t continues to be a challenging market for property investors, with many landlords especially feeling the pinch. As costs rise and uncertainty looms in the mainstream lending market, BTL investors are seeing their options diminish.
High-street banks continue to pull deals from the shelves, often with little or no warning. Unfortunately, many of the mortgages being removed are of the BTL kind. As we moved into June, the number of BTL mortgages available fell from 2,748 to 2,343 within the space of a few days, according to Moneyfacts.
And where BTL products are reintroduced or updated, they’re usually done so with less favourable terms and higher costs. Indeed, the Bank of England recently warned BTL costs may continue to rise over the coming months. Add to this the Renters Reform Bill, EPC deadlines and other legislative changes, and it makes for a bleak outlook.
Despite all this, there are still glimmers of hope in the rental market. In fact, many of the dire headlines we see in the press appear to be overblown. A mass exodus of landlords was predicted and, while many have sold up, others are planning to expand.
Four in 10 landlords plan to buy more properties over the next 12 months, according to a recent industry survey. Portfolio landlords (those with 11–20 properties) appear especially optimistic, with 54% planning to invest.
We must remember that, ultimately, so long as there is an imbalance between supply and demand in the market, there will be a need for BTL investment. There are simply not enough high-quality rental homes to meet tenant demand at the moment, which is pushing up rents. Yields may be under pressure, but average rents in the prime market are still up 11% year-on-year.
Meanwhile, entrepreneurial investors continue to seek out particularly lucrative segments
of the rental market. Many are turning to HMOs, where yields of nearly 9% can still be found. Billions are also being pumped into unwanted London offices, which are being converted into student accommodation, as well as hotels and laboratories.
Even Michael Gove, who has been accused of going to war with BTL investors in the past, has changed tack recently, acknowledging landlords are “vital” to the private rental sector.
The property market needs landlords, and landlords want to prosper. There is still positivity on the horizon. Lenders need to have the confidence to support this optimism.
Paresh Raja, founder and CEO of MFS
“There is still positivity on the horizon. Lenders need to have the confidence to support this optimism”
The market research was carried out between 1st and 5th July among 2,000 UK adults via an online survey by independent market research agency Opinium. Of the 2,000 respondents, 250 had applied for a mortgage between 1st July 2022 and 30th June 2023.
50%
of all respondents have had a mortgage withdrawn by the provider while they were applying for it, of which:
49% are homebuyers
32% are remortgage applicants
61% are property investors
50% are homebuyers
43%
of respondents have been turned down by one or more lenders in their hunt for a mortgage since July 2022 following affordability checks, of which:
32% are remortgage applicants
54% are property investors
36%
of investor respondents had a mortgage agreement in place that later fell through
30%
of property investors lost out on a property purchase due to difficulties securing a mortgage
29%
lost money on agent fees and legal costs as a result of a property purchase falling through
64%
of investors used a broker to apply for a mortgage in the past 12 months
70%
of property investors have struggled with stress or anxiety because of difficulties securing a mortgage
70%
of property investors claim lenders are lacking flexibility, while
66%
believe there is a lack of certainty and assurance being provided by lenders
68%
of investors are more likely to look for alternative lenders to finance a property purchase
75%
of investors believe mortgage brokers are essential for navigating the current mortgage landscape
52%
of respondents are looking to purchase a property once house prices have fallen, of which
63% are aged 18-34
43% are aged 35-54
5% are aged 55+
Homeowners across the board are struggling— and this is especially true for investors and landlords. We’ve all seen the chaos that has befallen the mortgage market. Lenders are finding it tough to keep up with consistent base rate hikes, persistently high inflation and a shaky economic landscape. This, as to be expected, has had a direct impact on borrowers.
But just how much of an effect have these issues had? Are the detrimental consequences being shared equally by all the participants in the property world? To find out, MFS surveyed 2,000 people.
