Champion of the Mortgage Professional
BUY-TO-LET
INTRODUCER www.mortgageintroducer.com
October 2020
A GLIMPSE OF THE FUTURE Looking at the next steps for buy-to-let
£5
FOR INTERMEDIARIES FOR INTERMEDIARIES FOR ONLY INTERMEDIARIES ONLY ONLY FOR INTERMEDIARIES ONLY FOR INTERMEDIARIES ONLY
B BB B
IS FOR IS FOR IS FOR The The A The to A Z A to to Z Z ISISFOR FOR The TheA Ato toZZ BROAD BROAD BROAD BROAD BROAD of of BTL of of BTL BTL CRITERIA CRITERIA CRITERIA ofBTL BTL
CRITERIA CRITERIA
CRITERIA CRITERIA CRITERIA HIGHLIGHTS... HIGHLIGHTS... HIGHLIGHTS... CRITERIA CRITERIAHIGHLIGHTS... HIGHLIGHTS... NO UPFRONT MAX. AGE MAX. 95MAX. AGE YEARS 95 AGE YEARS 95 YEARS APPLICATION FEES MAX. AGE 95 YEARS AT END AT OFEND AT OF END OF AND ZERO PRODUCT AT ENDMORTGAGE OF TERMTERM MORTGAGE MORTGAGE TERM FEE OPTIONS ACROSS MORTGAGE TERM OUR ENTIRE PRODUCT RANGE
STANDARD STANDARD AND STANDARD AND AND STANDARD AND UNLIMITED SPECIALIST SPECIALIST SPECIALIST SPECIALIST BACKGROUND PORTFOLIO PRODUCTS PRODUCTS AVAILABLE PRODUCTS AVAILABLE AVAILABLE AVAILABLE WITH NOLTV BACKGROUND LTV LTV AT 75PRODUCTS AT 75AT 75 AT 75 LTV STRESS TEST PORTFOLIO
NO HEIGHT NO HEIGHT NO HEIGHT NO HEIGHT RESTRICTION RESTRICTION RESTRICTION 60 MINIMUM RESTRICTION ON FLATS ON FLATS & ON FLATS & & SHAREHOLDING FLATS & ACCESS DECKON ACCESS DECK DECK ACCESS FOR LTD COMPANIES DECK ACCESS
FLATS FLATS ABOVE FLATS ABOVE ABOVE FLATS ABOVE COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL LOANS SIZES AVAILABLE PROPERTIES PROPERTIES PROPERTIES UP UP UP UP TOTO LTV 1.5M LTV LTV TO 75PROPERTIES TO 75 75 UP TO 75 LTV
Talk to Talk our Talk toexperts our to our experts today… experts today… today… Talk Talktotoour ourexperts expertstoday… today… Call: Email: Visit:
0370 Call: 707 Call: 0370 1894707 0370 1894 707 1894 Call: 707 1894 Call: 0370 707 1894 newbusiness@zephyrhomeloans.co.uk Email:0370 Email: newbusiness@zephyrhomeloans.co.uk newbusiness@zephyrhomeloans.co.uk Email: Email: newbusiness@zephyrhomeloans.co.uk zephyrhomeloans.co.uk Visit: newbusiness@zephyrhomeloans.co.uk Visit: zephyrhomeloans.co.uk zephyrhomeloans.co.uk Visit: zephyrhomeloans.co.uk Visit: zephyrhomeloans.co.uk This information isThis correct information at September Thisisinformation correct 2020. at September We is correct reserve at2020. the September right We to reserve withdraw 2020.the Weand right reserve amend to withdraw theour right products and to withdraw amend at any our and time products amend without our at notice. any products timeAllwithout applications at any notice. time without are Allsubject applications notice. to our Allare applications full subject toare oursubject full to our full Underwriting Criteria, Underwriting details ofUnderwriting Criteria, which can details beCriteria, found of which on details our canwebsite. be of which found can on our be found website. on our website. This*Other information correct ataofSeptember 2020. reserve theTopaz right to withdraw and amend ourto products any time without notice.address: applications are subject toapplications our full The Pavilions, &is costs apply. This information is We correct atFinance September 2020. WeLimited. reserve the right withdraw and amend our products atAll any time without notice. All Zephyr Homeloans Zephyr is afees Homeloans trading Zephyr name isHomeloans trading Topaz isFinance name a trading of Limited. Topaz name Registered of Limited. in Finance England Registered & Wales. in Registered England Company &in Wales. England Noat05946900. Company & Wales. Registered NoCompany 05946900. No Registered 05946900. The Pavilions, address: Registered The address: Pavilions, Underwriting Criteria, details of which can be found our website. are subject to our full Underwriting Criteria, details of which can be found on our website. Bridgwater Road, Bridgwater Bristol BS13 Road, Bridgwater 8AE. Bristol Topaz Road, BS13 Finance Bristol 8AE. Limited Topaz BS13 8AE. Finance isonauthorised Topaz Limited Finance and is regulated authorised Limited is byand authorised theregulated Financial andby Conduct regulated the Financial Authority by the Conduct (Firm Financial Reference Authority Conduct (Firm NoAuthority 461671). Reference (Firm MostNo Reference 461671). No Most461671). Most Zephyr Homeloans is ais name of Finance Registered in England & Wales. Company No No 05946900. Registered address: TheThe Pavilions, Zephyr Homeloans athe trading name of Topaz Finance Limited. Registered in England & Wales. Company 05946900. Registered address: Pavilions, buy-to-let mortgages buy-to-let are not mortgages regulated buy-to-let are bytrading mortgages not Financial regulated are Conduct not byTopaz the regulated Financial Authority. by Conduct theLimited. Financial Authority. Conduct Authority. Bridgwater Road, Bristol BS13 8AE.8AE. Topaz Finance Limited is authorised andand regulated by by the the Financial Conduct Authority (Firm Reference No No 461671). Most Bridgwater Road, Bristol BS13 Topaz Finance Limited is authorised regulated Financial Conduct Authority (Firm Reference 461671). Most buy-to-let mortgages are are not not regulated by the Financial Conduct Authority. buy-to-let mortgages regulated by the Financial Conduct Authority. 12OFBA D56 (09/2020)12OFBA D56 (09/2020) 12OFBA D56 (09/2020) 12OFBA D56 D44 (09/2020) 12OCTC (09/2020)
E
o our full
Pavilions, 71). Most
6 (09/2020)
EDITORIAL
COMMENT Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Associate Editor Jessica Bird Jessicab@sfintroducer.com Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Victoria Hubbard Victoria@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk Mortgage Introducer, CEDAC Media Ltd 23 Austin Friars, London, EC2N 2QP
Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.
