Medianett Publishing’s Specialist Finance Symposium last week (20th June) tackled the tough issues facing the BTL mortgage sector.
Held at The Courthouse Hotel in Soho, the interactive event was supported by Allica Bank, Alternative Bridging Corporation, Colenko, Fleet Mortgages, Hope Capital, Market Financial Solutions (MFS), Sopra Banking Software, United Trust Bank (UTB), and YBS Commercial Mortgages.
The BTL mortgage panel — chaired by Medianett Publishing’s deputy editor for print Andreea Dulgheru — included expert panellists Steve Cox, CCO at Fleet Mortgages; Sam Norris, managing director at Grand Union Finance; Caroline Mirakian, director of sales and marketing at UTB; and Grant Hendry, director of sales at Foundation Home Loans.
During the discussion, the panel strongly agreed that the call for a 24-hour notice period for product withdrawals is not a practical solution.
Steve explained that when a lender pulls a product, the high volume of business that comes through from brokers submitting cases ahead of the change causes a backlog. “The longer the withdrawal window, the bigger the spike and the longer the lender will take to come back with another offering,” he said, adding that this would make things particularly difficult for smaller lenders.
Highlighting that while the interests of lenders and brokers are not aligned in this situation, Steve believes it’s about meeting somewhere in the middle where neither side is truly happy, but they have “come to a compromise”.
Sam discussed the stressful situation that notice periods bring for brokers, but agreed with Steve and acknowledged that having no notice periods was better for the market.
Steve also clarified how funding lines can be part of the reason why lenders withdraw products so quickly. “It could be the funder saying ‘I don't care, pull it’ — [which] is not very helpful for anyone. The funding models will dictate how much pain a lender will take versus capacity.”
Some of the positives of being a specialist lender in the current market were mentioned by Grant, who explained that by offering mortgages for different assets — from residential to HMOs, short-term lets and MUFBs — they get a better variance of margin that they’re making. “However, the pool that we're swimming in at the moment is a lot smaller, and we are all scrambling for that same type of business without getting too much margin away to protect our position,” he added.
Medianett Publishing's Specialist Finance Symposium took place at The Courthouse Hotel in Soho
The panel also discussed the potential regulatory changes for the PRS and how more education is essential.
“Landlords have seen what’s coming; they’ve known [change] has been on the horizon, the same as lenders have,” explained Grant.
He emphasised how professional landlords still want to buy, and that so-called “dinner party landlords” are the ones leaving the market.
When asked about the common misconceptions about financing BTL properties, Sam told the audience that landlords don’t necessarily understand why interest rates and fees are where they are. “It’s amazing how many clients I speak to that have [multiple] BTL properties, yet still can’t grasp what a rental stress test is. With rising rates, lenders have had to offset the margin they're making on their pricing and chuck that onto their fees, so that we can then adhere to and get to the level of lending that we need via the more standard rental stress test rates.
“That’s one thing I’m educating my clients on at the moment, because I think it’s key for them to understand why the fees are going up so much.”
Speaking about product pricing, Steve stated that two-year fixed-rate products are more expensive than five-year fixes.
“That’s really a dynamic we’ve only seen evolve over the past 18 months or so. We will continue to see more long-term fixed rates — not only in BTL — in the market as a whole. It’s not lenders trying to get you to lock customers in for any commercial reason, it’s just because long-term money is cheaper.”
Grant noted however, that this is not generally what landlords want to do, as they usually want to “remortgage every two years, take out as much as they can and buy their next investment.”
Sam said he’s recommending five-year fixes to his clients, as he believes is more cost-effective in the long run since landlords won’t have to refinance and take on additional costs again in two years’ time.
The Renters Reform Bill — which was recently introduced into parliament after a four-year wait —was also brought up, with the removal of section 21 in particular receiving a mixture of responses from the panel.
While Grant believes there are many positives of the section 21 abolition — claiming that this will give tenants more security, while landlords will get more control through the new section 8 — Caroline argued it would be difficult for landlords to evict tenants unless they were selling the property or if a close family member took occupancy.
Regarding the new ombudsman as part of the proposed new redress scheme, Steve said he was not entirely convinced it would make it easier to deal with the courts, but that it would provide more transparency on both sides.
“Like all legislation in our industry — not just in BTL — it seems really hard until it's there. We will find a way to cope with it because we always do,” he added.
Steve Cox, CCO at Fleet Mortgages
The proposed EPC rating changes were brought up next, with Steve claiming that some buildings, such as Victorian dwellings, will be unable to reach a minimum C EPC rating — adding that it would be unrealistic to consider these properties as uninhabitable past the proposed deadline.
“One of the problems in BTL is the assumption that landlords will want to do further advances to pay for this work, [when] there is no further advance facility — not because lenders don’t want to do it, [but] because the loans have been bundled, securitised, and sold on. There's an opportunity for advisers to start educating landlords on how their debt is structured and therefore what is or isn't possible,” he continued.
The panel agreed that the green agenda is the right way to go, but it was Grant who expressed the need to do more to guide people through.
Steve also claimed there could be some exception for properties where it will be a struggle to achieve a C EPC rating. “We cannot have a situation where we’ve got something perfectly habitable [but] we’re saying tenants can’t live there. That’s madness and I don’t think it’s going to play out that way.”
Looking ahead to the potential future of the PRS, Steve claimed that despite the uncertainty and market volatility, the BTL sector will survive. “It’s long been predicted that the BTL market will die, and yes, some people are bailing out of the market, but if we look at the fundamental macroeconomic backdrop we’ve got in the UK, there isn’t really any social housing policy. [So] if the PRS doesn’t exist, people haven’t got any place to live.”
