A slight uptick in BTL product availability seen this month was a welcome sight, with deal numbers rising month-on-month in April from 2,844 to 2,883 following a fall of 276 BTL deals between January and February, according to Moneyfacts.

But brokers say that, despite the rise in deal numbers, a lack of innovation means the dire situation for landlords struggling to refinance or expand their portfolios remains the same.

Ash Jensen, director of Make My Mortgage, said: “Looking at the recent product releases, there’s nothing there that will be game-changing for many people. I wouldn’t class them as new products, they’re just changing rates with different fees, there’s nothing beneficial there.

“I think it’s more for publicity if anything to keep themselves in the forefront of your mind. The fees are so high. Some of the deals have a 1.5% or 2% fee. If you’re buying in London and need to borrow £300,000, those fees add up. The rates and fees are even higher for limited company buy-to-let. Yes there are tax benefits from owning properties through a company, but these deals are really restricting the market.”

Different combinations

Different fee and rate combinations make up the bulk of new deals coming to the market, say brokers. To secure a lower rate needed to pass the income coverage ratio (ICR), or to maximise your borrowing when capital-raising, some landlords need to pay a high fee, which can range from 1.5% of the mortgage to 7%. Some lenders will then allow landlords to add the fee to the loan without it affecting the stress test. Landlords searching for a low or fixed fee must accept a higher mortgage rate, which could scupper their chances of meeting the ICR requirements.

Adding more fee variations, which boosts deal numbers, is not improving the product landscape, say brokers, particularly for landlords with properties worth £250,000 or more.

Gaurav Shukla, senior mortgage broker and owner of Home Me Mortgages, said: “We’re just seeing more of the same from lenders where they launch a lower rate with a high percentage fee to help landlords bypass certain situations. But we’re not seeing the launch of better products, and the lower rates aren’t appealing because of the high fee attached to it.”

Shukla said a lot of his clients were sticking with the fixed-fee option rather than going for a percentage-based fee, typically around 3%, because they have high-value mortgages.

“They don’t want to add more than £10,000 in fees to their loan,” he said. “They would prefer to borrow less now and refinance again in a couple of years when everyone hopes rates will have come down.”

‘We’re lucky we have a rate switch market’

Opting for a rate switch with the same lender or sitting on their lender’s standard variable rate (SVR) until rates fall are the only two options available to some landlords who have mortgage balances too high to meet ICR requirements in a higher rate environment.

“We’re lucky we have a rate switch market,” said Damian Youell, mortgage broker and director of NeedingAdvice.co.uk. “There wasn’t one three or four years ago.”

While the market waits for the Bank of England to decrease rates, brokers say lenders should play around with their criteria, such as scrapping minimum income requirements, instead of playing around with rate and fee combinations.

Youell said landlords need lenders to change their affordability calculations, particularly for higher-value properties. “They are restricted by the rent versus the mortgage balance. The calculations don’t stack up in many cases.”

With a lack of product innovation coming through to the market, Youell says he’s looking to more specialist lenders such as Aldermore for his clients who want to expand their portfolios. While the lender may offer higher rates, Youell says they take a more flexible approach to their underwriting.

Howard Levy, director of property finance at SPF Private Clients, says having higher fee options combined with lower rates does help landlords pass stress tests, but he wants to see more innovation, such as the return of five-year fixed rates with three-year penalties.

He also wants to see lenders introduce more leniency to their stress tests, rather than using one standard stress test. “They should consider, based on the rents being collected, whether you’re making a profit across your portfolio. It needs to be cleverer than it is; it’s currently very linear.” Allowing landlords to use surplus rents on one property to pull over to another that needs a boost to pass the ICR was another example of innovation Levy would like to see.

If you are interested in learning more about the BTL sector, then register for The Buy to Let Forum, which takes place between 24 April and 2 May in Bolton, Birmingham, Cardiff and Reading.

The majority of loans processed by the distributor were for bridging finance at 35% followed by buy-to-let at 26% and commercial deals at 24%.

