BSLS2023: Uncertainty rules in the BTL market as landlords ‘wait and see’ on property sales

They explained that as mortgage pricing was starting to stabilise, many were waiting until they refinanced to decide whether to sell as some hoped pricing would go down.

Brokers have said that refinancing in the buy-to-let market is more challenging currently as higher interest rates have led to higher stress rates and higher mortgage rates increasing monthly repayments.

Another broker said that there was a “desire to acquire” from the “mass affluent” market but there were challenges around “criteria” as products now required a large deposit unless the landlord was in a higher yield area such as a specialist house in multiple occupation (HMO).

One adviser said that mortgage rates were just “one aspect” of the problem, and one of the “biggest fears” currently was regulation coming down the line. They pointed to the proposed removal of Section 21 eviction notices as an example.

The same adviser continued: “I think…this current fiscal situation is probably the straw that breaks most landlords’ backs and that’s why we’re seeing some sell. I think it’s more than just rate-driven.”

They added that more professional landlords with limited company or other structures would likely stay in the market but other landlords who saw it as a “hobby” or to supplement their pension were now thinking it was “too much work”.

Uncertainty rules the market

One broker said that there were several clients in the last six or 12 months who had come to the end of their deal and the uncertainty around when or if EPC legislation would be implemented made discussions very challenging.

They continued that several were unaware of potential changes, which they said was “terrifying”, and it added difficulty in terms of offering a five-year fixed rate or a two-year fixed rate.

“It’s not actually set in stone yet, but if I do give you a five-year fix, knowing that your property is currently in E rating, and this does happen, and you can’t continue to let the property but you are tied into a five-year fix, then you get a big penalty if you want to get out of it or are faced with other payments if you decide to sell it.”

The broker continued that such decisions were difficult currently because of heightened stress tests and rental calculations, which made two-year fixed rates more expensive.

“You have to have a five-year fixed rate if you want this much borrowing and, by the way, you can’t borrow any more. Because of the calculations you can’t actually borrow the money that you need to do the [renovation] work if you did need to do it, but actually we don’t know yet if you need to,” they said.

Another broker agreed and said that brokers could be “on the hook” further down the line if customers were locked into longer-term deals but then needed to update properties.

“In my opinion, you do have to make them aware, but the key word in all of this is this ‘potentially’ might happen,” they noted.

One adviser said that brokers could “spend all the time in the world talking to clients about what may or may not happen” but that they were “not responsible for political decisions”.

“It [The uncertainty] doesn’t help our industry, whichever we do we are wrong. If we do nothing, we get the complaints that we didn’t tell them this is coming down the line, but if you tell them to take a two-year fixed because in three years’ time this could happen then that could also be a problem,” they explained.

Brokers left ‘holding the baby’

They continued that brokers were “going to end up being left holding the baby”, and that until government cleared up timelines on EPC legislation brokers would be left in limbo.

“It’s impossible to advise a client in my opinion as to what will definitely happen when we can only say these are the possibilities,” they said.

One broker said that the likelihood of an election in the next few years also raised the stakes as a Labour government could change the agenda.

“Why would you do something now when you don’t know if you have to? Why would you as a landlord, go right, my average spend on my property is going to be £15,000 , I’ll do that now, but I might not have to do it, and I’ve got to generate the income and the stress tests doesn’t work for me and it’s going to cost me a fortune,” they said.