Positivity in the marketplace

There has been plenty of positive movement in the buy-to-let sector in recent months which has been supported by numerous reports and surveys from different corners of the market.

Moneyfacts reported in late May that average buy-to-let mortgage rates have been on a downward trajectory and reached some of the lowest pricing since the beginning of the year. It calculated the average 2 year fixed rate across all LTVs was 2.95% compared with 3.05% in March. Only January 2021 had a lower average at 2.89% so far this year.

Clearly an average calculation does not show all price movements and some higher LTV products have increased, whereas the lowest 2 year fixed rate available via our brokerage at the time of writing is 1.19%. What it does show though is that there is healthy competition in the market and that lenders are constantly tweaking their product ranges to meet customer demand.

Rise in rents

There has also been news from Hamptons, the estate agents, of a rise in rents which may bode well for landlords. In its latest Lettings Index April 2021, Hamptons showed that average rents rose by 5.9% in Great Britain which was the fastest growth since January 2015. Paragon Bank also reported that during the first quarter of 2021 average rental yields across England and Wales were at 6 per cent, up from5.3 per cent in Q1 2020.

This is encouraging news for potential property investors looking at the prospects for buy-to-let, although the Lettings Index did show considerable regional variations, suggesting that landlords should investigate the rent expectations and tenant demand for the particular area they are looking to purchase property. To illustrate, the highest rental yields recorded in the Paragon Bank survey were in the South West (6.7 per cent) and the North East (6.6 per cent).

Not only are there positive signs in the buy-to-let sector for landlords, but it appears that mortgage brokers are also starting the feel more confident in the market. According to Paragon’s recent quarterly Financial Adviser Confidence Tracker, half of intermediaries polled expect to write more buy-to-let mortgage business during the coming year than in the past year, which is the highest level of confidence found since 2014. 

Lender confidence

It seems that the appetite of lenders is also strong, not only with competitive pricing being evident but also with the development of new product propositions and improving criteria. The specialist buy-to-let sector is certainly in a good state with a wide selection of providers for complex cases such as HMOs, multi-unit blocks, semi-commercial and limited company applications.

More niche lending areas such as for holiday lets are also improving, with Interbay and Paragon recently joining other lenders in this arena. Other good signs for buy-to-let brokers and their landlord clients is the return of the Precise top slicing proposition which allows applicants to use surplus portfolio rental income or earned disposable income to support their affordability assessment.

It is encouraging to see growing optimism across the dynamic buy-to-let sector and it is reasonable expect some growth in the overall level of buy-to-let lending in2021, as key drivers such as tenant demand, strong rents and the availability of finance, continue to support the private rental sector in the UK.

Environmental concerns

In recent years, the environmental issues affecting our planet have taken central stage in the media and many people have become more concerned with their own carbon footprint. There are many ways that individuals may modify their lifestyles in an attempt to help fight climate change and protect our home on Earth, such as switching to green energy suppliers, reducing international air travel, or using public transport and cycling to work.

There have also been incentives provided by the government by way of the Green Homes Grant scheme to help homeowners make their properties more energy efficient, although applications closed on 31 March 2021. This scheme was also available to residential landlords who may benefit from improving the EPC rating for the properties in their buy-to-let portfolios.

EPC ratings

Since 2018, landlords have been required to comply with the ‘Minimum Level of Energy Efficiency’ standard which sets a minimum EPC rating of band E for residential rental properties. From April 1 2020, landlords are no longer able to let any properties that fail to meet this minimum standard and may face fines for non-compliance.

There have also been recommendations to government by the Climate Change Committee that all homes in the UK should have an EPC rating of at least C by the year 2028, so there is rising pressure to improve the energy efficiency of housing stock in the UK to help fight climate change.

There is clearly motivation for landlords to make improvements to the energy efficiency of their portfolio and it seems that some buy-to-let mortgage lenders are showing thei support for environmental concerns by offering incentives for properties with abetter energy performance rating.

Green mortgages for landlords

Paragon Bank recently launched a range of green buy-to-let mortgages for properties with an EPC rating from A to C. These products offer lower deposit options of 20 per cent (80per cent LTV) compared with a minimum deposit of 25 per cent (75 per cent LTV) for less energy efficient properties.

Paragon also offers a green further advance product to help landlords make improvements to properties with an EPC rating of D or below. Similarly, TMW is offering a green further advance product for making energy efficiency upgrades.

Other green buy-to-let options include Foundation Home Loans with a ‘Green Reward’ remortgage product for applications where sufficient energy improvements can be demonstrated; and Keystone Property Finance who launched a green buy-to-let mortgage in April, which offers a 15 basis point reduction off their core range for properties that are 5 years or older with an EPC rating of A to C.

As there are mounting efforts to improve the energy efficiency of the UK housing stock, landlords are playing their part either by choice or obligation. There may also be more pressure on lenders to ensure that properties on their mortgage books meet the new EPC requirements, so providing green mortgage incentives for energy efficiency upgrades makes sense for all parties involved.