The A to Z of BTL
S is for
SPECIALISTS www.mortgageintroducer.com
Beginning the road to recovery
T 31
he buy-to-let market has been tested to its limits in 2020. As the nationwide lockdown was implemented in March to control the cases of COVID-19, landlords were faced with difficult circumstances through the financial situations of their tenants and increased regulation to control evictions. The property market all but ground to a halt, and many simply had to wait and see how the unprecedented situation unfolded. The market slowly reopened, and as the experts in this issue of Buy-to-Let Introducer explain, the buy-to-let industry has begun its recovery and is doing so quicker than many first thought. As the world acclimatises to a new normal, property prices are on the rise with predictions of fluctuations in months to come. Buy-to-let hotspots are emerging in the North West, East Midlands and Wales, and the interest in the rental market is expected to increase as more struggle to meet mortgage affordability criteria. What the future holds remains to be seen, with the true impact of the crisis not yet known. However our experts give their point of view, reflecting on how the crisis has impacted their businesses and what they predict will happen in the coming months. Turn to Page 18 to read about discussions had in our latest buy-to-let roundtable, and Page 24 for an interview with Paul Fryers from Zephyr Homeloans. It may be an uncertain time, but there is hope for the future of buy-to-let as its recovery begins. BTL I
Contents 4 Venturing into the unknown The buy-to-let market has begun its road to recovery but the future remains uncertain 9 Charles McDowell Change is our tragedy and our hope 11 Roger Morris Plenty of opportunities 13 Paul Brett HMOs – the favourite for best yield? 15 Grant Hendry What emergent trends should brokers watch in the new marketplace? 17 Sophie Charman-Mitchell Creating the best buy-to-let applications 18 Round table Our experts discuss all things buy-to-let 24 Mantaining a positive outlook How Zephyr has recovered following lockdown and its plans for the future 26 Paul Fryers Adapting to a new normal
WE’RE SPECIALISTS IN BTL AND ARE HERE TO SUPPORT YOU AND YOUR BTL CLIENTS Buy-to-let lending solutions for Individuals and Limited companies
OCTOBER 2020
zephyrhomeloans.co.uk
BUY-T-LET INTRODUCER
3
FEATURE
COVER
Venturing into the unknown The buy-to-let market has begun its road to recovery, but the future remains uncertain
T
he buy-to-let (BTL) market has gone through its fair share of challenges in recent times, but the COVID-19 pandemic has brought new challenges to the fore. Like much of the wider mortgage market, products had to be withdrawn in the BTL space to allow for service levels to be maintained. Many were concerned that the shadows of the financial crisis would loom and the market would suffer; however, since lockdown restrictions eased back in May it appears the market is recovering quicker than most thought. The industry has had to adapt to different ways of working, new technologies and alternative methods to the norm. Whilst it has been a challenge, it appears that many have grown as a result of this crisis and are adopting these new ways of working into their business practices. As the pandemic continues, some say this is the perfect time to be a landlord as more products return to suit a number of portfolios, but others look towards the future with only cautious optimism. BACK TO WHERE IT ALL BEGAN When the coronavirus pandemic prompted a nationwide lockdown back in March, the effect on the marketplace was immediate. Hundreds of buy-to-let mortgages were withdrawn from the market, which left many landlords unable to obtain a mortgage for their BTL properties. There were examples of products being withdrawn midapplication as property prices fell, and current indices suggest a fluctuating picture. The latest Nationwide House Price Index shows that prices have increased 5% in the year to September 2020 – the greatest annual rise since September 2016. Seasonally adjusted figures show house prices rose 0.9% monthon-month, compared to the 2% increase recorded the month previously. There was low tenant demand as unemployment levels started to rise and many were put on furlough. Meanwhile, precautions were introduced by the government for those who were unable to afford their monthly rent and to control eviction procedures, which meant many
4
BUY-TO-LET INTRODUCER OCTOBER 2020
www.mortgageintroducer.com
FEATURE
COVER landlords were either left out of pocket or with empty properties waiting to be let. Lockdown halted many of the housing data sources as the market paused, and as the property market bounces back, only time will reveal the true impact of COVID-19 A MARKET RETURNING TO LIFE As the market reopened in May and June, tenants once again began to look for properties and slowly an increasing number of products returned to the market. Viewings could take place once again following government advice in June, and some normality resumed. However, lenders had to cope with pent-up demand, which some were prepared for following the so-called ‘Boris Bounce’ back in January, and others were not. This was a market that was already impacted by an unsettled agenda in the UK – with the General Election and Brexit – so many businesses went into recovery mode once they returned to the market. Many agree that now is a good time for landlords who once lost interest due to increasing regulatory and tax changes; with tax benefits, the stamp duty holiday and low interest rates all playing a part in helping a revival of the buy-to-let market. Despite the difficult times faced earlier this year, landlords and investors should perhaps capitalise on the current market conditions, which could change as quickly as the crisis impacted the industry. THE NATIONAL PICTURE The landscape in the UK is changing. Hotspots are being identified as the North West, East Midlands and Wales according to research by Hamptons International, which found that these areas have seen yearly rises in rental prices. Central London, on the other hand, has seen losses of 7.4% year-on-year due to fewer international tenants and many departing the capital as soon as lockdown began. Student accommodation is a part of the market to watch in the coming months. As lockdown started, students all over the country had their university schedules altered and delayed, leading to concerns over whether they would be returning to their studies at all this year. Some industry experts claim that student lets and purpose-built student accommodation need more attention from lenders moving forward, as uncertainty prevails surrounding this part of the market. Lenders are reportedly taking time to pause when lending on student lets, to ensure they work with landlords who truly understand this specialist part of the market. The environment remains uncertain, and even though the BTL market shows promising signs of steady recovery, it remains to be seen as to what the full impact of the pandemic will be. The industry is taking everything in its stride, embracing new technologies and finding different ways to complete processes in these uncertain times. But one thing is for certain – for better or for worse, the buy-to-let industry may never be quite the same. BTL I www.mortgageintroducer.com
Continued demand, but changing expectations Paul Adams sales director, Pepper Money
T
he stamp duty holiday has turbocharged the entire property market, and even though buy-to-let investors will still need to pay a 3% surcharge on standard rates, the lower cost of entry has attracted a surge in purchase activity from landlords. This is encouraging, particularly given that almost a quarter of private landlords have lost income as a result of COVID-19, according to research by the National Residential Landlords Association (NRLA). It seems, therefore, that landlords have acknowledged the pandemic and associated hurdles to be surmountable, and they have not been deterred from growing their portfolios further. Questions remain about the shape and pace of recovery next year. Nevertheless, in times of economic uncertainty, investors tend to seek comfort in “Access to outside space physical assets, and bricks and is now a much bigger mortar are seen consideration for people as a safe haven renting a property” from equities. Even if the property market is challenging next year, I wouldn’t be surprised if buy-to-let remained strong. People will always need somewhere to live, and the private rental sector is a vital part of this country’s housing stock. An interesting trend that has emerged since lockdown is the type of property that investors are buying in response to changing demands from renters. Unsurprisingly, access to outside space is now a much bigger consideration among people looking to rent a property, while houses with gardens are proving more popular than flats. Similarly, there has been a much-reported shift in people looking to move away from cities to more rural locations. This move gives them access to larger properties and more space and, with homeworking set to be on the agenda for the foreseeable future, renters are more inclined to make a choice based on where they want to live, rather than where they work. I’d expect brokers to see continued demand from landlords, but also to see a shift in the types of property they are buying and where they are buying them.
OCTOBER 2020 BUY-TO-LET INTRODUCER
5
FEATURE
COVER
Still an uncertain future for the buy-to-let market Nicola Alvarez
John Goodall
corporate account manager, Accord Buy-To-Let
chief executive and co-founder, Landbay
O
n paper, the buy-to-let market is looking healthier than it was at the start of the pandemic. There are more products available, many at the higher loanto-values (LTVs) we had before March, we’re seeing positive transaction figures, and business is clearly being done, whether it’s purchase or remortgage. However, it’s still an uncertain future. The way we live is changing and as result landlords may look to reposition their portfolios accordingly. City centre properties may lose favour, with renters choosing suburban life, keen to access gardens and less constricted by a daily commute. There may be a geographical shift as locations in the north offer higher rental yields and become more desirable. Likewise, landlords may look to diversify and explore houses of multiple occupancy (HMOs), holiday lets and limited company buy-to-let options to help spread the risk and maintain profitability. We’re also going to start seeing the full extent of the economic impact caused by coronavirus. Concerns over financial security could see potential purchasers rent for longer, keen to have as much flexibility as possible and save up for a larger deposit; however, increased unemployment will see some tenants unable to meet monthly rental payments. Landlords who took a mortgage payment deferral will now have to work with tenants, making potentially difficult decisions as to the next steps. As we go into 2021, the effects of Brexit and the end of the stamp duty holiday in March are both likely to have repercussions in the housing market, potentially resulting in fluctuations in both house prices and rental demand. Advice is going to be crucial to landlords, and brokers should seize the opportunity to provide support and guidance through these challenging times. As a lender we want to support brokers by providing as many options as possible. Our appetite to lend is as strong as ever and we quickly returned to 80% LTV lending as well as resuming applications from first-time landlords. Our market has time and again proven itself to be incredibly resilient and whilst we’re likely to see some landlords exit the market, we will welcome new ones into it – perhaps looking for a change of direction and an exciting opportunity.
6
Looking ahead to next year and beyond
BUY-TO-LET INTRODUCER OCTOBER 2020
L
ike the rest of the mortgage market – and indeed much of the economy – the UK buy-to-let market slowed down significantly as the country went into lockdown. With most buy-to-let lenders reliant on physical valuations, some withdrew from the market as funders became overly cautious and many lenders’ funding restrictions wouldn’t allow an automated valuation model (AVM) or desktop valuations (DV). Landbay, however, continued to lend throughout lockdown. Advanced technology enabled the team to be fully operational within 24 hours, while working from home, with funders staying reassuringly confident. Once lockdown restrictions were lifted and valuers were free to physically inspect properties again, the buy-to-let market returned with a vengeance. There was a surge of applications following months of pent-up demand during lockdown, buoyed by the stamp duty holiday and the opportunity to switch individually owned properties into limited companies without the additional stamp duty burden usually entailed. This demand has continued to grow, and we expect it to do so until at least the end of the year, although volumes are not quite back to pre-lockdown levels. Confidence in buy-to-let remains strong, as the rental market tends to work on the inverse of the purchase sector: as fewer people can afford to buy, more rent. Looking ahead, the end of the furlough scheme will inevitably lead to further rises in unemployment. Most high LTV products have also been withdrawn from the mainstream market, which will make it harder for first-time buyers, or those going through divorce, to get onto the property ladder, leading to higher rental demand. This inverse balance between the rental and residential market looks certain to continue, driving demand and rental yields higher. Looking ahead to 2021, landlords looking to take advantage of the stamp duty holiday will need to act quickly. Realistically, any offers that are not in by early January are unlikely to complete before the scheme ends at the end of March. Q1 may start with high demand, but unless the Chancellor decides to tailor the end of the stamp duty holiday, demand is likely to tail off from the end of January, with very little activity likely again until May or June, when we could reasonably expect the market to start getting back to normal.
