Making up 21.7% of the feedback we received across the whole of the market, buy-to-let mortgages continue to be an important part of the picture of UK property finance.
Nevertheless, the buy-to-let market is a complex one, fraught with challenges and change. For landlords, whether it’s increased taxation over the years, heavier regulation around housing and environmental standards, or a push from government towards a structure that many argue overly favours renters, this market may not represent the ‘easy money’ it once did. Still, Gov.uk reports that 4.4 million household in the UK live within the private rented sector (PRS). Meanwhile, house prices continue to rise and people are waiting longer to get on the housing ladder. The PRS may be more complex nowadays, but it is vitally important to the UK’s housing ecosystem.
For all these reasons, the buy-to-let market must make sure to offer a range of mortgages that not only meet the ever-changing needs of this sector, but that provide the best opportunity for those propping up the PRS to thrive.
What brokers want
Our Mortgage Lender Benchmark allows us to take a look at the market from the perspective of those who arguably know it - and most importantly, the borrower - the best. So, what do the hundreds of brokers we spoke to think is needed to keep buy-to-let finance ahead of the curve?
First and foremost, 26.9% want lenders to focus more closely on product design going forward. Brokers are particularly interested in being able to help their clients access longer fixed terms, such as seven or 10-year rates. Brokers also report that their landlord clients are looking for a more expansive range of interest-only products, as well as those with no, or low, early repayment charges (ERCs).
While the PRS in general faces increasing restrictions, from Energy Performance Certificates (EPCs) to the potential removal of Section 21, 21.8% of brokers are calling for a more open, flexible approach from buy-to-let lenders as a counterweight.
From 2025, which is not as far in the distance as it might feel, all newly rented properties will be required to have an EPC rating of band C or better. Although existing tenancies have until 2028, most landlords will need to focus on that first deadline. Considering the age of much of the UK’s housing stock, and the amount of work it can take to bring a property up to a higher rating, it is understandable that brokers are calling for criteria that supports landlords in making the relevant changes, rather than penalising them for being in possession of one of the millions of properties that does not currently pass muster.
Other areas where landlords might be looking for flexibility, according to brokers, is in opening up criteria around first-time landlords and maximum ages at the end of terms.
Of course, a fair amount of the broker feedback also focuses on the cost of mortgages. Around a fifth asked for lenders to consider reducing fees (17.6%) and lower their rates (20.1%), while 16.7% asked for less restrictive stress tests, and 13.1% wanted more flexibility around payment options, allowing for improved overpayment facilities.
Much of this stems from the growing cost-of-living crisis, which is affecting every member of the population in some form or another. Even those who benefit from the stability of property ownership are tightening their belts and looking at how they can make their money go further.
Looking to the future
Taken altogether, these suggestions might seem difficult to digest, particularly considering that lending institutions are also having to consider their own overheads and financial stability during a difficult period.
However, it is worth noting that, with each suggestion barely reaching above 20%, the implication is that brokers are generally satisfied with how their clients are being provided for. Indeed, our Mortgage Lender Benchmark found an 82.4% overall satisfaction rate with BTL mortgages, 1.5% above residential, so BTL lenders should take heart. As inflationary pressures increase and the cost of living rises, though, a smooth-running PRS is only going to become even more important. To ensure landlords can keep operating this vital function of both the housing landscape and the economy, it’s worth listening to those at the coalface, and considering how to support them best.