Application numbers rose by 4% to 1,074 on a like-for-like basis in the first quarter of 2024 despite the tough economic conditions.

The number of these applications has almost doubled from 579 in 2020 to 1,074 over the past five years.

The finance distributor predicts it is on course to surpass £1.2bn worth of loan applications this year.

Closer broker working relationships

Crystal says its strong growth partly results from repeat business, with the average number of deals per broker rising to 4.45 in the first three months of 2024 compared to 2.9 over the same period in 2023.

Jo Breeden (pictured), managing director of Crystal Specialist Finance, said: “This is an outstanding start to 2024 and we’re actively targeting growth at every opportunity.

“Our continued success is testament to the excellent Crystal team and their desire to always deliver an outstanding customer outcome.

“Our desire to educate intermediaries – both mainstream and specialist – on the myriad financial solutions for literally every customer requirement has also played a hugely significant part in the numbers and will continue to remain front-and-centre of our market proposition.”

The M14 postcode ranked number one of the top 10 buy-to-let (BTL) hotspots to invest in during 2023, according to Paragon Bank’s lending data.

Covering Manchester’s Fallowfield, Rusholme, Old Moat, and Ladybarn districts, and locations between the University of Manchester and Manchester Metropolitan University, landlords were attracted to the area by the high student population.

Birmingham’s B29 postcode, covering the Selly Oak, Bournville, Edgbaston, Kings Heath, Northfield and Stirchley districts, came second. The area is also home to a large student population, especially Selly Oak, the location of Birmingham University.

Close by in neighbouring Edgbaston is the Queen Elizabeth Hospital, a notable local employer as one of the UK’s largest single-site hospitals.

Portfolio landlords investing in this postcode area can expect to earn an average yield of 6.9%.

‘Proximity to universities or large employers’ is a trend

Although properties in the sought-after Birmingham postcode are the most expensive on Paragon’s list, the average purchase price of £573,116 is skewed by the presence of large, period properties in affluent Bourneville, the model village that was founded by the Quaker Cadbury family for employees at its Cadbury’s chocolate factory.

The third-most popular BTL hotspot was DH1 in Durham, where properties can deliver yields of up to 7.3%. Continuing the theme of thriving student markets, the University of Durham’s Palatine Centre is located in Framwellgate Moor, contributing to the postcode’s popularity among students.

The analysis also found that terraced houses were the most popular investment property type in all of the top locations, except for CW2 in Crewe, where multi-unit freehold blocks (MUFBs) of flats were preferred by landlords.

Richard Rowntree, managing director at Paragon Bank, said: “Our data shows that portfolio landlords have a strategy of targeting major towns and cities across England and Wales, from Brighton and Hove on the South coast, up through the Midlands and Wales and on to Newcastle. Something that links many of these diverse areas is their proximity to universities or large employers, such as the NHS or manufacturing and distribution hubs. This helps to illustrate the crucial role that the private rental sector plays in supporting further education provision and the workforce, both vital facets of the UK economy.”

If you are interested in learning more about the BTL sector, then register for The Buy to Let Forum, which takes place between 24 April and 2 May in Bolton, Birmingham, Cardiff and Reading.

According to research from Foxtons, which looked at build-to-rent completions since 2018, and compared to the total private rented stock (PRS), this is the largest proportion of market share since 2018.

It describes a property development purpose-built to be rented rather than selling to individual homeowners. It is usually owned by institutional homeowners or property management companies.

The research reveals that build-to-rent completions came to 31,409 in 2018, making up 0.6 per cent of the five-and-a-half million privately rented homes in the lettings sector.

The sector has grown consistently every year since then and now sits at 100,372 as of 2023. This is 1.8 per cent of all UK PRS stock. The report said that this represents a 69 per cent increase in such completions since 2013.

Foxtons added that the scheme has made up one per cent or more of the UK PRS since 2020, figures show.