www.mortgageintroducer.com
FEATURE
COVER
The bounce-back: Positive outlook for buy-to-let
How the BTL market has fared through the pandemic
Liz Syms
Ying Tan
chief executive, Connect for Intermediaries
founder and chief executive, Dynamo
T
he buy-to-let market was clearly affected by the lockdown, as were all sectors of the market, but it is bouncing back well and the outlook is positive. Initially, the three-month payment holiday helped those who were potentially facing financial difficulty with tenants not paying their rent. The announcement of the stamp duty holiday then provided landlords and those property investors who did want to keep investing with a much-needed boost. Most landlords still buying now are portfolio landlords – those who run their properties as a business and are therefore savvier, more experienced and seem to be looking towards the long-term rise in tenant demand. While a number of landlords did take payment holidays, reportedly fewer of them actually had tenants who were not paying rent. There were certainly a less-scrupulous few who took advantage of the government’s Bounce Back Loans scheme with the hope of putting the money down as deposits on future purchases. Landlords who did take payment holidays may find it harder to refinance than they did previously, particularly if they took the holiday across their whole portfolio. While some lenders will still lend to those who took payment holidays, there are those that won’t, or who are scrutinising a landlord’s portfolio in more detail as a result. The outlook for the rest of this year should continue the pattern of the past three months of gradually increasing numbers of buy-to-let purchases. If the number of redundancies increases as predicted, there is likely to be strong tenant demand for some time to come as potential homeowners struggle to meet mortgage affordability calculations. It is inevitable that we will see a drop off in all purchases as we approach the end of the stamp duty holiday in March. Anyone thinking of purchasing a property in the first half of next year is likely to try to bring that purchase forward. While investors do of course have to continue to pay the additional 3% stamp duty, there are still many thousands of pounds to be saved by purchasing before the normal rates of stamp duty are reintroduced. So it is likely that we will see an artificial bounce towards the end of this year and into the beginning of next, followed by a similarly artificial lull at the end of the first quarter of 2021 and into the second.
www.mortgageintroducer.com
T
he question of how the BTL market has fared through the pandemic is relative, and will undoubtedly change upon speaking to certain tenants, landlords and lenders. From my perspective, I think it has adapted well to the challenges we have faced and continue to face, but let’s trace this journey. Lockdown was terrifying on many levels. This resulted in many landlords losing a significant proportion of their rental incomes, and prompted some to leave the sector altogether. The inability to carry out physical valuations effectively shut down some parts of the housing and mortgage market. This resulted in lenders pulling out of the market, and with hundreds of products being withdrawn, particularly at higher LTVs. Lender appetite steadily grew over the summer months, with more products becoming available and competition increasing. The stamp duty relief has played a major role in the recovery of the sector, while huge strides have also been made through the successful implementation of technology, although many firms who had not already embraced technology are still playing catch-up to some extent. The sustained influence of both the tax exemption and tech advances will result in a continued flurry of landlord activity which will generate plenty of opportunity from a BTL purchase and remortgage perspective for proactive intermediaries. With the diminishing availability of low deposit residential mortgages, alongside rising job uncertainty and insecurity, a greater proportion of potential first-time buyers are likely to remain in the private rented sector for longer. Tenant needs are also changing when it comes to what they are looking for in a home in terms of size, location and access to amenities. This will result in landlords carefully evaluating their current portfolios and exploring their options around different property types and new locations. When it comes to meeting these changing needs and expectations, specialist lenders will continue rising to the fore through a more flexible approach, manual underwriting capabilities and bespoke attitudes to lending. The advice process will become even more important in terms of providing added value for all types of landlords – from professionals through to accidental – with the private rented sector forming the backbone of the property market in the coming months and into 2021.
OCTOBER 2020 BUY-TO-LET INTRODUCER
7
REVIEW
MARKET
Change is our tragedy and our hope Charles McDowell managing director – specialist mortgages, HTB
I
n the space of a week during March, HTB moved out of the office. On the whole it went incredibly well. As a society, we can learn a lot from this – I think the employment market will become increasingly flexible in terms of how people work. But believe in getting together face-to-face to collaborate and solve problems – especially complex ones. A vanilla remortgage on a midterrace house for an experienced landlord might slip through the process just as smoothly when we are working at home, but when it comes to a £7m refinance and capital raise of a mixed portfolio containing multi-unit blocks, houses of multiple occupancy (HMOs) and retail units to an offshore trust for a foreign national, we need frequent catch ups with a multitude of experts. For that, we need the office. It’s also easy to forget that not everyone has spare rooms, home offices and gardens. Some people need the office for their own wellbeing. The biggest challenge we face is keeping energy levels up. Given the potential tough times ahead, the success of the industry is going to be determined by our ability to keep our energy and enthusiasm high despite what is likely to be an increase in the number of knockdowns. The buzz and energy within HTB since March has been remarkable. There was a fantastic spirit across the team as we moved out of the office and quickly pivoted our focus to supporting our existing borrowers and broker partners. But that energy is slowly dissipating. www.mortgageintroducer.com
Even the most introverted of individuals needs interaction. We are social beings – creatures of civilisation – and we need to feed off of each other. That is the same for the industry as a whole. Back in February, even I was starting to get a bit tired of yet another black-tie event or business lunch. Now I can’t wait for the next industry event. At HTB, we have been lending throughout lockdown. We have completed loans and issued offers each and every day since the middle of March. Our criteria is now almost as it was in February, and we are itching to lend. Looking at the market, the last few months has seen it begin to reignite. Our enquiry levels have hit new heights and conversions through the funnel are holding up – meanwhile, our completion levels are back to prelockdown levels. All the signs so far seem very positive.
Good times don’t last, but neither do bad
Much of this activity is driven by pent up demand, and not just from the lockdown. People have been hesitant over the last few years, and all of this activity is coming through now. One good thing about a global pandemic is that it has made people realise that the economic impact of Brexit isn’t going to be that bad in the grand scheme of things. I have read a lot about the death of the city, but I just don’t believe it. Cities are so fundamental to us – they have been the heartbeat of civilisation for millennia. Ever since a few more people than normal all settled in the same spot on the Euphrates, the Nile and the Indus, cities have influenced what it means to be human. I just don’t believe we are going to let them die. But we need to get back and support them. There is a danger that if we don’t get back to our city centres then we will lose something – and this will impact other people. By not using cafes, restaurants, gyms and pubs, we are impacting the economy more than we can imagine. I don’t often quote a Daily Mail headline, but “One person’s working from home is another person’s P45.” I love mortgages, especially residential ones. When I lay my head down at night, I sleep soundly knowing that inside the majority of properties against which our book is secured, there is someone else in their bed. People always need a home. This means that house prices tend to be quite resilient to the changing winds of the global economy. However, one thing that does impact house prices is unemployment. I think it is clear that unemployment is going to reach levels not seen for decades (if ever). This will reduce house prices. However, even if house prices come under pressure, I think rents should hold up. And with the BTL underwriting changes from a few years ago, the industry as a whole is in a good place. History is a wheel. Good times don’t last, but neither do bad. Change is both our tragedy and our hope. Focus on working hard and serving our clients. The worst of times, like the best, are always passing away. BTL I
OCTOBER 2020 BUY-TO-LET INTRODUCER
9
Celebrating 10 years of specialist lending solutions
Falling buy to let mortgage rates Help your customer branch out their property portfolio with our reduced buy to let mortgage rates. 2 year fixed rates reduced to
3.14%
5 year fixed rates reduced to
3.49%
FOR INTERMEDIARY USE ONLY.
75% LTV
Contact your local BDM 0330 159 6001 precisemortgages.co.uk
Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.
