DO WE HAVE THE PANACEA FOR AN AGEING LANDLORD MARKET?

After joining Paragon Bank as commercial director for mortgages in April this year, Louisa Sedgwick talks about her ambitions for the bank beyond finance—and why succession planning for older landlords is vital

Words by Andreea Dulgheru

ears ago— before she became the industry powerhouse she is known to be today—Louisa had one career dream: to become a policewoman. Sadly, due to her being shorter than the height requirement at the time, fate took her on a different path, one that saw her join a youth training scheme for travel and tourism. After a couple of years there, Louisa landed a mortgage underwriting job at Bradford and Bingley in 1992. She worked at the firm for 20 years in numerous roles—including BDM, regional sales manager, head of sales, and head of thirdparty relationships—until she decided to depart and set up her own consultancy business. “I thoroughly enjoyed running my own consultancy as it meant I could spend lots of time with my daughter, who was three at the time,” reminisces Louisa.

Three years later, she was approached to take on a role at Leeds Building Society, where she became head of sales. “It was a fantastic role, and Leeds Building Society is a brilliant organisation with the most amazing culture—and when you experience such a great culture and you have to leave it behind, you always try to get it back.”

At that point, Louisa’s reputation resulted in her being headhunted to join Vida Homeloans, an opportunity she ended up taking. “When I joined them, they didn’t even have the regulatory permission, so it was a bit of a risk moving from what was a fantastic role at Leeds Building Society to something that was bright lights and great excitement. However, working at Vida Homeloans was a great experience, as it was basically building a brand new lender from scratch,” she states. While working at Vida, Louisa also became the first female chairperson of the Intermediary Mortgage Lenders Association (IMLA) in 2020, a post she thoroughly enjoyed and is really proud of.

While her first official foray into the world of BTL came during her time at Bradford and Bingley’s Mortgage Express subsidiary, it was at Vida where she became a BTL finance expert. “When I started my career, specialist finance wasn’t even heard of—it was very standard and vanilla. The specialisation has evolved over the years and it’s become more interesting, and I would tend to migrate to the intriguing things, rather than the steady ones. So, as the specialist market has evolved, so have I. There are so many more customers you can support who need that specialist kind of product. Only when I reached Vida did I recognise there was a wider scope to help more clients.”

After four years at Vida, Louisa moved to Hampshire Trust Bank for a year as managing director for specialist mortgages, before settling into her current role at Paragon. The decision to join the bank boiled down to two main characteristics: the lender’s longevity in the BTL space, and its great work culture. “Paragon has a fantastic proposition and reputation, and 30 years of operating within the BTL sector. They managed to get through some challenging economic cycles and still perform strongly. And the people at Paragon are so incredibly warm and welcoming; this culture was the largest driver for me,” says Louisa.

One of the biggest things for Louisa when considering a new role is how much value she can add to that company—a rationale that also contributed to her decision to join Paragon. “The brilliant thing about Paragon is that it’s got such a great platform to start with as a well respected and successful brand. So you think to yourself: what can I add to this? And there are some elements that I would love to implement and that I’m going to get involved in,” she states.

One of these big projects focuses on the major task of retrofitting properties in the UK and supporting landlords on this journey. “A retrofit product of some kind is an absolute must at the minute, regardless of whether the legislation changes; as a country, we’ve committed to becoming carbon neutral, so we need to head in that direction.”

According to her, it is not only government deadlines that are pushing landlords to consider retrofitting, but also tenants’ increasing demand for greener and higher quality properties. “What we’re now starting to see are tenants saying they don’t want to put up with substandard homes and, with that, landlords are going to have to react to that probably more quickly than they would ordinarily think about carrying out property improvements.”

Louisa and her team are working on building a proposition that will both support the bank’s existing customers and attract other landlords who are not working with Paragon. To do so, the lender is currently assessing the BTL properties on its books and using this information to design and build a tailored offering. “We’re really fortunate we have in-house surveyors who can give us loads of intelligence around properties and their quality. We’re sat on a gold mine of information, which makes my life a lot more interesting— and a bit easier.”

In terms of the specific elements of the finance proposition, Louisa tells me the bank is considering introducing rate discounts for landlords undertaking improvements to make their properties more sustainable and boost the EPC rating. These will complement its existing green product range for investors buying properties rated A-C. In addition to this, the team is looking at how to offer its existing specialist finance products—including development, short-term and BTL term mortgages—as a holistic package to support landlords throughout the entire retrofitting journey. “We’ve already got lots of aspects available to landlords, but think there’s probably quite a bit of work that needs to be done to tie that all together.”