We asked the respondents if they had applied for a mortgage in the past 12 months and, if so, whether the application was from a first-time buyer, a homeowner looking to buy to move, a remortgage or a BTL loan for a property investment.
The results showed just how prevalent mortgage problems are right now, especially for landlords. Across all applicants surveyed, 50% revealed the mortgage they wanted had been withdrawn by the provider while they were applying for it. However, this rose to 61% for BTL investors.
This theme of missing out proved to be omnipresent for all the different types of applicants. Many ended up being turned down for a mortgage following affordability checks (43%), had a mortgage agreement in place that later fell through (31%) or lost out on a property purchase because of difficulties in securing a mortgage (27%).
Unfortunately, these problems are acutely felt by landlords. Across all the issues we identified, more investors struggled with them than those buying or remortgaging a home. This all takes a toll, both financially and mentally. Nearly two-thirds (64%) of investors ended up searching at least once a week for the best mortgage rates available, while 29% said they had lost money on agent fees and legal costs because a purchase fell through. The majority (70%) revealed they had struggled with stress or anxiety because of these difficulties.
Despite all these setbacks, landlords are still looking for opportunities, and many are exploring alternative options. Most of those we surveyed said there was a lack of certainty, assurance and flexibility from lenders at the moment. Nonetheless, 64% planned to purchase a property should house prices fall and 68% were likely to look for alternative lenders to finance their investments.
Now is the time for specialist lenders to step up and offer support where mainstream providers cannot. It’s here where bespoke finance can provide much-needed respite.
At MFS, all our specialist products are designed with a complicated economy in mind. We can work with chain breaks, sporadic incomes, foreign national investors and more. We’ll be able to provide certainty for an uncertain market.
Foreign nationals often turn to us to help them gain access to the UK property market. It can be difficult accommodating the complexities that come with overseas interests. The underwriting process can be especially tricky where a foreign national is making their first UK purchase.
We recently had to support such a deal with a property investor who was applying for a BTL mortgage. At the same time, they were seeking tenants for their new purchase, while also juggling a complicated financial background.
Fortunately, having over 16 years’ experience in the specialist finance market, we know how to adapt to complications. To secure the investment’s long-term potential, the underwriter focused on the client’s exit strategy. While multiple refinancing options were available, for added security, we also worked with the borrower on a potential backup exit strategy just in case.
This just left the issue of finding tenants to start generating some income. To make this easier, we allowed the client to roll up their interest for the first few months. This provided time to lock in suitable tenants comfortably.
The landlords we work with often use the various repayment options we offer for the additional breathing space they provide. Typically, we’re able to help BTL investors make improvements to the properties they’re buying, find the right tenants or get their wider affairs in order.
Loan amount £300,000
Property value: £450,000
LTV: 65%
Our ability to adapt to a client’s circumstances is one of the primary reasons why borrowers keep on coming back to us. A BTL investor, who we had lent to previously, reached out to us as they were facing a tight deadline.
This borrower planned to purchase a new-build property, rent it out to tenants and move onto longterm finance, but the developers involved were putting pressure on the client to complete and meet a quickly approaching deadline. A mainstream bank would probably not be able to move quickly enough for this deal, but the borrower knew we’d be able to help.
Loan amount: £343,000
Property value: £490,000
LTV: 70%
Our BTL mortgages can be issued in mere days, allowing our clients to react to the wider market quickly. For this case, the underwriter explored the client’s background to make sure everything lined up, which was made easier by the fact that we had worked with them previously.
While we noted the potential rental income would be relatively low, our underwriter looked at the wider picture to support the loan. The property itself held many unique features, which, when combined with easy access to a prime city centre, made us confident that they would push it into a higher rent bracket eventually.
With this foresight in mind, coupled with the fact that the investor had many exit strategies available to them, we were confident any short-term income problems could be overcome. We issued funding with plenty of time to meet the developer’s deadline, which allowed the client to focus on growing their portfolio.