01966 (1)
Get in touch
Up to
REVIEW
MARKET
Plenty of opportunities Roger Morris group distribution director, OneSavings Bank
A
01966 (1)
s a motivational speaker, I’m a great admirer of Winston Churchill and the way he had with words. Often when I’m in need of inspiration I reflect on his pearls of wisdom. One saying which has come back to me in recent months is: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” There is no doubt it has been a difficult year for everyone, and landlords could be forgiven for feeling a little pessimistic about the state of the buy-to-let market. However, I believe there are still plenty of opportunities out there for investors to be optimistic about. Take the latest data from the Royal Institute of Chartered Surveyors (RICS), for example. According to the UK Residential Market Survey, tenant demand has continued to rise sharply in recent months, with a net balance of 31% of those surveyed saying they anticipate an increase in demand over the next two years. Or consider the latest research from leading consultancy agency BVA BDRC, which every quarter takes the pulse of the lettings market by interviewing a cross section of landlords. According to the Landlords Panel Report, 87% of landlords say they generated a profit in the second quarter of 2020. This is the highest level of profitability seen since the end of 2018. The average rental yield has increased to 5.8%, up 0.5% from Q1’s historic low, and the highest point for more than a year. www.mortgageintroducer.com
The report also found evidence of increased expansion activity in the coming year. The proportion of landlords who say they intend to buy in the next 12 months increased by 5% in Q2 to 17% – the highest level for around four years – while the proportion of landlords who said they’ll reduce the number of properties in their portfolio has fallen to a three-year low of 17%. So, what are the reasons for these encouraging figures? Well, demand has increased in recent months as it’s got more challenging for many people to get mortgages, particularly if they’ve been furloughed or lost their jobs. Meanwhile, other people may have reassessed how and where they’re living and opted to move elsewhere. With demand for rented properties so high, there’s also been a corresponding increase in profitability and rental yield. I firmly believe that the next few months will present landlords with plenty of opportunities. As the economic reality of the COVID-19 pandemic becomes apparent, there is likely to be an
An optimist sees the opportunity in every difficulty
increase in the number of downvalued properties coming onto the market, in addition to lower rates as lenders look at ways of stimulating activity. For those investors looking to add to their portfolio, the government’s stamp duty holiday, which runs until 31 March 2021, means they won’t have to pay tax on the first £500,000 of property purchases. Landlords wanting to incorporate their buy-to-let business can also benefit from the current market situation. Many of this group might have been put off becoming a limited company in the past, due to the stamp duty charge incurred in the process of selling their properties to the business. However, customers with large portfolios of properties who are considering incorporating could now be in a position to save thousands of poinds if they do so before the end of the stamp duty holiday. For landlords looking to diversify their portfolios, Houses in Multiple Occupation (HMOs) could prove to be a good investment. With HMO accommodation commanding an average rental yield of 6.9%, compared to an overall average rental yield of 5.8%, it has considerable potential for higher returns. Couple this with the peace of mind that comes with knowing that one tenant moving out does not automatically risk falling behind with mortgage payments, and it becomes clear why HMOs have proven attractive to investors in recent years. Whatever your customers’ motivations over the coming months, Precise Mortgages is here to help them make the most of any new opportunities that may arise. We’ve got more than a decade of experience helping brokers, and our range of mortgages and criteria is designed to help provide solutions to their customers. As one of the UK’s leading specialist lenders, we treat every customer as an individual, taking their unique circumstances into account and judging each case on its own merits. Just as we were here for you yesterday, we’re here for you today and we’ll be here for you tomorrow, through the good times and the bad. BTL I
OCTOBER 2020
BUY-TO-LET INTRODUCER
11
Buy-to-let. Hello Landbay 2 minute DiP for... • HMOs up to 12 bedrooms • MUFBs up to 12 units • Rates from 3.49% • No ERC lifetime tracker available • Student lets accepted
Call our team on 020 7096 2700 Landbay.co.uk
117_LB_Mort_Intro_SUPP_Full PageAd_v1.indd 1
02/10/2020 12:11
REVIEW
MARKET
HMOs – the favourite for best yield? Paul Brett director of intermediaries, Landbay
M
any of us have fond memories of shared accommodation, either from university or as a choice made when we left home. Houses in multiple occupation (HMOs) today, however, are not just the preserve of students or those starting to make their way in the world. A wider demographic is taking a shorter-term view about renting and this includes young professionals, lower income families and singletons of all ages. People are switching their goals from homeownership to saving for other priorities, such as holiday experiences and other needs. People are also staying single for longer, and renting fulfils the desire to be mobile, social and have more disposable income. HMOs also offer rental flexibility for those who want a place to stay nearer work, and therefore assist in keeping a workforce mobile. However, there is no denying that the student population is the dominant group for sharing accommodation. Figures published by university admissions service UCAS show that the number of young people choosing to remain in education has risen to record levels over the past three to four years, with applications for university reaching an unprecedented 40.5% amongst 18 year-olds in June, and overall admissions growing by 4% on the previous academic year. More than 50% of 17 to 30 year-olds are currently studying at a university in the UK. Experts believe that this figure is likely to intensify over the coming years as the impact of COVID-19 seems destined to lay waste to local job
www.mortgageintroducer.com 12:11
markets and recessionary economic conditions put paid to the prospect of meaningful employment opportunities amongst the under-25s. It is no surprise then that student lettings have become an increasingly attractive proposition for buy-to-let (BTL) investors who wish to diversify their portfolio holdings, or who want to manage existing assets more effectively. Demand for accommodation in student areas is consistent and strong, and rental periods are generally longer and more secure than those associated with residential lets, typically covering a minimum 12-month period, allowing investors to minimise the threat of void periods and dispense with the need to find tenants periodically. HMOs are defined as properties rented by three or more people from different households, sharing amenities such as bathrooms, toilets or kitchens. These are typically converted from original structures to form several additional rental spaces and can therefore achieve much higher returns than portfolios which are focused on single residential lets. However, while these lettings can be lucrative, there are several start-up costs and other factors that investors will need to consider. Any property occupied by five or more tenants is subject to mandatory
HMOs are yielding up to 6.5%
licensing requirements, with typical fees currently ranging from around £500 to £1,100 per year, depending on geography and the relevant local authority. Health and safety obligations as a landlord can be further increased because minimum room size regulations may require additional conversion work. In common with BTL single occupancy properties, investors will want to take out a dedicated landlord buildings insurance policy to cover the risk of structural damage, as well as a contents policy. In addition, landlords should consider taking out a policy to cover non-payment of rent, although some may find that the use of a joint tenancy agreement will suffice in this regard, as the tenants themselves are liable for shortfalls and for finding a replacement tenant. For student lets, landlords should be seeking a guarantor who is financially responsible for each tenant, as students are notoriously difficult to reference or credit check, and can be lazy or naïve with money. While the start-up costs and obligations attached to HMOs should not be underestimated, the rewards can be impressive. For example, average student rents in the UK currently amount to £547 per month (or more in London). Landlords could easily achieve yields of £30,000+ per year on a property rented by five tenants. Rental costs will vary depending on the occupier demographic and the property décor and facilities, but landlord interest is increasingly being piqued by figures suggesting that HMOs are yielding up to 6.5%, compared to an average yield across all property types of 5.6%. Another plus point is that these properties can offer better tax advantages than single lets, with plant and machinery capital allowances, for example, allowing landlords to claim income tax relief on qualifying items within communal areas. Moreover, with competition for decent accommodation remaining strong, this is an investment that could prove highly lucrative over the years in a world currently being defined by financial uncertainty. BTL I
OCTOBER 2020
BUY-TO-LET INTRODUCER
13
Need a straightforward approach for your Limited Company client? Solution Found.
Generous rental calculations, no maximum age, and accepting recently incorporated companies are just a few of the things we do to make limited company buy to let cases more straightforward. Call us today on
0344 770 8032
Š2019 Foundation Home Loans is a trading style of Paratus AMC Limited. Registered Office: No.5 Arlington Square, Downshire Way, Bracknell, Berkshire RG12 1WA. Registered in England with Company No. 03489004. Paratus AMC Limited is authorised and regulated by the Financial Conduct Authority. Our registration number is 301128. Buy to let mortgages are not regulated by the Financial Conduct Authority. No limit on portfolio size, subject to maximum borrowing of £3 million with Foundation Home Loans. Calls may be monitored and recorded.
foundationforintermediaries.co.uk
For intermediaries only
REVIEW
MARKET
What emergent trends should brokers watch? Grant Hendry head of national accounts, Foundation Home Loans
A
lthough you may not have expected specialist buy-tolet (BTL) lending to bounce back as quickly as it did, the combination of reasons is clear. Several lenders have been able to return to market quite quickly with pre-COVID criteria, thanks to their stable and successful funding arrangements. This has boosted their appetite to lend and created confidence across the market. The stamp duty reductions have stimulated the buy-to-let market in two ways: first, they have encouraged owner-occupiers to buy and upsize, in turn opening a market for landlords to buy into. Second, we have also seen landlords using this window to transfer their portfolio into the ownership of a limited company set up for that purpose. Whilst some continue to hold back, believing that high property prices are outweighing the stamp duty reduction, a strong proportion are making the switch now. We continue to see an increase in limited company purchases, and for Q3 this has risen to 81% of our purchase business last month. With some lenders struggling to support this side of the market, our proposition is very much geared to this. What is also interesting is that we have seen a 3.5% increase in first-time landlords in 2020 compared with 2019, which indicates that confidence in the property market as a good long-term investment remains high. There are varying views on how the investment property market will play out. Whilst the fallout of COVID-19
www.mortgageintroducer.com
can be expected to resonate on all sectors, far beyond just retail and hospitality, and potentially translate to a fall in property values, those same factors could also cause increased demand for private rentals. HOW CAN YOU MAXIMISE YOUR OPPORTUNITIES NOW?
