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.