The growth in London is also impressive, increasing from 1.8 per cent of London PRS in 2018 – equal to 18,160 completions – to 4.2 per cent of London’s PRS in 2023. This equates to around 46,747 completions.

From a regional perspective, which excludes London, there has also been impressive growth, rising from 0.3 per cent of PRS in 2018 to 1.2 per cent now.

Build-to-rent demand will grow

Sarah Tonkinson, Foxtons Institutional PRS and build-to-rent managing director, said that there had been “phenomenal growth” in the build-to-rent sector in recent years, especially in London.

“However, it’s fair to say that the sector still remains in its relative infancy, and so the potential for further growth is vast. With a move towards longer-term renting until later in life, tenants expect more both with respect to the quality of rental accommodation available, and the security and certainty that long tenancy agreements provide them.

“With the build-to-rent sector offering this, and more, we only anticipate demand to increase and for stock levels to follow suit in order to satisfy the evolving needs of renters,” she added.

According to figures from Moneyfacts, the average two-year fixed rate across all loan to value (LTV) tiers is 5.49 per cent, with the average five-year fixed rate standing at 4.87 per cent.

The report noted that this is down from a peak six months ago of 6.88 per cent for an average two-year fixed rate and 6.72 per cent for an average five-year fixed rate. These were the highest in Moneyfacts electronic records, which go back to 2011.

Looking at specific LTV tiers, some of the largest decreases were at 60 per cent LTV. The average two-year fixed rate at 60 per cent LTV fell by 1.42 per cent to 5.22 per cent, with the average five-year fixed rate contracting by 1.31 per cent to 4.87 per cent.

Going up to 75 per cent LTV, the average two-year fixed rate decreased by 1.36 per cent to 5.51 per cent and the average five-year fixed rate went down by 1.25 per cent to 5.51 per cent.

The average two-year fixed rate at 80 per cent LTV has reduced by 1.24 per cent to 6.3 per cent and the average five-year fixed rate has fallen by 1.09 per cent to 6.2 per cent.

Total buy-to-let products fall by nearly 300 since start of 2024

Regarding overall buy-to-let product availability, since the start of the year there has been a contraction of products from 3,114 in January to 2,838 in February.

This is still above 2,585 reported in August last year, when buy-to-let pricing was at its peak, and higher than February 2023 figure of 2,246.

Looking at two-year fixed rates, product availability overall has increased slightly from 968 in January to 972 in February. This is also up from 676 in August and 539 in February last year.

On the five-year fixed rate side, there were 1,215 deals in February, a fall of 109 products on the prior month. It is up, however, on August figure of 1,107 and a recovery from 865 in February last year.

Weeks ahead will be crucial for buy-to-let pricing

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said that landlords worried about interest rates would be pleased to see that buy-to-let pricing has fallen to its lowest point since September 2022.

“These rates sat at a record-high just six months ago, so this is positive news for borrowers who have been patiently waiting for fixed rates to come down. However, it is possible fixed rates will edge up slightly in the coming weeks due to volatile swap rates, so those looking to refinance may wish to secure a deal quickly to not be left disappointed,” she noted.

Springall said that a “notable area of volatility in the market” was around product choice, with the overall count falling month-on-month, but it was up 250 deals compared to six months ago.

“The ebb and flow of deals makes it essential for prospective borrowers to seek advice to navigate the options available to them. Deeper analysis of product choice shows five-year fixed offers have waned month-on-month, but two-year fixed offers are resilient.

“It will be interesting to see how lenders adjust their ranges in the weeks to come. There are more two and five-year fixed mortgages now than there were six months ago,” she said.

Springall pointed to strong rental growth of 8.3 per cent in Great Britain, which was the lowest for 13 months, but is expected to rebound ahead of inflation for the rest of the year.

“Still, there will be existing landlords concerned about the ongoing profitability of a buy-to-let portfolio as their margins have been impacted by a cull in mortgage rate tax relief, tax changes for CGT and holiday lets, plus new EPC requirements. Any investor would be wise to seek advice before they commit, and providers will need to work hard to encourage borrowers to refinance and attract new business,” she added.