From cradle to grave Louisa’s second remit will focus on building and sustaining a “BTL property lifecycle”, to ensure that the rental homes sold by older landlords retiring remain in the PRS. This is a growing issue, as recent data from Hamptons shows that nearly three out of four (73%) landlord sales were due to around 140,000 landlords retiring in 2022. “The last thing we want is a deluge of properties leaving the PRS,” she warns, highlighting the growing tenant demand. “We need to retain BTL dwellings in the sector. So, the second task I have to think about is how we work for lifecycle management and succession planning for older landlords, as well as how that works with new landlords coming into the market, as they need support too,” she explains.

To this end, Louisa shares with me her idea to create a dedicated landlord hub to connect old and young property investors with each other, as well as brokers and other third parties, to facilitate and support property transactions between them. While she clarifies this is still very much in its early days—she jokingly calls it “the Sedgwick brainchild”—Louisa is confident this idea will be the panacea for this issue, and is hopeful it will receive support from her colleagues at Paragon.

While these tasks are not easy, Louisa is determined to make them come true to ultimately establish Paragon as a provider of advice and support throughout a landlord’s lifespan. “Ultimately, we want to have cradle-to-grave management, working with landlords at the very beginning of their career, throughout, and at the end of it, while also trying to upgrade their properties over that time to make sure that we’ve got great rental stock on the market. There’s quite a lot to do, but this excites me massively because you can see an end goal where you can retain and have good quality properties within the PRS. If I can build something that supports all of that, then that’s absolutely brilliant.”

Resilience, rents and interest rates

Looking ahead at what the future might hold for the BTL sector, Louisa believes it will continue its strong performance, despite the numerous implemented and proposed government regulations.

“Landlords are incredibly resilient, and tenant demand is growing; there’s always going to be a need to support and house tenants, so I think there’s some amazing opportunities within the PRS.”

In terms of specific trends, Louisa expects to see sustained demand for HMOs, as they offer high yields for landlords and a cheaper housing alternative for tenants navigating the cost of living crisis. On top of this, she considers landlords will continue to diversify their portfolios to ensure profitability.

However, there is one big obstacle that many landlords will face: higher mortgage payments. “A number of landlords that opted for a five-year fixed-rate five years ago will have to renew their mortgage.

Those that want to borrow more money will have to revaluate the situation, while those who want to retain the same amount borrowed will have to pay more for that mortgage,” explains Louisa, adding that this puts landlords in the tricky situation of finding a balance between increasing rents to maintain their mortgage payments while retaining their good-quality tenants.

According to Louisa, finance providers also have their own hurdle, particularly non-bank lenders which may find themselves struggling with funding lines. “Nonbank lenders will have challenges over funding because the securitisation market is not freely open— and, when they can securitise, it’s quite expensive. So, what you might find is some of these more innovative lenders and the smaller non-bank finance providers being acquired by larger bank lenders.”

Nevertheless, Louisa is confident in the strength of the market, stating that plenty of opportunities are still available. “I think we’ve been through what was probably the most challenging time in the BTL sector. We’re coming out the other end and, from here on, it’s going to be just growth. And, if the lender, broker and landlord communities work together, we can do wonders.”

Words by Andreea Dulgheru

Andrew Hardcastle, who leads Hallcroft Finance’s new private offering division, chats to us about the latest trends in the BTL market, the importance of getting the right people, and why the devil is in the details of complex transactions

After two decades of working in finance for several banking institutions— including Yorkshire Bank, Clydesdale Bank and Handelsbanken UK—in addition to roles at brokerages, Andrew decided it was time to take matters into his own hands and launch his own firm. At the same time, Hallcroft Finance was searching for the right person to lead a new division. A fateful conversation with his longtime friend and Hallcroft Finance’s director, Adrian Cormican, led to Andrew landing the job he was looking for. Now, he is ready to raise awareness of the company’s extensive services and support HNW and BTL clients secure the finance they need.

In his new role, Andrew will provide advice for complex deals primarily in the BTL space, including HMO and MUFB finance for individuals and limited companies. He will also advise on protection policies for individuals and businesses as part of the private offering division’s aspiration to be a one-stop-shop service.