incorporated SPVs. This helps directors of trading companies wishing to branch out into property investment to deploy available intercompany financial resources to deliver their strategy. With this in mind, I expect more landlords to need the support of mortgage advisers who are confident in arranging finance for limited company cases with more complicated corporate, intercompany, directorship or shareholder set ups and arrangements. INVESTING IN HMOS
I’d suggest that if you are not already an expert in arranging mortgages for limited company buy-to-lets, you become one. As a concept, the limited company model has gained a foothold. As a lender I may be biased, but I’m convinced that the secret to gaining confidence in a specialism is to build a relationship with a lender you trust – one which is totally invested in supporting you to do the best possible deal for your client. At Foundation, our expertise in complex limited company structures means we can consider a much broader range of landlord situations and have been able to help brokers gain confidence in this field. It’s worthwhile looking at what trends are popular in the world of buyto-let mortgages at the moment. We see many clients who – as part of general and specialist financial planning – have set up a limited company to own their investment properties which involve their children as directors and/ or shareholders. We are happy to consider applications for mortgages from companies with structures like this and will consider applications from companies with up to four directors. Further, we don’t credit search those applicants that have a holding of less than 20%. Also, because we accept newly incorporated limited companies and allow intercompany and shareholder loans to special purpose vehicles (SPVs) for the deposit, we have been able to welcome applications from newly
Another niche market worth watching next year is houses of multiple occupancy (HMOs). We have seen increased appetite for loans for owners of HMOs. This might have everything to do with us offering a specific product range for HMO borrowers, but even in the current unpredictable COVID climate, it’s not unreasonable to imagine that multitenant living may be required even more in the future, given the predicted changes to demographics and the fact that housing supply levels are not meeting demand and are unlikely to do so well into the future. For a potential investor, HMOs generally offer a much higher yield. Q2 data from the BVA BDRC landlord survey shows that HMO properties outrank all other property types by quite some way, delivering a yield of 6.9% compared to the average 5.8% for other property types. Of course, the purchase of an HMO is a significant step for a landlord who is new to property letting; it comes with a higher level of responsibilities and licencing requirements. As their mortgage adviser, it would be prudent to ensure that you remind them of this as they embark on their portfolio diversification in this way. However, if approached responsibly and professionally, this can be a good opportunity. Landlords who are looking to increase their average yield are now keenly investigating this sector. It is worth familiarising yourself with the mortgage and ownership technicalities so that you can assist in securing the right finance option to suit their individual needs. BTL I
OCTOBER 2020 BUY-TO-LET INTRODUCER
15
More options for more landlords Our new Buy-to-Let range includes funding for student lets, first-time landlords and new builds. With LTVs up to 80% and up to £700 cashback, we’re giving more of your clients more ways to Buy-to-Let. Property finance made simple
lendinvest.com
LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
REVIEW
MARKET
Creating the best buy-to-let applications Sophie Mitchell-Charman sales director, LendInvest
W
hile a broker’s initial contact with a lender may be a result of sourcing a special rate or preferential criteria, I believe what you really want for both your client and yourself comes next. Here at LendInvest, we always look to offer your clients the best rates and promotions, but we also work to make your job simpler and quicker, and the overall process more enjoyable. This is why our focus is on improving the process from that initial contact from your BDM, to getting your client their next buy-to-let mortgage. GET YOUR DEALS FASTER
When working with brokers through the application process, I’ve seen first-hand the difference that small improvements to the process can make to a borrower’s application, often with a simple bit of technology. But before the technology starts, I often find the most efficient way to move a case forward quickly is with good packaging. This is why we put the relationship between BDM and case manager at the heart of our approach, helping brokers and their clients get everything they need at the start, rather than going back and forth on small details. A fully packaged application enables cases to begin immediately with searches and valuations. Supporting brokers at this key early stage is a vital part of getting the speed they want on their next deal. From a technology perspective, another way to speed up your case is open banking, a secure tool we’ve been www.mortgageintroducer.com
using to aid the underwriting process by allowing the underwriter to see the relevant accounts and make decisions straight away, rather than ask you to produce documentation and have to keep going back and forth to find the right information. This is an approach we will continue to bang the drum about. We have seen the impact it can have on your clients’ speed to offer, and how it reduces the paper burden on you. With the use of open banking, we have had a significant number of cases move from application to offer in under 10 days. In a new, paperless and contact-free world, any step to securely digitise the process is one we welcome with open arms. TECHNOLOGY AND PEOPLE
Gaining a better insight into your needs has been key to this drive to find ways to make your job easier throughout the application process. Whether this is simply a guide to our packaging requirements so we can start your cases quickly, or using Onfido for digital ID verification and e-signatures to reduce paperwork, we aim to consistently streamline our
Open banking can speed up the application process
processes and make the customer journey simpler. I understand that with improving any well-trod process – often with tools that have never been used before – comes concerns. This is why each tool we use fits neatly within the application process you are familiar with. Quick steps to make your job simpler and give your clients peace of mind throughout – this is what helps our team and you. As you know, buy-to-let mortgages are as much about conversation as they are about process. You need to be able to speak to your BDM, underwriter or case manager whenever you need to, whether to iron out any complexities in the case or just to check in on progress for you and your client’s piece of mind. That’s why regardless of the technological improvements we make to the buy-to-let application process, we put people front and centre, with local BDMs operating in every region, a salesdesk for any urgent questions and direct access to your underwriters and case managers throughout. SUPPORTING YOUR MOST IMPORTANT CLIENTS
The growth of professional landlords in recent years has been a great thing for the sector, and is why we’ve made supporting them to maintain and grow their portfolios a key focus for us. Making it easier to incorporate portfolios into limited companies, not having a limit on the background portfolio and newly introduced appetite statements, which give them the backing to go out and find their next investment, are some of the ways we aim to help your most important clients to keep growing their businesses. This is where our personal and technological approach best joins up to give your experienced clients what they need: quick applications and a tailored approach, led by experienced contacts in our team. Rates and offers come and go, appetite for high loan-to-values (LTVs) change, but it is by improving and simplifying the processes and building relationships with experienced team members that brokers see the real value of lenders, and why ours keep coming back to us. BTL I
OCTOBER 2020 BUY-TO-LET INTRODUCER
17
PANEL
MARKET
SIGNS OF RECOVERY
T
he pandemic has affected all areas of the industry; however, some have managed to record notable benefits. The nationwide lockdown has led to customers re-evaluating their needs, and with many looking to houses of multiple occupancy (HMOs) for the social element attached to this product type, buyto-let (BTL) demand has increased. How have lenders adapted their offerings to cater for the rise in demand, and what emerging trends have been recorded due to the changed marketplace?
The A to Z of BTL
B is for
BROAD CRITERIA 18
BUY-TO-LET INTRODUCER OCTOBER 2020
Buy-to-let Introducer spoke with experts from Hampshire Trust Bank (HTB), Zephyr Homeloans, LendInvest, Foundation Home Loans, Landbay and Precise Mortgages to find out. STARTING THE RECOVERY PROCESS All areas of the sector have had to begin the process of recovery following the restrictions placed by the government during lockdown. The BTL market has seen a particularly high level of recovery. The stamp duty holiday, combined with
UNLIMITED BACKGROUND PORTFOLIOS WITH NO BACKGROUND STRESS TEST INCOME TOP UPS ACCEPTED NO HEIGHT RESTRICTIONS ON FLATS & DECK ACCESS
zephyrhomeloans.co.uk
www.mortgageintroducer.com
PANEL
MARKET
Our experts look at the recovery and future of the BTL market following the COVID-19 pandemic
“Fewer BTL customers are seeking mortgage repayment holidays compared to residential customers. I believe this demonstrates the resilience of the BTL market” PAUL FRYERS
a notable quantity of stock, has placed this market in a favourable position. Paul Brett, managing director of intermediaries at Landbay, says: “There was an obviously high level of pent up demand across the whole market as a result of lockdown. “This filtered through to the BTL space, which was boosted by the stamp duty holiday.” He continues: “There are a lot of existing professional landlords refinancing their portfolios in order to utilise the stamp duty holiday and purchase more property.” Grant Hendry, head of national accounts at Foundation Home Loans, says: “The return of physical valuations has seen an upturn in the recovery of the BTL market. “We have also noticed that high street lenders are moving away from the BTL market in order to focus on vanilla lending, such as standard residential. This in turn has led to specialist lenders investing themselves more in this area of the marketplace.” Alex Upton, commercial director at Hampshire Trust Bank, agrees with Brett that there is a high level of demand across the BTL market, but suggests this has influences that are more long-term than just the
“We have noticed that high street lenders are moving away from the BTL market in order to focus on vanilla lending such as standard residential” GRANT HENDRY
The A to Z of BTL
S is for
SPECIALISTS www.mortgageintroducer.com