There is a standard option with a rate of 5.69 per cent, which is available at 75 per cent loan to value (LTV). This has a maximum loan size of £1.5m. 

The second product is included in Landbay’s recently launched range of deals that make use of automated valuation models (AVMs). This also has a rate of 5.69 per cent and is available at 70 per cent LTV. 

The maximum property value allowed for the latter product is £750,000. 

Both options have no product fee and a minimum loan size of £65,000. 

Rob Stanton (pictured), sales and distribution director at Landbay, said: “We pride ourselves on our ability to respond quickly to opportunities to expand and enhance our product range. It’s all part of our commitment to our broker partners to provide a product range that is broad and diverse enough to meet the requirements of their landlord clients across the country. While the rate may not be suitable for every client, it will certainly work for those with no appetite for fees or those borrowers with higher-yielding properties.

“As affordability continues to improve, we’re thrilled to offer landlords two superb zero-fee options, including our latest addition to the AVM product range. This range has been met with outstanding feedback from our intermediary partners, further enhancing our commitment to providing valuable solutions in the property market.” 

The lender recently introduced its AVM range, with rates starting from 4.29 per cent. This offering was launched to speed up the time to offer, and Landbay said that, in some cases, it could issue an offer within 24 hours from the decision in principle being submitted. 

Last month, Landbay was named as one of the BTL lenders with the highest broker satisfaction, according to the Mortgage Lender Benchmark from Smart Money People, which covered the second half of 2023. 

Many a recent headline has suggested the demise of the private rented sector (PRS), with rumbles of BTL investors potentially exiting the market en masse as higher interest rates take their toll on a sector already squeezed to the limit by a punishing tax regime and costly regulation.

This fear of the BTL market shrinking is justified. Intermediary Mortgage Lenders Association (IMLA) carried out new research in November last year that examined the financial position of BTL landlords for the first time.

The Landlord Survey revealed a market predominantly supplied by small businesspeople making modest profits out of their rented properties – and those with mortgages facing the prospect of struggling to break even in the next two years, with their cost of borrowing soaring by an anticipated 80 per cent as they refinance off historically low fixed rates.

However, our research also found that, somewhat counterintuitively, 35 per cent of all landlords and 50 per cent of portfolio investors plan to expand their portfolios over the next five years, while only 18 per cent of the total and 17 per cent of portfolio landlords intend to downsize over that period.

Powering through

Other studies confirm this fortitude in the face of adversity.

For example, data published by BTL specialist The Mortgage Lender (TML) in January showed a majority of landlords grew their property portfolios in 2023, with more set to do so over the coming 12 months. In total, 52 per cent of BTL residential owners added to their portfolios in 2023, with 25 per cent buying a single property and 27 per cent purchasing multiple homes.

According to the TML survey, over the coming year, 26 per cent of landlords plan to add another single property, while another 26 per cent plan to invest in multiple properties.

Such resilience may be driven by numerous factors, including the desire to meet the continued rising demand from tenants, the plan to hold on to property to pass down to children and grandchildren, or simply great confidence in the long-term reliability of property as an asset class.

An earlier TML survey (Q4 2023) found that 74 per cent of residential BTL landlords felt confident about the performance of the property market over the coming 12 months. The most optimistic were those landlords who predominantly owned homes of multiple occupancy (HMOs), at 86 per cent, student accommodation landlords (84 per cent) and portfolio landlords with more than five properties (82 per cent).

Encouragement for smaller landlords

Such evidence contradicting predictions of an exodus is very welcome.

The PRS provides homes for around 20 per cent of the UK’s households, and demand continues to increase more quickly than supply. A mass exit of landlords could create a serious issue for tenants, deepening the supply/demand imbalance and further increasing rising rents.

And we are not out of the woods yet. Our research, and that of TML, suggests that the most bullish landlords are the larger players. Smaller providers are more likely to be walking the tightrope between profit and loss, and those smaller players make up 61 per cent of the market.

