More specialist products now available

The global financial crisis removed lenders from the market at a rate never before seen, leaving brokers and advisers with limited choice for landlords.

Major lenders left the market en masse, while those who remained trimmed underwriting criteria by such a margin that many landlords found themselves underserved or entirely unable to remortgage.

Since then, the market has transformed considerably.

Product development

Over the past 10 years, favourable lending conditions and a benign interest rate environment gave rise to an abundance of new products. However, while the product landscape was improving, the regulatory and political landscape was shifting too.

“The gradual removal of mortgage interest tax relief and changes to regulation have had the effect of discouraging the ‘dinner party’ landlords - creating a more ‘professional’ buy-to-let sector,” says Marc Goldberg, commercial chief executive officer at Together.

“In recent years, lenders have launched more specialist products aimed at this new class of property investor,” says Mr Goldberg.

“Some cater more specifically for portfolio landlords, who will have more than three properties, and others who may want to finance HMOs [houses with multiple occupancy] because they generally tend to deliver better yields.”

Mr Goldberg explains that the innovation has not been limited to UK-based landlords, however, noting that portfolio landlords living overseas, but with assets in the UK have also benefited from the emergence of new products.

“There are more products for ex-pats, to suit those who have moved abroad to live but want to rent out their home in the UK,” he adds.

As the product landscape has broadened, offering more choices to landlords, so too has the number of providers in the market. Challenger banks and peer-to-peer lenders are now offering credible alternatives to loans from the traditional players.

“Some of the challenger banks have started to focus on that market,” says John Goodall, chief executive officer at Landbay. “Mortgage finance has been cheaper and there is more choice for people with multiple properties.”

The influx of new lenders in the market and the change of the typical landlord has also led to changes in how lenders assess risk, according to Mr Goodall.

“Lenders are now better ’set up’ to deal with people whose majority income comes from property, as opposed to amateur landlords where the majority of their income comes from their job,” he explains. “They have invested in technology to ensure the process is smoother, quicker and easier.”

However, the fight to maintain market share in a competitive market, has led some experienced mortgage brokers to underscore the importance of intermediaries conducting a full affordability assessment before making a product recommendation.

Lee Langley, a mortgage and protection adviser at West Sussex-based On Point Mortgages, says while landlords need access to appropriate funding, it is important that the market learns from the lessons of the credit crisis, a decade ago.

“We are seeing increasing professionalism across the sector and the greater choice within the market is a positive, but it must be backed up by robust underwriting procedures, Langley says.

“Portfolio landlords, those with four or more mortgaged properties, are already subject to additional requirements and each application is assessed within the context of their entire rental business.

“Innovation in products is vital but a creative approach is needed to avoid the ever increasing loan-to-values and increasingly flexibility criteria that was so prevalent pre-credit crunch.”

Better informed

While lenders have spent time analysing what they need to offer to better assess lending applications, they have also realised that intermediaries expect a greater amount of in-depth information on products tailored to portfolio landlords.

As a result, mortgage providers have been making an increasing effort to offer educational materials to advisers which highlight regulatory changes and evolution in product types.

“There is more help at hand and education for brokers dealing with landlords in these areas,” explains Danny Belton, head of lender relationships at Legal & General Mortgage Club.

“While many of the changes in the market have come about due to new regulatory requirements, it has made landlords rethink their portfolio management.”

Mr Belton says that remortgage and fixed-rate products currently account for the lion’s share of the market, with an increasing amount of business being written on five-year terms as intermediaries, and their clients, anticipate a hike in rates.

“With rates still at near record lows, these products are proving very popular as landlords are looking to lock into fixed low rates now,” he explains.

“We’re also seeing aligned fee charging from lenders. However, there are now less products available at higher loan to values available on the market than there was a decade ago.”

Some may say that the restriction in higher LTVs is a good thing for the market in the long-term, ensuring market stability, while others will be frustrated at the limitations this places on portfolio borrowers.

That said, if economic conditions do deteriorate, further underwriting restrictions are almost certain to follow. For borrowers considering their options, now is certainly the time to take action.

Joe McGrath is a freelance journalist