COVID-19 crisis. Upton says: “I do not believe the pent-up demand is purely as a result of lockdown. The market has been dampening the last few years due to the Brexit vote and the economic uncertainty caused by this – we are only now starting to see the demand filter back into the market.” Paul Fryers, managing director of Zephyr Homeloans, echoes Upton. Following the conclusion of the Brexit vote, Zephyr Homeloans noticed a ‘Boris Bounce’, in terms of the market gaining traction at the beginning of 2020. Fryers says: “The uptick we saw following on from the Brexit vote was cut off at the knees when the lockdown was emplaced. “However, now we have seen demand pick up in a significant way.” He adds: “We have noticed that fewer BTL customers are seeking mortgage repayment holidays compared to residential customers. I believe this demonstrates the resilience of the BTL market.” Roger Morris, group distribution director at OneSavings Bank, which includes Precise Mortgages, adds that this demand will pick up steam in Q1 2021. He says: “March will be the busiest ever month for completions as both the Help to Buy scheme and the stamp duty holiday are set to conclude. “This could result in April or May being a good time to potentially pick up a bargain.” NEW AND CHANGING DEMAND When the lockdown restrictions came into force, many lenders began to simplify their offerings in order to minimise risk. This resulted in high loan-to-values (LTVs), short-term lets and options for first-time landlords being pulled from the market. →
WE’RE SPECIALISTS IN BTL AND ARE HERE TO SUPPORT YOU AND YOUR BTL CLIENTS Buy-to-let lending solutions for Individuals and Limited companies
zephyrhomeloans.co.uk
OCTOBER 2020 BUY-TO-LET INTRODUCER
19
PANEL
MARKET
“There are a lot of existing professional landlords refinancing their portfolios in order to utilise the stamp duty holiday and purchase more property” PAUL BRETT Hendry says: “Our first thought was we need to tighten up on our high risk areas of lending. “We, however, realised that while short-term lets were confirmed as a high risk area of lending due to the lockdown restrictions, first-time landlords actually outperformed our expectations.” Andy Virgo, director of the buy-to-let proposition at LendInvest, agrees with Hendry, and explains that first-time landlords have in fact been able to capitalise on the restricted market and continue to turn a profit. With the sector having never previously experienced the effects caused by the lockdown restrictions, many lenders struggled when predicting which niches of the market were likely to hit hardest. To deal with the unprecedented challenges arising at the moment, many lenders have looked to alternative approaches in dealing with applications. Virgo says: “We have jumped on the use of open banking, it provides easy access to customers up to date credit positions, which accounts for Bounce Back Loans and payment holidays. “This tool enables us to speed up the application process and provide a service to more customers, I believe this will become the new norm over the next few years.” Brett believes that lenders will also increasingly look towards desktop valuations as a tool to be utilised during the house buying process. However, Fryers notes that adapting is not necessarily always about taking new approaches; for example, he points to the need to make the documentation process clearer for brokers, over implementing altered methods. Similarly, Upton explains that the one real change made by Hampshire Trust Bank has been to communicate with brokers better: “As with many other lenders, when lockdown was first announced we began
The A to Z of BTL
B is for
BROAD CRITERIA 20
BUY-TO-LET INTRODUCER OCTOBER 2020
to withdraw from high risk lending. However, now we are almost back to where we were prior to lockdown and we have not altered our methods at all.” PATTERNS WITHIN BTL Looking to the future for landlords in the current economic climate, the rise in demand within the BTL market is a positive sign. The immediate impact of the stamp duty holiday on the market is evident; however, several commentators see the conclusion of this relief as the point at which the true effect of the current economic climate across the whole market will become clear. Brett takes a positive approach, higlighting he confirmed clarity of the market for the proceeding six months until the March deadline. He believes that portfolio landlords can take confidence from this, which in turn will lead to more landlords adding to their list of properties and stimulating the property market further. Looking to potential obstacles, Brett says: “What may be a challenge is the backlogged effects of Brexit. “What we may find is that some European workers, who would usually be living in HMOs, could potentially be returning home, and therefore dampening the demand in this area of the market.” Upton adds: “We are moving towards a period of economic uncertainty. “Unemployment is going to rise once the government’s aid is withdrawn, which I believe we will see peak in Q1 or Q2 next year. If history prevails, then once unemployment rises, house prices fall.” Upton believes that it is particularly important now that both landlords and lenders look carefully at what assets they are investing in. However, she adds: “It is evident that rents will hold up, we have seen this over the course of 2020.”
“Unemployment is going to rise once the government’s aid is withdrawn. If history prevails, then once unemployment rises, house prices fall” ALEX UPTON
STANDARD AND SPECIALIST PRODUCTS UP TO 75 LTV HMOS & MUFBS UP TO 6 UNITS 60 MINIMUM SHAREHOLDING FOR LTD COMPANIES
zephyrhomeloans.co.uk
www.mortgageintroducer.com
PANEL
MARKET Hendry agrees that the rental market will likely not only hold up, but grow over the next several years. Morris adds to this that patterns of demand may shift across the UK, taking into account the effects of the pandemic and lockdown on people’s living priorities. For example, as people start to look at moving away from London, demand in the North is set to rise, putting this area in a better position than the South. Morris explains: “People are looking to bigger properties with more space, which is accessible for a cheaper price in the north of England. “This is then paired with people now beginning to work from home more, which removes the need to live in London where money does not stretch as far.” EMERGING TRENDS Purpose built second and third-year student accommodation is highlighted as an emerging trend by several of the commentators. Many property developers are capitalising on the trend that students are progressively moving away from terraced properties a mile or two away from the city centre, and are now seeking purpose built flats within walking distance of their university campus. Morris explains: “There has been a mass expansion of purpose built high-rise properties in city centres for students. This, in turn, is affecting those landlords who rent out the Victorian terraced properties in article four areas to students, as many of those are now becoming unoccupied. “We are seeing a large movement away from the privately owned rental properties to the big purpose built tower blocks for students.” Brett concurs, noting that this counterbalances concerns voiced at the beginning of lockdown by many of the larger developers and investors, that purpose built student tower blocks would be left unoccupied for a large period of time. He says: “As evidenced by the students who have left for university this year, there is still a high demand for the purpose built student properties.” Brett outlines that the UK’s education system is one of its largest commodities; he therefore believes that there will always be a demand for this property type, regardless of the effects of coronavirus. Nevertheless, Upton warns: “Lenders need to carefully consider which purpose built student properties they are lending on, as many universities may not withstand the fallout of coronavirus financially.”
The A to Z of BTL
S is for
SPECIALISTS www.mortgageintroducer.com
“We have jumped on the use of open banking, it provides easy access to customers up to date credit positions, which accounts for Bounce Back Loans and payment holidays” ANDY VIRGO Numerous commentators also point to the rise in people seeking HMOs as an emergin trend. This is attributed to a change in personal requirements brought on by the lockdown restrictions, such as wanting to spend more time with others. Whatever trends come next, landlords are in a strong position to cope with developments, says Virgo. He explains: “With everything that has happened this year, landlords have never been more likely to keep an eye on the market with regard to regulations, the economy, and property prices, and therefore they are ready to react.” Fryers believes that over the rest of 2020, and indeed the years that follow, the market will shift ever more towards portfolio landlords. CHALLENGES AHEAD When the government announced the lockdown earlier in the year, one of the most significant impacts for the housing market was the fact that this prevented surveyors from being able to access properties. Looking to the challenges that are yet to come, Hendry sees service as the greatest hurdle to overcome when returning to the marketplace, as many areas of the sector were forced to pause proceedings. Fryers echoes Hendry, saying: “We are seeing the process take longer as many areas of the market are only just getting back into the swing of things. “We have also noticed a move towards the digital world, as a result of the physical world being large inaccessible for elongated periods of time.” Although he agrees that the increased use of technology assists in the process, Fryers explains that it can slow proceedings as the various parties involved in a transaction get to grips with new methods. However, Upton believes that the most significant challenge will be keeping energy levels high. →
WE’RE SPECIALISTS IN BTL AND ARE HERE TO SUPPORT YOU AND YOUR BTL CLIENTS Buy-to-let lending solutions for Individuals and Limited companies
zephyrhomeloans.co.uk
OCTOBER 2020 BUY-TO-LET INTRODUCER
21
PANEL
MARKET
“If next year is going to be a tough year, the UK more than ever is going to need specialist lenders” ROGER MORRIS
She explains: “When everyone across the industry was asked to work from home, this increased energy levels as there was a novelty attached to this way of working and everyone saved time due to the removal of a commute. “However, now that several months have passed we are starting to see energy levels dissipate. “People are social beings, and I think that we are starting to notice that people are struggling with the lack of interaction.” Morris concurs that it is important that staff mental wellbeing is monitored, something that has only been brought further to the fore in light of the isolation and stress already experienced across the country and in all walks of life during the year so far. He says: “We will never forget the relationships and the camaraderie that we have with one another after this experience.” Staff wellbeing has been an area of focus for LendInvest during this challenging time, according to Virgo. He says: “We are aware of the difficulties working from home has on some employees’ mental health, and as a result we at LendInvest are offering free support to those colleagues who are finding it difficult to cope.” Virgo believes that many of the issues, both in terms of productivity and wellbeing, surround inaccessibility. He explains: “In an office if [an employee is] unsure about something they can quickly and easily go and ask a colleague for support or advice on the topic. “However, when working from home, this becomes much harder as often people are unreachable for periods of the day, this leads to an increased level of stress and anxiety for some.” Upton raises further concerns surrounding working from home, noting that in an office it is far easier to see all employees and therefore make decisions around promotions and career progression. She says: “There were people on my radar that I saw everyday that I thought to myself, they are likely, if they continue preforming the way they have been, to move up the ranks. “Now, however, through no fault of their own, they have gone off my radar and will have gone off the radar of others, which will affect career progression in the long term.
