A month is a long time in the buy-to-let mortgage market, although Covid-19 has added a certain feeling of Groundhog Day to our lives due to the various government restrictions currently being applied around the UK.

However, the buy-to-let mortgage sector continues to evolve in reaction to market demands and the marketplace is as dynamic as ever with daily changes to product pricing and lending criteria. 

Encouragingly the Stamp Duty holiday has had a noticeable positive effect on the buy-to-let purchase market as landlords seek to expand their portfolios while the cost saving measure is still in place. At Buy-to-let Direct, the level of purchase enquiries and applications has increased significantly since April 2020.

The boost to purchase activity is good for landlords and lenders, but some providers are dealing with the surge better than others. It seems apparent that those who have good IT systems and streamlined processes are able to handle the increased demand, but less well-equipped providers are struggling to maintain service standards. This clearly has a detrimental effect on the customer experience, causing frustration to everyone involved.

In the current coronavirus environment, landlord customers now expect a better online service from all parties to the mortgage application process, including being able to choose a product without the need for face-to-face meetings. Being able to upload supporting documents online is also a key advantage in terms of efficiency of service, so lenders without online facilities may lose out to the competition.

At Buy-to-let Direct, we have a dedicated buy-to-let mortgage sourcing system which includes an online application form. We have recently added an online declaration and the facility to upload documents directly which will increase our processing efficiency. BM Solutions also announced recently that it would be launching a new online application system in 2021 with improved document uploading and case tracking features.

If buy-to-let mortgage providers are to maintain good service levels, continual improvements to IT systems and processes are key to meeting the expectations of customers. The current environment is unusual and pent-up demand for properties is putting higher than normal pressure on lenders, however it is a good way to identify potential shortcomings and find solutions for giving a better service.

Outlook for the buy-to-let sector

Buy-to-let mortgage brokers are starting to feel more confident about the buy-to-let market as recent boosts to business give rise to some optimism. Paragon recently published its latest FACT index for quarter three, September 2020, which showed that nearly half of brokers (48 per cent) are seeing ‘strong demand’ for buy-to-let mortgages, up 22 per cent from June.

Nearly half of participants (49 per cent) expect to see more buy-to-let business in the next 12 months, up 8 per cent from June. Also, 89 per cent think that their business will be as strong or stronger than before the Covid-19 crisis, up 8 per cent from June.

It is good to see growing confidence among buy-to-let mortgage brokers, but elsewhere in the buy-to-let sector there is concern for the support being offered to tenants during this time. Although the furlough scheme has been extended to the end of March 2021, questions still arise over what further assistance tenants will receive if they are struggling to pay their rent and will landlords end up bearing the financial burden.

The National Residential Landlord Association (NRLA) has been campaigning for the Government to provide interest free, government guaranteed hardship fund loans for tenants in England to help them pay off Covid-19 related arrears. This type of scheme is already in place in Scotland and Wales. The NRLA also calls for landlords to be able to cover arrears by grants if tenants don’t take up a loan.

The impact of Covid-19 on the buy-to-let sector has been difficult for all parties involved, but there are indications that as the market recovers, confidence is growing and there is optimism for the future. However, there are still challenges to overcome before a real sense of normality returns.

There are encouraging signs in the buy-to-let market that it is making a recovery since the housing marketing opened up at the beginning of May with the return to visual inspections in England. Since then we have seen a flurry of activity from lenders as they reassess their buy-to-let mortgage propositions in response to greater demand and competition. This has resulted in more products being offered, better rates, higher LTVs,increased maximum loan sizes and many other criteria tweaks that reflect the growing confidence among both lenders and landlords.

There are other factors that have come about as a result of Covid-19 that may also help the buy-to-let sector to rebound and provide a boost to mortgage business for intermediaries. The temporary change to stamp duty on properties valued up to £500,000 was predicted to create a surge in buy-to-let purchase applications and there is evidence that this has started to happen since the measure was announced in July.

At our business, since the end of July, the percentage of enquiries about mortgages for buy-to-let purchases has risen to around 72 percent compared with just below 50 per cent during the month of June. This is a significant change and indicates a renewed level of purchase activity from landlords. A recent poll carried out by Cherry, a mortgage adviser forum, showed that over half of brokers had experienced increased buy-to-let business with nearly 30 per cent reporting an increase in individual purchases and 27 percent reporting an increase in limited company purchases.

There is clearly a pent-up demand from landlords who may see now as the perfect time to expand their portfolios and take advantage of good opportunities with more properties available on the market and vendors eager to make a deal. The pandemic situation has also curbed people’s spending and provided an opportunity to save over the last 5-6 months, savings which could now be used as deposits for new property investments. With savings rates so low – around 40 per cent of easy access accounts are earning 0.1 percent or less - investing in property may be an even more attractive option; Halifax reported an average rise in property values of 1.6% in the month of July.

As the coronavirus remains in the UK and as the economy tries to recover, the number of income and job losses has been staggering and the damaging effect on many people’s livelihoods is hard to witness. It is difficult to predict how the next 6 months will unfold and what new job opportunities will develop for those looking for work. It may result in people becoming more mobile and perhaps relocating to new areas to gain employment. This could increase demand for rental accommodation from new tenants including those who don’t want to commit to purchasing property in a different area.

Covid-19 has had a dramatic effect on UK workplaces with an increasing number of staff working from home. This trend may become the new norm as businesses recognise the potential benefits of home working. This may also impact on the type of properties that tenants require – perhaps seeking extra rooms to accommodate a home office.

What is clear is that as we recover from the impact of the pandemic, tenant demand for rental property remains strong and that landlords are keen to grow their property businesses.