Buy-to-let lenders upping rates in uncertain market – Property Master
It came as part of a wider warning that landlords will increasingly struggle to get mortgages as the impact of the coronavirus is increasingly felt across the lending industry.
The firm suggested lenders may not be confident the government’s mortgage payment holidays will provide a sufficient safety net as a reason for the increased rates and margins.
It highlighted this was despite the background of the Bank of England reducing its base rate all the way down to 0.1 per cent, which landlords might expect to mean lower mortgage rates.
“Lenders concerned about the increased risk of tenants defaulting on rents and falling property prices may well choose to widen their margins and increase the cost of borrowing,” it said.
“Some lenders have increased rates despite the 0.65 per cent fall in base rate where margins as a result have increased by about one per cent.”
The broker told Specialist Lending Solutions that it recognised lenders were struggling to price risk and understand landlords’ ability to make payments at the moment.
“It’s most surprising to see lenders widening their margins to price that risk in. It’s very early days and it’s very challenging,” a spokesperson added.
Property Master chief executive Angus Stewart concluded: “In recent years the buy-to-let market has been characterised by increased competition among lenders leading to lower pricing and new, innovative products.
“We are urging the banks now to continue in that vein and support landlord customers as they deal with this really difficult situation.”
Landlords will struggle to repay mortgages due to Covid-19, Property Master says
The buy-to-let broker also asked lenders to be “understanding” with landlords who may face loan repayment problems due to tenants defaulting on rent because of the novel coronavirus.
According to the firm, landlord clients are already seeing tenants struggle to keep up with rent payments and for those with holiday let mortgages, a “significant drop” in holiday bookings has been reported.
Property Master chief executive Angus Stewart (pictured) said: “There are reports of tenants whose working hours have been reduced or who work for overseas companies that do not appear to be currently trading.
“In addition, given current medical advice to stay at home if you are exhibiting possible coronavirus symptoms, we would expect more tenants to find themselves in difficult financial circumstances.”
“There is clearly going to be a knock-on effect in terms of landlords facing difficulties meeting mortgage repayments if their tenants are not able to pay rents,” he added.
Property Master also shared the guidance it was giving to its landlord clients to support them during this time. This included:
- Keep communication channels open with your tenants and/or letting agency. You want to know at the earliest possible time if a tenant is likely to be facing rent difficulties.
- Make contact as soon as possible with your lender if it does look as if you will struggle to meet a mortgage repayment. Be prepared to discuss the various options.
- Look now at your mortgage costs. Fixed rate buy-to-let mortgages are currently at record lows so it may be worth refinancing to put yourself in a better position to withstand any shocks.
Landlord bodies want action
The Residential Landlords Association and the National Landlords Association have also called for a package of measures from government and mortgage lenders to support tenants and landlords.
This included urging landlords to work positively with tenants to provide support and to be as flexible as possible.
“To support landlords in this we are calling for a package of measures from government and mortgage providers,” a statement from the trade bodies said.
“This includes a temporary scrapping of the five week wait before Universal Credit claimants get their first payment, pausing the final phase of restricting mortgage interest relief to the basic rate of income tax and ensuring lenders look sympathetically on requests by landlords for mortgage payment holidays where their income is being affected through reduced or non-payment of rent.”
Lenders making ‘slew’ of criteria changes as BTL rates ‘nearing the floor’ – Property Master
Property Master’s November 2019 Mortgage Tracker recorded rate reductions across the deals available to landlords and found the cost of a £150,000 loan dropped by £8 per month from October to November.
Five-year fixed rates for 65 per cent LTV fell month-on-month by £6 while five-year fixed rates for 50 per cent LTV dropped by £4.
Two-year fixed rates buy to let mortgage offers for 75 per cent LTV fell by £4 per month and for 65 per cent of the value of a property by just £1.
However, average interest rates for two-year fixed rate buy to let mortgages for 50 per cent LTV went up by £2.
The drops recorded in November were at a smaller rate compared to previous trackers where double-digit reductions were seen, the online broker said.
With the Bank of England deciding to hold rates at their current level, Property Master said lenders were “nearing the floor” in how low borrowing costs can go.
