The buy-to-let mortgage market has come under pressure in recent years due to the multitude of tax and regulatory changes aimed at the sector. However, lenders are demonstrating their willingness to support landlords with a strong appetite for business and a renewed sense of innovation from some providers.

There are more lenders and products available now than there has been in the last ten years and a healthy competition is playing out among them, which means that there are some excellent deals for buy-to-let clients.

Lenders are not just competing on price though. Some are looking at ways to meet more specific requirements that result from the varying demands of landlords. For example, there is a good choice of lenders who offer top-slicing, or rental top up, facilities to support applicants who may fall short of the more stringent rent stress tests in the current marketplace, but who can comfortably afford the monthly payments with surplus earned income.

There are now more than 10 lenders on the our lender panel who offer a top slicing facility, including the likes of Hinckley & Rugby Building Society, Axis Bank and Precise Mortgages. These schemes are targeted at landlords with surplus earned incomes to support their affordability assessment, however our most popular lenders are still those without any minimum income requirement such as Vida Homeloans, Foundation Home Loans and Zephyr Homeloans.

We are also seeing lenders launching special offers with unique schemes that sit outside of their normal product ranges. For example, Foundation Home Loans have recently released an early remortgage special for landlords looking to refinance within 6 months of purchase which is proving popular. There are 2-year and 5-year fixed options which are now available to portfolio and non-portfolio clients.

Foundation Home Loans also have some “ERC 3” products which are 5-year fixed rates that only have Early Repayment Charges for 3 years and could be an attractive option for landlords who may need to refinance before the fixed term is up. It is worth being aware of these schemes as they will not necessarily be the cheapest rate but could be a better choice in certain circumstances.

It is a current trend that 5-fixed rates are often the preferred option in today's marketplace, accounting for over 50 per cent of new buy-to-let mortgages. However, in this period of economic uncertainty some buy-to-let investors may be interested in even longer fixed rates, especially as interest rates are still relatively low.

For this reason,it may be useful for brokers to be familiar with the 7-year fixed rates available with Zephyr Homeloans starting at 3.30 per cent and the 10-year fixed rates from Leeds Building Society starting at 2.49 per cent. There is also a 3.24 per cent 10-year fixed rate from TMW which only has ERCs for 5 years and comes with a free valuation and £250 cashback.

It is apparent that lenders are starting to think outside of the box in terms of product design and looking for ways to provide financial solutions for landlords in this ever-changing marketplace and there are now options beyond the mainstream that could help them.

The government has introduced new rules in England, banning landlords and agents from charging fees to tenants associated with setting up or maintaining a tenancy and capping tenancy deposits at a maximum of five weeks’ rent.

Designed to allow tenants to see, at a glance, what a property will cost them in advertised rent, the Tenant Fees Act 2019, applies to all new or renewed tenancy agreements, student lets and licences to occupy housing in the Private Rented Sector (PRS) signed on or after 1 June 2019 – and to all applicable tenancies and licences in the PRS from 1 June 2020.

Allowable fees and charges

Put simply, the only payments that landlords or letting agents can charge to tenants in relation to new contracts are as follows:

- rent

- a refundable tenancy deposit, capped at no more than 5 weeks’ rent where the total annual rent is less than £50,000, or 6 weeks’ rent where the total annual rent is £50,000 or above

- a refundable holding deposit (to reserve the property) capped a no more than 1 week’s rent

- payments associated with early termination of the tenancy, when requested by the tenant

- payments capped at £50 (or reasonably incurred costs, if higher) for the variation, assignment or novation of a tenancy

- payments in respect of utilities, communication services, TV licence or Council Tax

- a default fee for late payment of rent and replacement of a lost key / security device giving access to the house, where required under the tenancy agreement

Any fees that aren’t on the list are prohibited and the government’s guidance makes it clear that landlords and agents can’t charge for:

- admin activities or time taken to set up a new tenancy, including reference checks or credit referencing

- providing an inventory

- checking a tenant out at the end of a tenancy

- a professional clean at the end of the tenancy (although landlords may request that a property is cleaned to a professional standard); and

- wear and tear

Prohibited payments are outlawed under the ban and landlords can’t get round the rules by asking tenants to undertake and pay for these items via a third party.

In most areas, the Trading Standards authorities will be responsible for monitoring and enforcing the rules. A breach will usually be classed as a civil offence, carrying a financial penalty of up to £5,000. If a further breach is committed within five years of a financial penalty or conviction, it will be treated as a criminal offence, subject to an unlimited fine.

Landlords will also have to refund any unlawful fees to tenants.

Savings for tenants

The government estimates that implementation of the Tenant Fees Act will save tenants across England at least £240 million a year, or up to £70 per household.

However, ARLA (The Association of Residential Letting Agents) is less sure, and questions whether landlords will be forced to increase rents to cover at least some of the costs.

What’s clear is that landlords can no longer add on fees over and above the headline rent, except for a very limited set of circumstances.