How is the mortgage sector providing for properties?

This article is part of
Guide to Buy-to-let

HMO products is noticeably lower, at just over 360 products when doing a basic search.

The price is right

Although the amount of choice may be expanding, many lenders are charging higher interest rates and fees on these products when compared to individual ‘standard’ BTL deals.

“For example, a limited company two-year fix starts from 2.49 per cent to 2.7 per cent, which is a significant increase from 1.35 per cent for a normal BTL two-year fix, but still historically very low,” Mr Morrey says.

“So, unless the landlord is keen to seal in the next couple of years then a longer-term fixed may be more attractive, if a little higher.”

Brian Murphy, head of lending at the Mortgage Advice Bureau, says for HMO mortgages in particular – where rates are also hovering over 2.5 per cent - the products are priced appropriately as the requirements are substantially different from the ‘mainstream’ BTL market. 

He notes: “This sector does offer greater rewards but carries greater risk and therefore lenders are balancing that risk and pricing accordingly.”

“Overall, loan to values have steadily increased across the sector and as lenders become more comfortable and experienced in the current market, and dependent upon their individual risk appetites, they will no doubt continue to innovate, amend and update criteria,” Mr Murphy adds. 

Richard Rowntree, managing director of mortgages at Paragon Bank, says its HMO mortgage rates are slightly higher to reflect the more complex underwriting proposition, but added landlords will not typically choose a lender on rate alone.

“They want to work with a company that has understanding of their requirements and market knowledge. For example, we rely on decades of data and experienced underwriters that take a holistic look at applications, rather than rely on automated valuations, credit scoring and auto underwriting,” Mr Rowntree comments.

Top slicing

One invention that is taking the BTL mortgage market by storm is ‘top slicing’.

.Top slicing has been a big help in London and the South East where rental yields tend to be lower than in the rest of the UK.--Greg Cunnington

Introduced to counteract the stricter affordability rules set by the Prudential Regulation Authority in 2017, top slicing allows landlords to use their personal income to help meet the higher interest coverage ratio calculations now applied for short-term mortgage deals.

“Top slicing has been a big help in London and the South East where rental yields tend to be lower than in the rest of the UK. Barclays, Skipton and Clydesdale have very strong offerings here,” Mr Cunnington notes.

Precise Mortgages says it now allows top slicing across its entire BTL range to include all eligible personal ownership, limited company, portfolio, HMO, and holiday and student let applications.

“Not only has top slicing helped to unlock our range of two and five-year fixed rate products, it also gives customers flexibility around loan size and more choice with how they manage their portfolio,” Alan Cleary, managing director of Precise, says.