Angus Stewart (pictured), Property Master chief executive, said: “It will certainly be good news for landlords to see from our figures that monthly mortgage costs fell again, this time in five out of the six categories we track in our research.”
Opening up the market
Stewart added: “Interestingly, in addition to rate cuts we are also seeing a slew of other mortgage criteria changes lenders are making to their product portfolios in an effort to attract landlord customers.
“We have seen lenders loosening their stress tests; increasing the maximum length of borrowing terms; reducing their Interest Cover Ratios; and taking into account income other than that from rents.”
He said: “It does appear to be a buyers’ market in terms of current buy-to-let mortgage deals meaning it pays to shop around and for landlords to make sure they are getting access to any and all deals that fit with their property financing needs.”
Energy standard changes could be an issue for remortgaging landlords
The MEES require owners of privately rented property to achieve at least an E on the energy performance certificate (EPC) ahead of agreeing any new tenancy agreement.
This means that properties rated as F or G cannot be let to new tenants or have tenancies extended until the rating is bumped up, with non-compliance carrying penalties that range from £5,000 to £150,000 depending on the tenancy term.
Property Master, a digital BTL startup, said that the MEES could “derail” landlords planning to fix their mortgage rate ahead of further hikes in Bank Base Rate, and those landlords who are coming to the end of their two-year fixed rates secured back in April 2016 as an effort to avoid the 3% surcharge.
Property Master chief executive Angus Stewart commented: “This could be a particular problem for portfolio landlords as they will need to ensure all their rental properties comply with the MEES rules, even if they are not seeking to remortgage every property they have.
“Having just one property with a below standard MEES rating could prove to be a problem for some landlords looking for a new finance deal.
“Landlords who have a fixed-rate which is soon to expire or who just want to get a good deal ahead of any forecast bank base rate cannot risk ignoring the April MEES deadline.”
David Whittaker, chief executive officer of Mortgages for Business, said that landlords are mostly aware of the incoming requirements and are unlikely to be affected by their introduction.
“As far as we’re aware, lots of landlords already know about these rules,” said Whittaker.
He continued: “Particularly for portfolio landlords, they tend to have a good grasp of the laws and what would affect them further down the road.
“They grumble to begin with but ultimately crack on and comply.
“Besides, the lending criteria will mean that landlords will have to comply with the law in order to get the borrowing they need.”
Whittaker also said he expects lenders to starting checking the EPC status of a property, and not lend the properties where they either have no EPC or they don’t meet the minimum standard.
In turn, this may mean properties with F or G ratings will be downvalued.
However, Whittaker said it is unlikely landlords will rush to refinance ahead of the April deadline to avoid having to upgrade their properties.
“Whilst landlords could take this route [of refinancing ahead of April], it’s only kicking the can down the road,” said Whittaker.
“Landlords with tenants under an existing agreement have until April 2020 to bring non-compliant properties up to standard,” he continued, “we would expect the majority of landlords to be keen to comply as the rules are beneficial to them as well as tenants.”
An amateur’s worry
Rory Joseph, director at JLM Mortgage Services, agreed that the new standards are unlikely to be of major concern to portfolio landlords – who are better positioned to absorb costs and regulatory burdens.
However, Joseph said that amateur landlords without the experience and capital of their professional counterparts could be vulnerable to the MEES.
“Landlords who are in it for the long term in some respect see it as an inconvenience, because of the obvious cost to bring the properties up to spec,” said Joseph
He continued: “But a professional landlord with a number of properties should probably know that they need to periodically keep their properties up to date and maintain them, so I think those portfolio landlords will take it in their stride.”
“In the short term, it is a cash flow issue, but in the long term it will pay dividend,” he added.
Joseph also suggested the MEES could push more energy-inefficient housing stock into the market, while adding incentives for landlords to look into limited companies.
But the problem, stressed Joseph, is most pressing for the smaller landlord.
“With so much complexity and regulation, those who will suffer most are the accidental or amateur landlords,” said Joseph.
He continued: “They’re the ones who will be facing a big capital expenditure to bring properties up to scratch, and probably don’t have a nice cheque to pay for this kind of thing.