Any further financial blow to this majority cohort, in the form of further regulation, added taxes or further hikes in interest rates (a possibility that cannot be entirely dismissed, given the current global economic insecurity), could tip more precariously positioned BTL borrowers over the financial parapet and out of a market that desperately needs them.

In the future, politicians and regulators might be wise to adopt a more nurturing stance towards the beleaguered BTL sector and encourage landlords’ perseverance, rather than seeking to impose more pressure on this vital part of our housing landscape.

These are available across its standard, limited company and houses in multiple occupation (HMO)/multi-unit block (MUB) ranges. 

The products are at 75 per cent loan to value (LTV) with a rate of 5.59 per cent for standard and limited company borrowers or 5.93 per cent for HMO and MUB borrowers. 

Fleet, which last year lowered two- and seven-year fixes, said the zero-completion-fee feature would offer borrowers a “considerable, upfront saving”. There is a £199 booking fee as well as free standard valuations for standard and limited company borrowers against properties with a value up to £500,000.  

Equivalent to a sub-five per cent option

Steve Cox, chief commercial officer at Fleet Mortgages, said: “Last year, the challenge of a higher-interest-rate environment, and what it required in terms of affordability criteria, meant we saw a large number of lower-rate/higher-fee products being launched. 

“Now that we have seen rates come off those highs, with swap rates stabilising, and a far more competitive rate environment, we wanted to ensure we offered a different set of products that did not come with any completion fee whatsoever.” 

He added: “These three limited-edition five-year fixes offer landlord borrowers a highly competitive rate from the outset, but with no completion fees to pay, meaning they do not have to pay those costs upfront or add the cost of the fee to the loan. 

“Feedback from intermediary partners suggests these offer a strong option, particularly for portfolio landlord clients who are seeking to capital-raise but want to minimise any reduction in the value of their equity.” 

Cox said that, without the fee, the product rates for standard and limited company borrowers were equivalent to a five-year fixed deal with a rate of 4.99 per cent and a three per cent fee. He said this made it a “very strong product offering and one that will mean no initial outlay or the addition of potentially thousands of pounds to the overall loan”. 

He added: “Advisers will clearly have to work with landlord clients to review what option is best for them, but these new products provide them with another route to move down, if the maths can work for the borrower and they would like to benefit from a zero completion fee approach.” 

MFS relaunches two- and three-year fixes 

Market Financial Solutions (MFS) has brought back its shorter term fixed rates for BTL mortgages and reduced tracker product pricing.  

The lender has added two- and three-year fixes with no rate stressing. Pricing starts from 4.59 per cent. 

The lender has also cut tracker mortgage rates by between 0.2 and 0.25 per cent. 

Paresh Raja, CEO of MFS, said: “The time is right for us to introduce two-year and three-year fixed products back into our BTL mortgage range. We know that, while they do not want to be locked in for so long, many brokers and borrowers take out five-year fixes due to a lack of an alternative or because they can get a longer-term fix without rate stressing. The fact we are bringing in shorter fixes but without rate stressing will give BTL investors much more control and choice when seeking the right product.  

“Everything we do is designed to empower brokers and borrowers. Our skill, experience and funding lines allow us to provide greater flexibility and optionality, and we’re confident that our expanding BTL mortgage range will remain in high demand in 2024.”  

The stress rates for two-year fixed rates for UK residents will fall from 9.94 per cent to 7.94 per cent, which the lender said will boost borrower affordability by 20 per cent.

For tracker products for UK residents, the stress rates will go from 9.94 per cent to 8.39 per cent to 9.49 per cent. Molo said that this will increase borrower affordability by up to 16 per cent.

Non-UK resident two-year fixed rate stress rates have reduced from 10.99 per cent to 8.99 per cent, improving borrower affordability by 18 per cent.

Non-UK resident tracker product stress rates have decreased from 10.99 per cent to 10.49 per cent to 10.99 per cent. This will increase borrower affordability by up to five per cent.

