Growing complexity of BTL makes picking partners critical

Landlords appear to be in something of a positive place at the moment.

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Jason Berry | Group sales & marketing director, Crystal Specialist Finance
15th October 2021
Jason Berry

A recent study by Foundation Home Loans found that landlords, particularly those with larger portfolios, are feeling rather upbeat about the prospects for their business, while significant numbers are also planning to release equity from their existing portfolios in order to fund further purchases.

The reality of the UK’s housing market, with a lack of supply and rocketing house prices pushing home ownership out of the reach of many, means that there is a strong market of potential tenants for those landlords to tap into and so enjoy a return on their investment.

However, the buy-to-let market has become more specialised in recent times, making investors even more reliant on their mortgage brokers to help them find the right funding.

No such thing as vanilla

In previous years, large numbers of buy-to-let borrowers would have been fairly vanilla prospects as far as lenders were concerned. These were investors looking to pick up a property or two in order to supplement their pension saving perhaps, and so finding them funding for those purchases was relatively straightforward for intermediaries.

However, the buy-to-let sector has undergone huge changes in recent times, from the introduction of an additional rate of stamp duty on second homes to stripping back some of the tax reliefs available to landlords who purchase in their own name.

These added complexities have extended to the mortgage market too, particularly for those clients who are classed as portfolio landlords, meaning that many would-be investors have to look beyond the household names and towards specialist lenders in order to secure the finance they need.

Spotting the opportunities

Landlords are not just keen to add to their portfolios, they are keen to expand into more varied forms of property investment, for example by purchasing a house in multiple occupancy (HMOs).

HMOs have become all the more attractive to investors of late off the back of the healthy margins on offer, which can dwarf the returns achieved from more traditional forms of property, though there are added complications in the form of needing to obtain a licence in order to let them out.

What’s more, HMOs are not a form of property that all lenders will offer buy-to-let loans against. In order to add them to a portfolio, or refinance an existing purchase, brokers and their clients therefore have to work with specialist lenders for whom this area of the market is a more central aspect of their day-to-day business.

HMOs are just one example here - other forms of unusual buy-to-let which have become more common include the likes of multi-unit freehold blocks, properties above retail space, and student lets.

Specialist combinations

In some cases, the best options for these investors may in fact be a combination of different elements of specialist finance.

For example, a landlord may spot a property with great potential at an auction. A regular buy-to-let mortgage isn’t going to do the job - getting the funding in place will simply take too long, when the investor has to complete the transaction within 28 days of the gavel going down.

But a bridging loan can allow the client to secure the property swiftly, before the client refinances onto a more long-term option like a traditional buy-to-let deal.

Similarly, the client may feel that a commercial property could deliver even stronger results as a residential let. A bridging loan could help cover the costs of converting that property from its current commercial setup into an actual home, with the client then able to move onto a buy-to-let mortgage once the conversion work has been completed.

Yes, the market is a little different, and a little more complex, than the days when brokers were simply tasked with helping investors purchase a simple two up, two down on the same street. But lenders have stepped up to meet the needs of these more complicated cases - it’s simply a question of working with the right specialist partners to help them find the right finance for their case.

Thriving by working together

These varied areas offer potentially impressive returns to landlord investors, but they require the expertise of mortgage brokers and their partners in order to find that funding. Specialist lenders have been able to deliver far more flexible funding for all sorts of landlords who are hoping to invest in a slightly unusual asset, taking a more personal and case-based approach, outside the rigid parameters and criteria often applied by mainstream lenders.

With the number of landlords interested in investing in these forms of property only likely to increase in the coming years, it’s therefore important for any broker who wants to be an active participant in this area of the market to work with specialist distributors who can help

them identify the best lenders and products for each and every case, no matter how unusual it may be.

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