22
BUY-TO-LET INTRODUCER OCTOBER 2020
“In addition, looking to training and development, our industry relies on good people being trained by other good people in order to progress, which is not happening at the moment with everyone working from home.” Hendry agrees, pointing to the difficulty in motivating individuals when the career development and progression side of things has become less clear cut and quantifiable. UNCERTAIN TIMES The future is difficult to predict in an ever-changing environment, amplified by the unpredictability of restrictions caused by coronavirus. However, these very complications could have a positive effect on the BTL marketplace. Brett explains: “The specialist market is in a positive position. “As we have seen, numerous high street lenders have moved away from more complicated product types, such as BTL, which is allowing specialist lenders to increase their focus and support demand.” He continues: “This benefits the consumer, as the smaller more specialist lenders are able to take a common sense lending approach, and assess on a case-by-case basis. “This in turn will allow for the specialist area of the market to grow and therefore provide further products and offerings to customers.” Upton agrees that the BTL market is likely to weather the storm and come out strong on the other side. She says: “Due to supply and demand there will always be a need for BTL, so therefore I am not worried about the long-term affects of the pandemic on the market as I believe there will be recovery and then growth through the back of this year and into next.” Morris adds that increasing complications and the effects of the pandemic are set to play to the strengths of the specialist market, rather than cause problems. He says: “If you think next year is going to be a tough year, the UK more than ever is going to need specialist lenders. “Smaller specialist lenders are not restricted by large boards like high street lenders, and therefore can focus on adapting their offerings and providing a quality service for their customers, which benefits the economy and public in one swoop.” Hendry believes that there will be a far clearer picture of what is to come when the furlough scheme concludes at the end of October, and the affect on unemployment levels becomes more clear, but agrees that the BTL sector will continue to be resilient. Hendry concludes: “We are predicting that the BTL market will show resilience throughout the rest of 2020 and into next year, and that 2021 will present a more positive picture for the BTL market.” BTL I www.mortgageintroducer.com
JOIN THE THOUSANDS OF INTERMEDIARIES STREAMING WEBINARS EVERY WEEK!
Stream every webinar on demand + register for upcoming sessions all on our NEW hub. www.mortgageintroducer.com
SPOTLIGHT
ZEPHYR HOMELOANS
MAINTAINING A POSITIVE OUTLOOK Buy-to-let Introducer speaks to Paul Fryers, managing director at Zephyr Homeloans, about current trends in the market and the outlook for the future Have you seen a steady recovery in the buyto-let (BTL) market as recent research suggests?
We’ve seen a high level of sustained demand in the BTL market, and now see the effects of the pent up demand that existed pre-COVID being further fuelled by the Chancellor’s stamp duty cut. This has brought forward demand that would otherwise have existed beyond March next year. Landlord investors have definitely not lost their appetite for the BTL market during lockdown. On the supply side, we’ve seen cautious optimism return to the capital and securitisation markets, leading to the reopening of funding lines for many specialist BTL lenders. This has brought increased competition, which is good news for brokers and landlords. What trends have you been seeing in the BTL market since it reopened? Computershare also owns The Deposit Protection Scheme (DPS), a familiar name to many landlords, letting agents and tenants. Launching in 2007, The DPS is the original government-approved custodial deposit protection scheme and currently holds over 1.75 million deposits under management. Our large market presence means not only have we have felt the impact of the pandemic in multiple areas of our business, but we’re also in a good position to spot trends early and react to opportunities. We saw that during lockdown the number of renters moving home plummeted, but the latest quarterly
24
BUY-TO-LET INTRODUCER OCTOBER 2020
rent index report from The DPS showed that by July the number of new tenancies was nearly back to prepandemic levels. Most of the growth being seen in new tenancies has come from properties owned by professional portfolio landlords, who are often in a better position to absorb financial shocks and can exercise sensible risk-based decisions around when to buy or sell a property in this market. We expect to see a further acceleration in this trend. According to the Savills Global Market Sentiment Survey, concerns over the pandemic are also driving more UK residents to seek properties in rural locations. The rise of homeworking means there are fewer benefits in living close to the office, particularly in city centres. People are keen to find properties with gardens or home office spaces. Such properties are more plentiful in the shires, meaning that demand in urban areas may continue to fluctuate. The Royal Institute of Charted Surveyors’ (RICS) August survey found that 83% of surveyors in the UK anticipate greater demand for homes with gardens or balconies in the next two years, and that 68% expect the desirability of properties with a more private outdoor space to grow. The increased demand for properties with specifically ‘roomier’ features has led to confidence in the housing market rising to a four-year high. The fact that rates are so low, and loan-to-values (LTVs) are almost back to pre-pandemic levels, supports this positive picture. www.mortgageintroducer.com
SPOTLIGHT
ZEPHYR HOMELOANS
Paul Fryers
What do you expect to happen in the BTL sector for the rest of 2020? As the final quarter of 2020 begins, whilst the buyto-let market appears to be bouncing back strongly, it clearly won’t all be plain sailing. However, I believe there is a positive outlook for brokers, professional landlords and BTL investors, albeit there are clear headwinds that the country is facing into.
months of disruption in the housing market as many transactions were delayed. We’ve already enhanced our lending criteria several times in recent months, and have launched some competitive standard and specialist deals up to 75% LTV, with loan sizes up to £1.5m. We’ll continue to monitor these market trends and consider how to enhance our offering in the BTL sector in order to support brokers, and in turn their customers.
What have been the biggest challenges since returning to market?
How do you expect the BTL market to perform in the current economic conditions?
Returning to the market has been positive overall – BTL properties are in high demand. For Zephyr, our biggest challenge was the immediate impact of lockdown which saw us having to temporarily tighten our criteria amidst uncertainty around the economy and wider capital markets. With public health measures making it difficult for surveyors to visit properties, there were several
Unless strict lockdown measures return, demand for rental properties is likely to increase in many areas as renters seek more than just ‘a room with a view’ to make living and working at home more comfortable. The move to such properties could potentially offer higher yields and create opportunities for professional landlords, brokers and specialist BTL lenders. BTL I
www.mortgageintroducer.com
OCTOBER 2020 BUY-TO-LET INTRODUCER
25
REVIEW
MARKET
Adapting to a new normal This was done against the backdrop of evolving regulations and two emergency base rate cuts – so it was a huge effort to maintain our service levels over this period.
Paul Fryers managing director, Zephyr Homeloans
T
he pandemic has created unprecedented challenges for every sector of the market, with huge impacts on brokers, customers and lenders – plus associated services such as estate agents, conveyancers and valuers. Clearly we are still dealing with the impact, so any talk of being ‘post-COVID’ still seems a long way off. As a dedicated buy-to-let (BTL) lender offering both standard and specialist products, Zephyr Homeloans is continuing to adapt to changes affecting the private rental sector. To set some context, Zephyr is part of Computershare Loan Services (CLS), the UK’s largest third-party provider of mortgage servicing. Alongside our growing Zephyr brand, CLS also manages around £41bn of residential and BTL mortgages on behalf of numerous clients and investors. INITIAL IMPACTS
The immediate impact of lockdown saw Zephyr temporarily tighten its criteria amidst uncertainty around the economy and wider capital markets. With public health measures making it difficult for surveyors to visit properties, there were several months of disruption in the housing market. Like many businesses, nearly all our people quickly moved to home working, and I’m really proud of the way my colleagues reacted to implement such a smooth transition! As a servicer, we manage a large back-book of customers, including nearly 165,000 accounts within our own Topaz Finance subsidiary. Over this period, we supported tens of thousands of Topaz customers enquiring about payment holidays and rapidly deployed a new online solution to support applications.
