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The BTL remortgage market – strong and stable?

In its latest market forecast*, before the economic effects of Coronavirus were first felt, the Intermediary Mortgage Lenders Association predicted that gross buy-to-let (BTL) lending was likely to fall slightly to £40 billion in 2020 and £39 billion in 2021. The recent decline in BTL house purchase lending is set to continue, as the mortgage interest tax deduction is fully removed from April 2020 and the effects of Coronavirus begin to take hold of the UK economy, particularly in the property purchase market. BTL remortgage activity, which replaced the reduction in property purchase until 2018, is also likely to show a decline this year as the higher take up of 5-year fixed rate loans and product transfers reduces the frequency of remortgages and overall economic activity is suppressed.


Whatever the overall effect of Coronvirus and other market dynamics, BTL remortgage business is likely to continue to outstrip purchase business by a factor of approximately 3:1 so it is therefore more important than ever that mortgage intermediaries know when their existing clients are either looking to add to or improve their property portfolios, often remortgaging to raise capital, or coming to the end of a 2 or 5 year fixed rate period and looking to remortgage to minimise monthly repayments. UK Finance data for November 2019 shows that 40% of BTL lending was for equity release and 60% for pound for pound remortgages.


In many ways, the BTL mortgage market has survived in better shape than might have been expected, given the series of challenges it has been set since 2015. Changes in Stamp Duty Land Tax, wear and tear allowance, mortgage tax relief, affordability stress rates and the interest cover ratio, HMO licensing, EPC requirements and a ban on tenant fees have all been introduced which has dampened down enthusiasm for property investment in the UK. And yet it remains a £40 billion market, a slight increase on 2015. There is currently little indication that the social housing sector will be expanded sufficiently to meet the growth in demand for rented property, so the private rented sector (PRS) should remain robust in spite of higher tax and regulations still to come.


The specialist BTL sector

The specialist mortgage sector still requires guidance from brokers due to the bespoke and complex criteria available. The term ‘specialist BTL’ refers to those BTL cases that do not fit mainstream lenders’ criteria or where the case has such a combination of different pressure points that the adviser needs the help of a lender who is more likely to look at the case as a whole.  For example, one area where brokers experience difficulty placing cases is where the client has an impaired but improving credit record, which might mean missed mortgage payments or CCJs and defaults in the past, often due to a life event, or maybe a Debt Management Plan that needs to be taken into consideration. It tends to be the specialist lenders who will consider customers in this space.


Unusual properties are another element of the specialist BTL sector; ex local authority flats, high rise, flats above commercial property, multiple units under one freehold title, student accommodation and HMOs. Where the legislation has changed in recent years, landlords may find that they can no longer remortgage their HMO properties on the same basis as they used to.


The number of limited company transactions has also grown significantly in the last couple of years due to the changes in taxation rules. Again, you will find the specialist lenders operating in this sector and, in some cases, they will lend to trading limited companies as well as the more widely known Special Purpose Vehicle (SPV) set ups.


Specialist BTL lenders also tend to be more comfortable lending on a ‘no minimum income policy’ and treating the transaction as a self-funding BTL, using the appropriate stress rates to ensure there is a contingency for rental voids.


Next steps

If you have BTL clients who have complex borrowing requirements, why not call a specialist distributor link Brightstar? A short conversation with one of their National Account Managers will help you pinpoint the pressure points that are making the case difficult to place with a mainstream lender. The case might be easier than you think!


For more information on how Vida’s expertise in specialist BTL mortgage lending can help you take advantage of the Spring Bounce, call Brightstar on 01277 508959 and talk to one of their award-winning team members.


* ‘The new ‘normal’ – prospects for 2020 and 2021’ by Rob Thomas, Principal Researcher, Intermediary Mortgage Lenders Association (IMLA), published in January2020.



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