“The cost will be a real problem.”
Rob Barnard, director of sales at Pepper Money, said the changes are unlikely to have much impact as they will fall into the larger framework of regulatory shifts in the BTL sector – suggesting that landlords may not even be aware of the upcoming changes.
“Given the amount of regulatory change that landlords have needed to absorb in recent years, it is also likely that many are not aware of MEES, which will be introduced on the same day as tax relief on mortgage on interest for higher rate taxpayers is reduced to 50%,” said Barnard.
While some landlords may need to make improvements ahead of April and consider a remortgage as a finance option, Barnard said it is nonetheless “unlikely to provide significant stimulus to the market” as only a relatively small proportion of properties are rated either F or G.
“While these energy efficiency standards are an important consideration for property investors, we do not think they will change the current landscape of the BTL market,” he added.
According to the Low Carbon Energy Assessors (LCEA), as of June 2014, 5.20% of domestic properties were in the F category, while 1.51% were in G.
Property Master extends product range and fundraises for expansion
Property Master is to add services such as conveyancing and insurance to its offering.
Launched in May 2017, the firm uses algorithms to match the requirements of individual landlords against more than 2,000 products in the BTL mortgage market.
It does this by keeping a live database of mortgage product information and lending criteria, which is supplied by Market Monitoring, a company that keeps a running mortgage database.
Property Master says that more than 10,000 landlords have used the service so far, with a typical remortgage saving of around £1,800.
“Our vision is to become the destination site for private landlords looking for the products and services needed to support their business,” said Angus Stewart, chief executive of Property Master.
Stewart says that Property Master is working with a third-party firm for the conveyancing function, which is expected to be launched within two to three months.
The startup is also looking a number of different options to provide landlords with a building insurance service.
“We’ll work with third parties to facilitate the delivery of those products and integrate them as much as we can into the Property Master system,” said Stewart.
He continued: “We started with mortgages, but we want to keep adding other functionalities down the line.
“With an estimated two million private landlords in the UK, this is an attractive market to be in.”
The move to expand services and launch a new funding round comes as recent figures from UK Finance show remortgaging to be at record levels.
“Now that we’re in an environment of rising interest rates – the first time we have seen that in more than a decade – we are finding private landlords becoming much more discerning about their funding costs,” said Stewart.
He continued: “We are on track to developing a comprehensive range of online landlord services enabling the convenience management of properties at lower cost, including sophisticated portfolio finance tools of interest to landlords with multiple properties.”
In October 2017, LSL Property Services bought a minority stake in the start up. Property Master will now commence a crowdfunding round through the Seedrs site.
“We are excited to be talking to new potential backers,” added Stewart.
BTL lenders have ‘gaps in the market to fill’ – poll result
The latest Mortgage Solutions poll asked brokers whether they thought the BTL market was suffering from a lack of quality and diversity in the products offered. Almost half of respondents said yes, while 36% said no, and 15% were unsure.
Angus Stewart, chief executive of Property Master, argued that the sector was definitely lacking in diversity: “Three distinctive areas immediately come to mind. There is definitely a gap in the market for lending to landlords with a limited company status. Holiday lets and expat mortgages are also lacking on the lending scene.”
However, Dale Jannels, managing director of All Types of Mortgages (AToM), thinks that the BTL market offers a diversity of products that accommodates for a wide range of specialties – except for “rate chasers.”
“I think it depends on the market you are in – if you are looking for a straight forward rate chase, then it’s not for you now,” said Jannels
“It’s good that lenders are looking at gaps in the markets to fill,” he continued.
Jannels added: “But for those looking at HMOs, multi-lets, flats above commercials, lenders who defer payments while refurbishments take place, new build flats to 80% loan-to-value and so on – no, I think this market is just beginning to hot up. Rates aren’t the be all and end all.”
He continued: “We’ve seen a number of new lenders enter the market in the last 12 months with more planned to launch in the next three. First-time buyers still don’t have a decent option to getting on to the property ladder and while that remains, the BTL sector will flourish.”