26
BUY-TO-LET INTRODUCER
EMERGING FROM LOCKDOWN
Since lockdown ended and property valuations restarted, we’ve seen a high level of sustained demand in the BTL market. I believe we’re now seeing a ‘concertina effect’, with pent up demand that existed pre-COVID period being fuelled stamp duty cut. Whatever the reason, it is clear that landlord investors have not lost their appetite during lockdown. On the supply side, we’ve also seen cautious optimism return to the capital and securitisation markets, leading to the reopening of funding lines for many specialist BTL lenders. This has brought increased competition, which is good news for brokers and landlords. At Zephyr, we’ve enhanced our lending criteria several times in recent months and have launched some competitive standard and specialist deals up to 75% loan-to-value (LTV), with loan sizes up to £1.5m. As the final quarter of 2020 begins, whilst the buy-to-let market appears to be bouncing back strongly, it clearly won’t all be smooth sailing. The latest data presented by BVA BDRC, during the autumn Intermediary Mortgage Lenders Association (IMLA) update, suggested that landlord confidence levels were impacted by the pandemic and hit an all-time low in Q1 2020. However, three in four landlords didn’t think they would be financially impacted to a greater or lesser extent. Even more positively, the data showed that confidence levels have risen since this slump. This view is supported by the latest quarterly rent index report from The Deposit Protection Scheme (DPS), showing that by July, the number of new tenancies was nearly back to pre-pandemic levels. Most of this growth has come from properties owned by professional portfolio landlords, who are often in
OCTOBER 2020
a better position to absorb financial shocks and make sensible decisions about when to buy or sell a property in this market. We expect to see a further acceleration in this trend. According to the Savills Global Market Sentiment Survey, concerns over the pandemic are also driving more UK residents to move to rural locations. The rise of home working means there are fewer benefits in living close to the office, and people are keen to find properties with gardens or home office spaces. These types of properties are more plentiful in the shires, meaning demand in urban areas may continue to fluctuate. The Royal Institute of Charted Surveyors’ (RICS) August survey found that 83% of surveyors in the UK anticipate greater demand for homes with gardens or balconies in the next two years, while 68% expect the desirability of properties with a more private outdoor space to grow. The increased demand for properties with specifically ‘roomier’ features has led to confidence in the housing market rising to a four-year high. The fact that rates are so low, and LTVs are almost back to pre-pandemic levels, supports this positive picture. OPPORTUNITIES AHEAD
Overall, I believe there is a positive outlook for brokers, professional landlords and buy-to-let investors, despite the clear headwinds that the country is facing into. Unless strict lockdown measures return, demand for rental properties is likely to increase in many areas, as renters seek properties that make living and working at home more comfortable. The move to such properties could potentially offer higher yields and create opportunities for professional landlords, brokers and specialist buyto-let lenders. At Zephyr, we will continue to monitor these market trends and consider how to enhance our offering in the BTL sector in order to support brokers, and in turn their customers. BTL I www.mortgageintroducer.com
e n i l n O THURSDAY
IN ASSOCIATION WITH
10 DECEMBER 2020 MORTGAGEINTRODUCERAWARDS.COM
AND WITH THANKS TO
FOR INTERMEDIARIES FOR INTERMEDIARIES FOR ONLY INTERMEDIARIES ONLY ONLY FOR FOR INTERMEDIARIES FOR INTERMEDIARIES INTERMEDIARIES ONLY ONLY ONLY
B BBBB
IS FOR IS FOR IS FOR The The A The to A Z A to to Z Z ISISISFOR FOR FOR The The TheA AAto to toZZZ BROAD BROAD BROAD BROAD BROAD BROAD of of BTL of of BTL BTL CRITERIA CRITERIA CRITERIA of ofBTL BTL BTL
CRITERIA CRITERIA CRITERIA
CRITERIA CRITERIA CRITERIA HIGHLIGHTS... HIGHLIGHTS... HIGHLIGHTS... CRITERIA CRITERIA CRITERIAHIGHLIGHTS... HIGHLIGHTS... HIGHLIGHTS... STANDARD STANDARD AND STANDARD AND AND MAX. AGE MAX. 95MAX. AGE YEARS 95 AGE YEARS 95 YEARS STANDARD STANDARD STANDARD AND AND AND SPECIALIST SPECIALIST SPECIALIST MAX. MAX. MAX. AGE AGE AGE 95 95 95 YEARS YEARS YEARS AT ENDAT OFEND AT OF END OF SPECIALIST SPECIALIST SPECIALIST PRODUCTS PRODUCTS AVAILABLE PRODUCTS AVAILABLE AVAILABLE AT AT AT END END END OF OF OF MORTGAGE MORTGAGE MORTGAGE TERM TERMTERM PRODUCTS PRODUCTS AVAILABLE AVAILABLE LTV LTV AT 75PRODUCTS AT 75AT LTV 75AVAILABLE MORTGAGE MORTGAGE MORTGAGE TERM TERM TERM AT ATAT 757575LTV LTV LTV
NO HEIGHT NO HEIGHT NO HEIGHT NO NO NO HEIGHT HEIGHT HEIGHT RESTRICTION RESTRICTION RESTRICTION RESTRICTION RESTRICTION ON FLATS ONRESTRICTION FLATS & ON FLATS & & ON ON FLATS FLATS FLATS & &ACCESS & DECKON ACCESS DECK DECK ACCESS DECK DECK DECK ACCESS ACCESS ACCESS
FLATS FLATS ABOVE FLATS ABOVE ABOVE FLATS FLATS FLATS ABOVE ABOVE ABOVE COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL COMMERCIAL PROPERTIES PROPERTIES PROPERTIES UP UP UP PROPERTIES PROPERTIES UP UP LTV LTV TO 75PROPERTIES TO 75TO LTV 75 UP LTV LTV TO TOTO 757575LTV
Talk to Talk our Talk toexperts our to our experts today… experts today… today… Talk Talk Talk tototo our our our experts experts experts today… today… today… Call: Email: Visit:
0370 Call: 707 Call: 0370 1894707 0370 1894 707 1894 Call: Call: Call:0370 0370 0370 707 707 707 1894 1894 1894 newbusiness@zephyrhomeloans.co.uk Email: Email: newbusiness@zephyrhomeloans.co.uk newbusiness@zephyrhomeloans.co.uk Email: Email: Email: newbusiness@zephyrhomeloans.co.uk newbusiness@zephyrhomeloans.co.uk newbusiness@zephyrhomeloans.co.uk zephyrhomeloans.co.uk Visit: Visit: zephyrhomeloans.co.uk zephyrhomeloans.co.uk Visit: Visit: Visit: zephyrhomeloans.co.uk zephyrhomeloans.co.uk zephyrhomeloans.co.uk
This information isThis correct information at September Thisisinformation correct 2020. at September We is correct reserve at2020. the September right We to reserve withdraw 2020.the Weand right reserve amend to withdraw theour right products and to withdraw amend at any our and time products amend without our at notice. any products timeAllwithout applications at any notice. time without are Allsubject applications notice. to our Allare applications full subject toare oursubject full to our full Underwriting Criteria, Underwriting details ofUnderwriting Criteria, which can details beCriteria, found of which on details our canwebsite. be of which found can on our be found website. on our website. ThisZephyr This information information information is correct isname correct isHomeloans at correct at September at September 2020. 2020. 2020. We reserve reserve We reserve theTopaz the right right the to withdraw right to withdraw to Limited. withdraw and amend and amend our amend our products products our products at05946900. any at any time atWales. time any without time without without notice. notice. notice. All All applications All applications are are subject subject areThe subject toaddress: our to our full to full our fullPavilions, Zephyr Homeloans isThis a Homeloans trading Zephyr aofSeptember trading Topaz isFinance name a trading ofWe Limited. Topaz name Finance Registered of Limited. in Finance England Registered & and Wales. inRegistered England Company &in Wales. England No Company & Registered No Company 05946900. address: Noapplications Registered 05946900. The Pavilions, address: Registered Pavilions, The Underwriting Underwriting Underwriting Criteria, Criteria, Criteria, details details of details which of which ofcan which can be found be canfound be our on our website. on website. our website. Bridgwater Road, Bridgwater Bristol BS13 Road, Bridgwater 8AE. Bristol Topaz Road, BS13 Finance Bristol 8AE. Limited Topaz BS13 8AE. Finance isonfound authorised Topaz Limited Finance and is regulated authorised Limited is byand authorised theregulated Financial andby Conduct regulated the Financial Authority by the Conduct (Firm Financial Reference Authority Conduct (Firm NoAuthority 461671). Reference (Firm MostNo Reference 461671). No Most461671). Most Zephyr Zephyr Zephyr Homeloans Homeloans Homeloans is ais athe istrading aFinancial trading name name of name of Topaz ofAuthority. Finance Topaz Finance Finance Limited. Limited. Limited. Registered Registered Registered in England in England in England & Wales. & Wales. & Wales. Company Company Company No No 05946900. 05946900. No 05946900. Registered Registered Registered address: address: address: TheThe Pavilions, The Pavilions, Pavilions, buy-to-let mortgages buy-to-let are not mortgages regulated buy-to-let are bytrading mortgages not regulated are Conduct not byTopaz the regulated Financial by Conduct the Financial Authority. Conduct Authority. Bridgwater Bridgwater Bridgwater Road, Road, Bristol Road, Bristol BS13 Bristol BS13 8AE. BS13 8AE. Topaz 8AE. Topaz Finance Topaz Finance Finance Limited Limited Limited is authorised is authorised is authorised andand regulated and regulated regulated by by the the by Financial the Financial Financial Conduct Conduct Conduct Authority Authority Authority (Firm (Firm Reference (Firm Reference Reference No No 461671). No 461671). 461671). Most MostMost buy-to-let buy-to-let buy-to-let mortgages mortgages mortgages are are not not regulated are regulated not regulated by the by the Financial by Financial the Financial Conduct Conduct Conduct Authority. Authority. Authority. 12OFBA D56 (09/2020)12OFBA D56 (09/2020) 12OFBA D56 (09/2020) 12OFBA 12OFBA D56 12OFBA D56 (09/2020) (09/2020) D56 (09/2020)