Held at Brooklands in Surrey, the invitation-only event for senior leaders in the specialist lending space – be they lender, broker, network or club – had sessions on economic trends and the mortgage market, key challenges for lenders and brokers, and upcoming opportunities with technology.
The day also featured break-out workshops on the BTL landscape, the changing profile of specialist lending borrowers and the second charge mortgage market.
Find our thematic highlights of the key areas that were discussed below.
Swap rate movement less spiky but lenders more sensitive
The movement of swap rates, which dictate mortgage pricing, has become less spiky, but certainty around whether swaps will rise and fall has become a bit more uncertain, which makes the market feel volatile.
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Since the mini Budget, lenders have become more sensitive and aware of movements and taking them into account, so while volatility has moderated, the sensitivity to it is heightened.
Swap rates are dependent on the base rate trajectory, and there are concerns that the base rate cuts will be more careful as uncertainty around inflation makes the Monetary Policy Committee (MPC) cautious.
Securitisation market expected to be in line with or slightly up on 2024
In 2024, there were several repeat issuers to the market along with some new entrants, with a strong reception and investor demand for both.
This not only shows that the asset class has a strong performance, but that solid returns for issuers and investors make for a more stable and competitive market.
There has also been a growth in pre-funding, with it being included in many deals.
This is when, as the mortgage completes, they are transferred into the securitisation during that pre-funding period. This means lenders can secure funding for the future completions pipeline and redemptions can also be recycled.
This is also a factor as to why the market has been a bit more quiet, but expectations are that the issuance in the securitisation market will be similar to or slightly up on 2024 figures.
Arrears at higher end are growing
On the arrears side, there is a concern that the number of more serious arrears at 10% or more of the total outstanding balance is growing.
This implies that a decrease in other arrears buckets is not falling but moving into more serious arrears, which delegates said would need to be monitored, especially as the Renters’ Rights Bill comes into effect.
However, a note of positivity was that the number of borrowers experiencing problems and falling into arrears wasn’t growing.
High street and specialist lending
Delegates said that while specialist lenders should keep an eye on high street lenders, there were still barriers to entry for them.
Speakers said high street banks were more heavily regulated, so they had more constraints on their lending.
Their systems also cannot deal with complexity, as they are designed to be a “sausage factory”, and specialist lending requires human expertise, so changing their technology and underwriting processes would take a mindset shift.
However, the net interest margin of specialist lenders is a very big appeal.
BTL market is not dead
Delegates and speakers said the BTL market is definitely not dead and that landlord borrowers were increasingly diversifying and professionalising.
Speakers pointed to a rise in limited company borrowing as well as an exploration of different property types like houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs), specialist purpose vehicles (SPVs), multi-lets, student lets and holiday lets.
There has been an exit of “dinner party landlords”, but this is being somewhat offset by increasing professionalisation.
Limited company landlords also tend to be younger, so this will continue to be an important segment of the market. They are also more likely to look to grow their portfolios, so this could be an ongoing opportunity for brokers.
A trend mentioned was landlords moving away from purchasing locally to buying in higher-yield markets. An example was Southern landlords buying in areas like the North and the Midlands, as they have seen faster house price and rental growth, as well as growing expats.
Renters’ Rights Bill and EPC legislation are key areas of concern
Delegates and speakers raised concerns around the Renters’ Rights Bill, such as the unintended consequences of increasing rents, as it will be more challenging for landlords to review rents and evict tenants.
However, while there may be a shift in power from landlords to tenants, participants said it was unlikely that tenants would use new measures to negatively impact landlords.
Several issues with upcoming legislation around Energy Performance Certificates (EPCs) were also flagged.
For instance, the definition in the new draft means that if a landlord changes the rent, it is a new rental contract, so landlords could get caught out as the EPC deadline for new tenancies is 2028, or they won’t be able to increase their rents for several years.
Not making EPC changes could also lead to a fine of £30,000 and a “bad mark” on the new landlord portal.
Another issue is around exemptions, as the new legislation suggests you have to spend £15,000 to get an exemption from EPC works.
The BTL market, and landlords in it, is expected to continue to be resilient but will need ongoing support from lenders and brokers to navigate changes.
Second charge market expected to hit £200m a month in 2025
Trends suggest that the second charge market is expected to hit £200m per month later this year, and demand is growing for the product.
Around three-quarters of second charge cases are prime as they don’t want to disturb the first charge fixed rate.
Arrears levels in the second charge market are around 3%, with the picture improving, as this is a decrease of 12% year-on-year.
There is also more competition in the market, with around seven lenders in the market currently.
There are still some barriers for second charge, including a lack of awareness and access and perceptions of high fees and rates.
Some speakers and delegates expressed frustration with sourcing systems and second charges, arguing that they were not as easily accessible, leading to lower take-up.