Room for more
Ian Gray, senior partner at Kinnison, says borrowers are indeed underserved by the BTL lenders, who he thinks could provide better affordability measures.
“More BTL lenders should be willing to assess the borrower’s overall income, commitments and wealth, rather than blindly relying on the rental income from the subject property,” said Gray.
He continued: “If the borrower borrows in their own name, then they are always personally guaranteeing the BTL mortgage. Therefore, why don’t more lenders use the top-slicing approach employed by lenders like Barclays and Metro Bank?”
“There seem to be precious few BTL mortgages on the market without early repayment charges,” Gray added. “Sometimes it’s not appropriate to recommend a mortgage with early redemption charges (ERCs) if the borrower has plans to sell the property or otherwise repay the mortgage in the first few years. I’ve found that it’s quite difficult to find BTL deals where they don’t tie you in for at least two years.”
Simplicity is key
Helen Pierson, head of business development at Mortgage Bureau, argued that the market is not necessarily suffering from quality or diversity, but is instead lacking in simplicity.
“The BTL landscape is totally unrecognisable from that which we knew only a short time ago,” said Pierson.
“Restrictive criteria, stamp duty increments, taxation implications and lender background affordability checks add layer upon layer of complexity requiring patience and a great deal of knowledge if one is going to be successful in peeling them all back in order to reach the nirvana of a BTL mortgage offer.
“New entrants are more likely to shy away from this area of the market more than any other – put off by its complicated nature, the dampened projections for house price growth, and potential for average returns when you add in the additional hassle factor not associated with other types of investment.”
David Hollingworth, associate director communications at L&C Mortgages, said that while there may not be a “radical” amount of innovation in the BTL sector, the market is adapting quickly – especially given the recent legal changes witnessed by the market.
“There’s a good range of product options even if these may not carry a radical amount of innovation on the face of it. However, I think that we need to bear in mind the amount of change that BTL lenders and the market have had to cope with in rapid succession,” commented Hollingworth.
“As the market adapts to criteria changes and lenders understand the outlook better I think that they will be able to target areas that offer scope for a more diverse option,” he added.
A professional’s game
Ian Boden, sales director at LendInvest, added that the market is lacking in options for an incoming rise of professional landlords.
“The array of tax and regulatory changes we have seen introduced over the last year will see a rise in more professional landlords with larger property portfolios within the BTL market,” said Boden.
“Product innovation looking forward needs to recognise and better cater for portfolio landlords, as opposed to focusing predominantly on those with individual properties,” he concluded.
Top 10 most read stories on Mortgage Solutions this week – 02/06/2017
But read on to find out more about Co-op Bank’s plans to shore up its capital reserves and the launch of self-annointed ‘market disruptor’ and mortgage club The Adviser Alliance.
The digital versus bespoke face-to-face advice debate also continued to rage on and will continue for a while yet.
Thanks to all our readers this week.
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Mortgage club The Adviser Alliance launches
Existing borrowers are ‘biggest group of potential leads you are ever likely to see’
Digital broker Property Master launches targeting landlords
AA opens mortgages to all in direct-only market
Digital broker Property Master launches targeting landlords
Property Master promises landlords the ability to source and apply for buy-to-let loans which match their exact requirements, with all mortgages “pre-screened for acceptance”. The broker claims that borrowers can run simple ‘what-if’ searches, and apply for the right deal with a single click.
Property Master claims its service works “round the clock”, sending clients alerts as and when offers change to their advantage. It also will make “unprompted suggestions” to remortgage early if the deal is good enough.
It doesn’t charge a fee for its services on standard mortgages, but says there may be fees on complex deals when its in-house team needs to get involved.
Property Master is headed up by Angus Stewart, the man behind fraud management, risk and compliance specialist e-Solutions.
Stewart explained: “Taking control of financing is essential for landlords, as the government continues to put a tighter squeeze on tax relief and other allowances. Having the right mortgage deal in place, and taking the time to think through the overall portfolio finance, can make all the difference to a landlord’s financial return.
“With such important benefits on offer, there is a clear need for an easy-to-use but sophisticated online service that puts landlords in control.”