The buy-to-let mortgage market, unsurprisingly, has experienced significant turbulence since the beginning of the coronavirus lockdown which has meant that the profile of lenders and products available to landlords has changed.

To begin with some lenders have withdrawn from the market, a number of these (typically non-banks) should be temporary as they wait for funding lines to become available, but there may also be long term casualties who are unable to return to buy-to-let lending post-crisis.

The overall number of buy-to-let mortgage products has dropped markedly, with Moneyfacts reporting that 1304 products had been taken off during March with changes continuing throughout April and into May. It was reported that 5-year fixed rates took the biggest hit, followed by 2-year fixed rates.

Some lenders have also responded to the crisis by reducing their maximum loan-to-values, resulting in a significant dent to the 80 per cent LTV market and the removal of 85 per cent options. This may cause challenges for buy-to-let clients with more highly leveraged properties when they are looking to remortgage and deter those without high deposits from making purchases.

We have also seen lenders modifying their lending criteria, especially in the complex buy-to-let sector, which may allow the remaining specialist lenders offering, for example, finance for HMOs, limited companies and multi-unit blocks, to take a large slice of the pie.

Interest rates have increased on several ranges which will be disappointing to landlords, especially as the mortgage interest tax relief scheme for buy-to-let properties was finally phased out in April, creating additional costs to many rental property businesses. However, there are still competitive rates to be found.

The fact that the country is in lockdown has meant that visual property inspections are no longer possible and for this reason some lenders have suspended offering new purchase finance. However, there are a growing number of providers who have switched to using desktop valuations or AVMs during this unprecedented time, to allow business to continue.

The government has advised against house moves during the crisis period which has slowed the housing market and impacted on buy-to-let purchase transactions. However, it does mean that there is likely to be a pent-up demand for buy-to-let finance once lockdown measures are lifted and movement in the market is resumed. 

This is obviously a challenging time for everyone in the buy-to-let sector, but also a time when landlord clients can benefit from the support of a buy-to-let mortgage expert. Being able to answer questions about the availability of finance or other relevant issues, such as buy-to-let mortgage holidays(available for both personal name and limited company mortgages), may be invaluable to landlords during these unprecedented times.

Many landlords could save themselves money by remortgaging, so it is also worth reviewing the whole property portfolio during this period. There may be options to release some equity which could help ease the pressure on buy-to-let businesses in the current circumstances.

At our business, we are paying particular attention to remortgage business as many of our clients have mortgages coming to the end of their initial rates during the next couple of months. There are still plenty of options to choose from and solutions to be found for most scenarios, which is where having buy-to-let expertise comes to the fore.

Emergency measures

As everyone in the UK is adjusting to the societal changes being imposed on citizens due to COVID-19, landlords will also be considering the financial impact on their buy-to-let businesses. The Government has announced emergency legislation providing protection for renters meaning landlords cannot start eviction proceedings for at least a three-month period during the national crisis. These measures are designed to protect tenants who are struggling to pay their rent and prevent people from becoming homeless during this unsettling time.

There is also protection for landlords whereby lenders may offer a three-month mortgage holiday for landlords whose tenants are experiencing financial difficulties as a result of the coronavirus. The measure will be welcomed by landlord organisations such as the NLA and RLA who have asked the Government to be supportive of landlords. However, there doesn’t appear to be any specific help for landlords who don’t have mortgages but may also suffer financially during this period.

The NLA and RLA also issued a joint statement encouraging landlords to be supportive towards their tenants: “Landlords should be as flexible as they can to help tenants facing payment difficulties resulting from the impact of the coronavirus.”

The coronavirus crisis coincides with the final removal of mortgage interest tax relief for landlords which has been phased out in stages since 2016. This has impacted higher rate taxpayers most of all and may push previous basic rate tax payers into the 40 per cent banding. No doubt all landlords are concerned about the financial consequences of coronavirus over the coming months.

Section 21 and removal of ASTs

Since last year, UK landlords have been campaigning against the abolition of Section 21 which currently allows landlords to apply through the courts for a no-fault eviction should they wish to take possession of their property for any reason. Section 21 is still expected to be scrapped although the exact timeline is unclear, but it will leave landlords only able to end a tenancy where they can prove they have legitimate grounds under Section 8 of the Housing Act. A Section 8 claim involves a formal court hearing and the median time for this process to complete is 16 weeks, so landlords are asking for legal proceedings through the courts to become more efficient.

In tandem with abolishing section 21, the Government is also planning to remove the Assured Shorthold Tenancy (AST) which would mean that assured tenancies are the only type of tenancy available to landlords. At buy-to-let finance meetings with landlord groups around the UK that we have attended, landlords have been asking how the removal of ASTs will impact buy-to-let lending criteria? So far there has been little indication from lenders as to how they will react to this change in the rental sector, but it would be good to have an idea.

Portfolio landlords

Although the various changes in the buy-to-let sector over the last 5 years have resulted in some landlords selling up, there has been little sign of larger portfolio landlords looking to exit the market in significant numbers. A recent survey by Moore, the accountants, shows that the number of landlords with a portfolio of 10 or more properties has remained constant over the last couple of years at around 43,000. This seems to show the underlying strength of the PRS in the UK and indicates that many buy-to-let investors look at it as a long-term prospect.

Larger professional landlords may be better able to adapt to changing circumstances with a more diverse portfolio and look at other options for higher yielding properties, such a HMOs or multi-unit blocks. They may also look at geographic regions further afield to take advantage of better performing areas of rental accommodation.

Certainly, at our business we are experiencing a continuing demand for more specialist mortgage products that are aimed at complex property scenarios and professional landlords with expanding portfolios. The experienced buy-to-let investors we talk to are often surprised that more lenders don’t provide mortgages to larger portfolio landlords as they perceive themselves to be a better risk than someone with 3 or less properties and are often irked if they have to pay higher rates.

Looking ahead

It is difficult to look too far ahead as we are all currently experiencing unprecedented events and it is unclear how long emergency measures will be in place in UK. However, it is also an opportunity for showing solidarity and support for each other, including the landlord community.