore, it’s vital that advisers are able to access the whole range of mortgage options available to landlords, some of which may be less well known than others.

Of course, there is the traditional buy-to-let mortgage, offered as a first charge. If an adviser conducts very little buy-to-let business, then it’s extremely likely this is the only product they will have accessed.

Of course, even lenders who just offer these mortgages have in the main expanded their propositions over recent years; for example, limited company products have helped those investors who want to use a special purpose vehicle for tax purposes, while specialist products for those with Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs) are now widely available.

Consumer buy to let often overlooked

Staying with first charges, I’d argue products that fall under consumer buy to let (CBTL) are all too often overlooked. I say this is because the assumption is that buy to let is just for landlords looking to rent a property out to (usually) strangers and on a commercial basis.

In contrast, CBTL mortgages are regulated by the Financial Conduct Authority like a typical residential mortgage; the landlord may be an accidental one and therefore they are deemed as being more vulnerable.

They may have originally purchased the property with absolutely no intention to rent it out, or don’t own any other properties that are being rented. In addition, if they (or other family members) have lived in the property for a certain amount of time then it could well fall under the CBTL regulations.

While CBTL is a niche buy-to-let product, the market is a real one but is perhaps not as well-served as others, which is why at Central Trust we offer CBTL on both first and second charges.

Buy-to-let second charge allows capital raising without losing first charge rate

Talking of which, second charge mortgages which are secured against buy-to-let properties can prove to be very beneficial for landlords. For a start, and perhaps particularly important in the current rising interest rate environment, they offer the ability to capital raise without losing the existing, potentially preferential rate of the existing first charge.

Landlords may be looking to make home improvements, raise funds for their next property investment or just raise funds for their own personal use, and these are all good reasons for a second charge, without the need to remortgage away from the existing first charge product.

Buy-to-let investors can use bridging to improve rental stocks

Another option available to landlords is bridging finance. Advisers’ buy-to-let investor clients may be looking to make improvements to their rental stock but again have secured low fixed rates and, as mentioned above, remortgaging will be disadvantageous to them.

A further option is a second charge bridging loan, for example, which could help finance the required energy efficiency improvements to their existing properties, allowing them to remortgage at a later date when they’re ready, using the improved value of the property to secure a low rate.

While we offer second charge bridging loans at Mercantile Trust, we do find they can be less well known in adviser circles and therefore less advice given about them. In reality, they are pretty simple – a bridging loan on a property which already has a (first) charge on it. In this case, a buy-to-let mortgage.

These products are useful because they can provide finance much more quickly than a remortgage and are also a very convenient way of unlocking finance while avoiding early repayment charges or losing a preferential rate. It’s for these reasons I think they should be seriously considered for financing EPC-related works, which all landlords need to be considering.

Second charges – both buy-to-let mortgages and bridging loans – can be arranged quickly to benefit the borrower. At Mercantile, loans up to £100,000 are eligible for our in-house legal process at no legal cost to the client as well as a potential automated valuation model (AVM) meaning they can be turned around in days.

A further reason why a borrower might be suitable for a second charge bridge over the buy-to-let is the ability to roll up the interest so they have no monthly payment, whereas on the second charge buy-to-let there is a monthly payment.

Topslicing can help in mortgage applications

Another option, if the landlord is looking at buy-to-let remortgaging, is to consider lenders which allow ‘topslicing’, where they will let landlords use a certain level of their personal, earned income to make up for a shortfall in projected rental returns when applying for a mortgage.

For instance, at Mercantile Trust, if there is not enough or indeed any surplus from a portfolio then we can look to utilise earned income within our calculations, subject to a full income and expenditure analysis. If that generates a surplus and it covers the deficit then we can look to use it for financing energy-efficiency improvements.

Homeowner business loans could release equity

Finally, another other option to be considered is the homeowner business loan. At Mercantile Trust, we offer these to allow property professionals/business owners to release equity from their main residence for business purposes where speed and a shorter term than that of a conventional first or second charge mortgage are necessities.

The homeowner business loan is ideal when the borrower’s portfolio might not have the required equity or they are faced with the challenge of the first mortgagee not consenting. They allow landlords to use the equity within their main residence for business purposes enabling them to leave the portfolio as it is protecting preferential rates, or incurring costly ERC whilst achieving their expansion/upgrade objective.

Overall, it’s clear landlords can benefit from alternatives to a vanilla, first charge buy-to-let mortgage, with a significant number of product alternatives available.

The products are not hard to understand and there are lenders like ourselves ready to deliver. Landlords just need to have an adviser who is fully up to speed with the options available to match their circumstances. Make sure you’re one of them.