Mortgage brokers - has the BTL space rebounded?

Unfortunately, the current rates on buy-to-let mortgages make it very challenging to get the rent to cover the cost of the mortgage payment unless there is a lot of equity in the property. For those who have significant cash as deposit, now could be the perfect time to purchase as there will probably be some great opportunities coming up. Where there is panic, some can take risks and make a significant return in the long run. As we have seen in the past, property values always increase over time.

Hey! As far as discussions are currently going with clients approaching the end of their fixed rates - the conversations are pretty grim. We've discussed alternatives such as tracker rates for those whom it makes sense for but these of course run the risk of increasing to the point they're in line, or even higher than current fixed rates, eventually. We've experienced increases as high as £600 per month for people with mortgages in the £300,000 region! The larger the mortgage, the worse the hit (of course). People at a similar stage but with a BTL mortgage that we've dealt with have predominantly opted for a product switch and the rental is still covering the repayments but their profit margin is taking a battering. New buy to let enquiries have all but died a death in the last month or so following the mini budget and the calamity that brought to the market. To be quite frank, lenders haven't done enough and they seem to be looking after number 1 rather than their customers. Hopefully the next announcement/budget will settle things somewhat and restore some normality to the market. The new 'normal' being different than what we've been used to of course. Hope this helps, Paul

Regarding buy to let, I have seen remortgage clients payments going up by 100-200 pounds per month, I still believe that a fixed rate currently is the correct way forward as if you are comfortable with the payments, why would you take unnecessary risks Currently I have not seen any buy to let sales. Mostly just clients accepting the increase but extending the term or temporarily switching to interest only Finally I think the lending market has become more difficult with products being withdrawn with little notice so more flexibility would be in clients interest

What has been your approach with clients coming off fixed-rates, how much more are they now paying per month? - some landlords payments have doubled over the last year, the ones coming off of fixed rates are now facing minimal income from their properties. Rent will need to be put up if they are to survive. Have you been advising clients to go on tracker mortgages rather than fixed? - Yes, these are much lower, sometimes by 2%. Some of these are without ERC too which can really help, if the rates suddenly go up, they can jump on to a fixed without penalty. Have you had clients decide not to go ahead with a BTL investment or sell up as a result of the volatility? - Yes, although we are still busy with new and previous clients, there has been a general worry in the market with clients. The stability of the last few years has helped them comfortably invest, but now there is uncertainty, some landlords are waiting to see where this leads before new purchases. Are you happy with what lenders are offering? E.g. have they launched any innovative products for the space? - Lenders should try and bring their stress levels down to a realistic space, where they are now is limiting the maximum loans in certain areas of the country. Especially the south east where the rent to value ratio is much higher. There should also be support for those longer term landlords who have been on trackers for maybe 20 years with long term clients who are paying a lower rent than maybe the locality demands. The landlords are happy as they have had the same tenants for the last 15-20 years, but the mortgage lenders will not be able to help them remortgage on to a fixed product due to this. Certain lenders are starting to help out with their products, but I personally feel that they need to be a little less tentative.

1. Clients coming off fixed rates have seen a huge increase in their monthly payments. Someone with £200k outstanding over 25 years coming off a rate of 1.49% to a rate of 5.39% would expect to pay an additional £416 per month. To combat this if possible we have extended the term or looked at possible interest only for part of the loan but in the most part although it has been a big increase most of our clients are able to afford this increase. 2. I have definitely seen a lot more clients considering a tracker rate. The reason being that they are far cheaper at the moment than fixed rates and people also want the flexibility as they do not want to be locked into what is perceived to be high interest rates. 3. Yes, clients looking at BTL investments in the summer are holding off and looking in different areas (no longer the South East) because they are not going to get the returns needed to make it viable. 4. I don’t feel there has been any innovation- yet! We already have joint borrower, sole proprietor mortgages and family gifts that are allowed and Generation home are doing some innovative work around family and friend deposits which I feel will be used more to help people with residential properties over the next couple of years but there needs to be some more innovation in the BTL market if small landlords are going to survive especially considering the EPC changes coming in to.

Buy to Sell should be the focus for now rather than Buy to Let where it's harder and harder to get deals to stack. We have been telling clients for the last year of the impending rate rises and effects the cost of living crisis will have on house prices. We called a 20% downward correction over the next three years, in Sept 2021 alongside steep rate rises. Alongside this we recommended clients focus on flipping properties, or selling lower value properties with lower quality tenants at the peak in prices as those would be the properties that would struggle to cover their mortgages if tenants start struggling (as those with less disposable income tend to first). The whole point of this was to focus on building a 'war chest' of excess funds on their balance sheet to take advantage of both fire-sale properties where owners have to move and thus need to reduce prices to 'get out' and to tap what will soon become a very busy foreclosure auction market. Clients that have taken the above steps will clean up in our view over the next few years, selling high and buying low as with stocks. Using bridging finance for the properties they are buying will allow them to scale their buying with the savings they have built up. We suggest that they continue flipping where the value of the property and grade of the tenant is low and eventually as the economy starts to stabilise look to buy higher value properties with professional tenants who are more likely to be shielded from inflation with contracts containing annual pay rises etc. That ever growing balance sheet will enable them to reduce LTVs on these properties (and/or invest in upgrading energy efficiency) to lower BTL mortgage rates and improve yield.

The overall issue with the BTL space currently is the sharp increase in mortgage rates, with rents not yet increasing to account for that increase. This means many deals struggle to pass the lender rental stress tests, especially if you are a higher rate tax payer and/or want less than a 5-year fixed rate deal, as both those scenarios are treated even more harshly within the stress test. The BTL market is more fragmented than the residential market, having a greater proportion of specialist, non-bank lenders, competing for business. Unfortunately, due to the way these lenders are funded, it would seem that variable rates are not something they can price currently. Which is a shame, as variable rate deals are looking attractive at the moment against the high cost of a fixed rate.