Molo reiterated that its “stress test logic” for two-year fixed rates was the higher of pay rate, follow-on rate or 5.5 per cent.

For five-year fixed rates, it is the pay rate, and for tracker rates, it is the higher of pay rate plus two per cent, follow-on rate or 5.5 per cent.

For variable rates, it is the higher of pay rate plus two per cent or 5.5 per cent.

Mark Michaelides, Molo’s VP of strategy, said: “Affordability has been one of the biggest challenges facing landlords over the past 12 months, so we’re delighted to announce a recalibration of our stress test to reflect current market conditions and help support the private rental market.

“We will continue to lend responsibly, providing confidence to brokers and borrowers alike.”

The change in stress rates come off the back of recent rate cuts by Molo, where it made reductions of up to 0.71 per cent across its fixed rates.

The lender also made the change last year to include personal income in BTL affordability assessments and released non-resident BTL mortgages last year.

Francesca Carlesi, founder and chief executive of Molo, left the firm last year, with Andrew Chepul, CEO of investor ColCap Financial serving as interim executive chairperson.

There was a day’s grace as we moved into 2024, but the mortgage market – and lenders in particular – certainly didn’t wait any longer in terms of making some big pricing and product moves. Buy-to-let lenders were no different, with many including Fleet, cutting rates on products and reshaping ranges to reflect a much more competitive pricing environment, fuelled by lower swap rates.

I think it’s also fair to say the market will not stop here, particularly if swaps do continue to either maintain their current levels, or indeed track lower still. As I write, two/three/five/seven and 10-year SONIA swaps are all below where they were a year ago, which we were not able to say during nearly all of 2023.

Buy-to-lenders making moves

So, what might these moves by buy-to-let lenders specifically mean within the sector, which spent a challenging 12-month period seeking to help advisers and their landlord borrowers deal with increased rates and the issues this raised in terms of affordability and securing the right loan amounts?

Well, as we know, there were a plethora of lower rate/higher fee deals launched in order to deal specifically with this issue, and while many of those products remain including our own, we might well see these begin to drop in number if rates continue to fall.

Some buy-to-let lenders have already pulled these products from their ranges, and advisers will be working on the numbers to see if they continue to make sense for borrowers. As mentioned, I believe if rates continue to track lower, there will be less demand for these products.

Secondly is the decision around where rates might be going next and what this means for borrowers when the better current rates are at longer terms – mostly five-year fixes.

This may mean that trackers become more relevant over 2024, whereby landlord borrowers opt to take a higher-priced tracker product now, but without an early repayment charge (ERC), allowing them to ‘Track to Fix’ if/when they feel fixed rates might have bottomed out.

It would not be surprising to see borrowers hedging their bets, and from an adviser perspective, this could be the right short-term recommendation, allowing you to keep a close eye on market moves and then move that client again at some point in the future.

Clearly, there is an accepted risk for the client here, but there is a growing sense that, for example, bank base rate will begin to be cut this year, and if lenders continue to react as they have been, there may be a more suitable, cheaper longer-term fixed-rate option available later in the year, rather than now.

New buy-to-let lenders

Finally, and this remains a constant consideration for both advisers and their landlord borrower clients, rumours continue to swirl about new buy-to-let lenders and when/if they launch, advisers will need to judge them on their service, support and understanding of this sector. Plus, advisers also need to be aware that cheapest rate very rarely means the best service, and this is certainly the message I’m hearing from advisers, even at this very early stage of the year.

Having the cheapest rate right now will always draw attention, but this must be managed in a service sense as well, particularly when time is of the essence, and both advisers/landlords need swiftness and certainty.

Weigh up exactly what you are recommending and with which lender, because if the service and support isn’t there, or they have not been able to cope with the business their price-cutting has generated, then you could end up at the back of a queue and any perceived monthly mortgage payment saving won’t be worth the time you spent recommending it, or the time spent explaining to the client why the case hasn’t moved forward.