"Lenders were always going to want to know whether holidays were taken, why they were taken, and whether there were fundamental issues with a borrower’s finances that would impact on their ability to pay back borrowing."
Certainly, since the announcements were made in July we’ve noticed a larger number of motivated landlord borrowers looking at their finance options, whether it is initially around remortgaging in order to free up equity to use as deposits, or its landlords seeking to potentially bring forward their purchases in order to make sure they complete before the end of March next year.
A recent survey from FJP Investment highlighted that almost a quarter of investors (24%) were planning to purchase one or more properties in order to take advantage of the stamp duty cut, and this actually rose to 43% for individuals aged between 18 and 34.
Government incentives are of course few and far between for landlords and it’s not a surprise to see them reviewing their options accordingly. Even if there is already a strong degree of lobbying at work to try and influence the Government into extending the holiday, or making it a permanent arrangement, the assumption must be that it will end when it’s due to, and we will be swiftly back into the previous ‘iteration‘ of stamp duty charges.
That being the case, the need to act swifly is certainly there and advisers are in a strong position to support the activity of their landlord clients, however there probably needs to be a recognition that certain borrowers are going to encounter issues that they ordinarily may not have had to deal with.
For instance, while buy-to-let as a sector appears to have ‘rolled with the Covid-19 punches‘ better than some sectors, there’s no argument with the fact this is still a different lending environment than was the case at the start of the year.
A large part of this is around the take-up of mortgage payment holidays, which as you’ll know, were also made available to buy-to-let landlord borrowers when the lockdown began in March. There will be few who don’t understand the thinking behind such a decision, and yet one can’t help feel that some borrowers entered into a holiday without fully understanding how it might impact their ability to secure credit in the future.
Despite a strong message going out to all borrowers to take mortgage advice before making such a decision, I suspect many who opted for a holiday did so without speaking to an adviser. From our own perspective, we engaged with all landlord borrowers who contacted Fleet wishing to take a holiday in order to ascertain whether they really needed to do this, or they were simply hedging their bets when it came to whether their tenants might be financially impacted by Covid-19 and potentially unable to pay their rent.
Many borrowers, on reviewing their need here, decided they would be able to cope and such a decision may well help them in the future when it comes to accessing borrowing. Because, despite the big push to ensure that such holidays do not appear on the credit report, lenders – especially in this environment – were always going to want to know whether holidays were taken, why they were taken, and whether there were fundamental issues with a borrower’s finances that would impact on their ability to pay back borrowing.
I’m sorry if that offends those who believe the taking of a holiday should have no bearing on a lending decision, but that’s simply not possible. For those advisers who have landlord borrower clients seeking new or refinance arrangements, then it’s important to make them aware of this situation.
We at Fleet, for instance, will want to know whether a holiday was taken and the reasons for it, and indeed whether it has been paid back. If the borrower’s finances are particularly stretched, then that has to be factored into the credit decision; if the borrower took it purely for cash flow reasons, rather than any specific need, and have since paid it back, then on the whole we would not consider this a problem.
Having that information, about how individual lenders are reviewing such borrowers, should help advisers manage the expectations of landlord clients, particularly those who are hoping to be active in the market through the rest of 2020 and indeed beyond. It will remain a consideration and it will be worthwhile them getting their ducks in a row regarding their holiday take-up and how/when they service those missed payments, if they are seeking further credit in the near future.
