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Landlords have enjoyed a “golden age” when they could grow their portfolio and maintain yields through refinancing but it’s vital lenders and brokers now step up to support them as another era begins.
While the new Prudential Regulation Authority rules have significant implications for portfolio landlords, they create an opportunity for brokers, especially those able to help their customers to navigate the changing economic and regulatory landscape.
These changes - and a rising rate environment - require a shift in the landlord mindset and the effects are likely to be polarising. Some investors will sell up, while others will become more robust as a result.
The onus is on the landlord to more actively manage their portfolio to optimise returns, as with a stocks and shares portfolio.
This needs more effort but including HMO and holiday let can evolve the property mix and diversify risk.
Similar opportunities exist to optimise rental yield by location - latest market figures show East Midlands yields 31 per cent higher than central London - while lower property prices can spread risk across multiple properties.
A portfolio can provide valuable protection but some landlords need to evolve their approach and become more sophisticated – reliance on refinancing alone is no longer sufficient.
Refinancing our national buy-to-let stock is an ongoing opportunity but portfolios take time to develop.The impact of some changes, such as to tax, has yet to be felt fully - many landlords are unsure or unaware of the effects and need advice if they’re to maximise their portfolio returns. Buy-to-let borrowers require professional support more than ever.
While landlord confidence initially fell as a result of tax changes and Brexit, and a small lull in home purchase activity, a more positive outlook is starting to emerge as established landlords identify value, albeit maybe looking further afield.
A thriving private rental sector is essential to a healthy mix of housing tenures and fresh shoots of investment should be embraced.
For this reason, I’d like to see a period of stability – a hiatus in regulatory and tax reform - so landlords and intermediaries can navigate the forthcoming changes and transition into the new era - an increasingly sophisticated rental economy.
Demand for buy-to-let lending remains broadly stable. Refinancing our national buy-to-let stock is an ongoing opportunity but portfolios take time to develop, often growing through opportunity and these landlords tend to be older, with a lot of investment driven by pension planning.
We have taken account of this, increasing our maximum age for buy-to-let borrowers to 85.
Our role as lender is to support our intermediary partners and respond to their customers’ needs, continuing to develop sustainable lending solutions while simplifying our processes.
We also need brokers to work with lenders. A more sophisticated rental market necessitates additional information identified by the regulator but the result is a more robust service proposition, designed to protect brokers and their clients too.
Reflecting on our approach, a limited number of extra questions asked sooner in the application process delivers faster certainty for the broker and fewer follow-up queries.
The result is a more rounded underwriting decision, fit for purpose in an era of increased sophistication and portfolio optimisation.
Contrary to the doom-mongers’ predictions, underwriting approvals have risen, suggesting lenders’ pragmatic response to the regulatory changes has led to better-quality submissions, helping us to meet the needs of our portfolio landlords and support the next phase of evolution in the buy-to-let market.
Jaedon Green is director of product and distribution for Leeds Building Society