I had made up my mind to leave my previous role and set up my own business to use all the experience I had gained. I’ve known Adrian for a number of years and had used him as a sounding board for advice throughout my career, and I talked to him about this decision. He then told me that creating this division was something he and Martyn [Pollock, director at Hallcroft Finance] were always open to, but they had never found someone they could put their trust in to be able to set this up. As we had known each other for so long and had worked together previously, he had already seen how I operated and, since I was considering leaving my previous role, I was the perfect person for the job.

At the same time, joining Hallcroft Finance was the best way to set up on my own because I wasn’t starting a brand from scratch—it offered a balance between having support from the business and the flexibility and freedom to lead in my own way. While a support network and processes are already in place, they aren’t necessarily ones that I can’t change and develop myself.

The main priority will be the growth of the team and developing it with the right people. We don’t want to recruit anybody; they have to be the right team members who fit the company’s ethos. On top of this, we want to build our relationships and establish new ones in the three hotspots where we have offices—Leeds, London and Edinburgh. We want to raise awareness of the property finance services that Adrian and Martyn are providing, as well as tap into the BTL market in these areas to really enhance these relationships. It’s more than client retention; it’s all about providing a full, holistic package of services. If we do the BTL and development funding as well as the business protection for a client, there’s a mutual trust between ourselves and the customer, so it makes it easier for them to do business with you.

What recent trends have you seen in the BTL market?

The biggest shift we’ve seen over the past 6–12 months is people from the South investing up North instead. We’re getting a lot of London investors looking for new investments in this region as they can get a better return and can split the risk across multiple properties. The deposit you’d need for a property in London can often get you three or four up North. However, they often don’t know the area, so this is where they would want to trust an adviser.

We’re also seeing more people come to talk to us about buying BTL properties that need improvements, refurbishing them and securing long-term debt afterwards. And there seems to be more appetite for this across lenders as well— there’s probably a bigger offering now than there’s ever been for people wanting to buy properties that need to be done up.

Apart from that, most cases that are coming across my desk from Adrian and Martyn are about the options a developer has to hold the scheme as a BTL investment. This offers some comfort that there’s an alternative exit plan for the original development finance, while also providing clients with another income stream.

Have you seen any changes in the HMO sub-sector over the past few months?

I’m not sure how it is in other regions but, in Yorkshire, it’s a lot harder to get your HMO licence than it was five years ago, so these types of properties are being sold for a premium now by older landlords who want to get rid of the ones they own. For example, I’ve got a landlord in his 70s who wants to sell his six HMOs as he doesn’t want the hassle of managing properties, but he knows that as no one can get a licence in and around that area, HMOs have more value. There is definitely a premium for HMOs here—it’s a seller’s market.

With other local authorities looking to clamp down on the number of HMOs in their area, what impact would this have on the overall PRS?

Landlords and developers are getting hit hard from every angle at the moment. I understand the desire to professionalise the industry, but you have to be careful what you wish for, as adopting a onesize-fits-all approach will be a mistake. Existing housing stock, demographics and the pipeline of delivery across all tenures should be taken into consideration when considering HMOs, social housing, and private rental homes restrictions.

How could the specialist BTL market evolve over the next year?

Rates have risen by over 425 basis points since December 2021 and, while we all knew change was coming, many didn’t expect it to tighten so quickly. This is the backdrop the BTL sector and many others need to adapt to—and those that can find a way to adjust will be successful. The source of capital and what it costs are the most fundamental starting points; if these are not carefully managed, lenders will struggle to build a business.

Our experience has shown us that in every market there are newcomers, whether that be vulture funds, family offices or others. I expect there will be consolidation in the industry and there will be someone that surprises us—there always is.

What is the biggest challenge for brokers when arranging finance for specialist BTL properties and for expat, foreign national and adverse credit borrowers?

It’s getting all the right information from day one about licensing, the tenancy agreements in place, and the safety tests carried out for the property etc. The lenders will ask about them at some point and you don’t want to find anything that might cause an issue when you’re all the way down to loan completion. If I get all the information upfront, I know the deals that I give clients won’t change, and that they’re getting terms that are achievable based on their circumstances.

What quality makes a great BTL broker?

A good broker should never be afraid of asking the right questions and finding the answers they need. It’s amazing how many clients can be quite flippant with answers [about the properties they want to buy], so it’s your job to find them for the borrowers, as these could be dealbreakers. Attention to detail is also a great attribute to have.

Apart from this, it’s important to build relationships—not just with your clients, but also with multiple different lenders. There’s not much point meeting the same finance providers who offer vanilla mortgages that don’t change. You want to meet the ones that do the quirky deals for when a deal’s not quite as you’d expect it.