What are specialist buy-to-let lenders offering in the current market and how can brokers support them?

As the buy-to-let market continues to find its feet after September’s infamous mini-Budget, collaboration between lenders and brokers is more important than ever.

An unpredictable climate

While the initial panic that followed September’s mini-Budget may have subsided, it can be said that some uncertainty remains in the buy-to-let market. With the wider economy still liable to change at short notice, the potential for unpredictability is high. This was demonstrated in March when the Bank of England’s Monetary Policy Committee made a last-minute decision to increase interest rates from 4% to 4.25% on the back of inflation’s shock rise in February to 10.4%, up from 10.1% in January.

However, there has been some good news for landlords when it comes to the number of buy-to-let mortgages available. In early March, Moneyfacts reported that a total of 2,400 different deals were available to landlords either buying a property to rent out or remortgaging an existing asset. This is the most amount of choice buyers have had since July 2022, two months before the mini-Budget. While this is encouraging to see, this does not seem to be translating to more mortgage approvals. In fact, analysis by broker Mortgages for Business showed that as of February 2023, a third of buy-to-let mortgage applications are now being rejected. As well as lenders being increasingly cautious after September, this could also be due in part to the Bank of England’s January warning to exercise more scrutiny when issuing buy-to-let loans and other loans – including loans to small businesses, commercial mortgages and unsecured personal loans – which the Bank’s Prudential Regulation Authority sees as more vulnerable amid the cost of living crisis.

A can-do approach from lenders and brokers

As high street banks’ criteria remains strict, responsibility often falls to specialist lenders to assist where they can. In order to do this, they need to think outside the box to find solutions.

One reason for this can-do approach is the scenario that many landlords have found themselves in where tenants have not paid utility bills and the landlord has been issued with fines or CCJs. Often, these charges only come to light when the landlord looks to remortgage. Even before the mini-Budget, this could cause problems with high street lenders but as their criteria has been tightened, this can be harder to rectify when faced with a deadline, which is often the case.

This recently happened at MT Finance where a landlord was looking to remortgage one of their rental properties. After having their application declined by a high street lender due to some adverse data which had come to light. Having discussed the case with their broker, we assessed the situation and took a common-sense approach to the case. As the client had proof that it was not their liability and we had assurances that the credit file would be updated, this gave us the confidence to proceed. As updating the credit file was going to take up to 90 days, we added a condition to the offer which stated that the credit file needed to be amended or notice of correction given prior to completion.

Why communication and collaboration matters

In order to ensure the success of cases like the above, it is vital that brokers and lenders collaborate as much as possible. The importance of communication also can’t be overlooked, particularly between third parties such as valuers and solicitors. Having this can often be make or break for a case, particularly when a borrower has a tight deadline. Considering how vital this is, it can often be worth talking a case through with a lender’s business development manager or sales manager prior to submitting an enquiry. This will help to provide an overview of whether this is the right lender for this particular case.

Flexibility on products

As borrowers who are looking to either purchase a new investment property or remortgage an existing asset will be facing higher rates, some lenders are looking at ways they can make the terms more favourable. This includes slightly lower products but with higher fees. While the cost for the client is the same on a payment perspective, the ICR on a cheaper rate allows them a greater capital release upfront.

While it is important to be flexible, both lenders and brokers need to ensure that affordability is not affected. For landlords who are coming to the end of their current term and are concerned about re-mortgaging and the increased rates, it may be worth them looking at how they can maximise their yield. One way of doing this is by undertaking a light refurbishment of their property. There are multiple pros to this approach, including the fact that it’s less costly than a full renovation, it takes less time to undertake and it can often be done without disrupting current tenants.

Passing these costs onto tenants is becoming increasingly common in the current economic climate. In February, Landbay’s quarterly survey revealed that 44% of landlords intend to increase rent by between 6% and 10% within the next 12 months if their mortgage costs increase.

Giving the borrower options

One concern that should be considered is the number of landlords who will be looking to remortgage this year. With many of them used to low, fixed rates, the current climate could be a shock, particularly for those who have post-2008 experience and smaller portfolios, giving them less options to offset costs against unencumbered properties or those with lower LTVs.

For those who are looking to ride out the storm before moving onto long-term finance, a bridging loan could act as a stepping stone. This would allow landlords to secure the short-term fix they need while we remain in a higher interest environment. To ensure borrowers are maximising bridging’s versatility, brokers should look to source one that has no early repayment charges or exit fees. This will allow borrowers to take advantage of more favourable buy-to-let mortgage rates.