Is buy-to-let the punching bag of the industry?

The buy-to-let market has been enduring a tough few years, with governmental changes regarding tax, rising interest rates and the push toward higher Energy Performance Certificate (EPC) ratings, to name but a few.

Mortgage Introducer has spoken with experts to identify the trials and tribulations buy-to-let landlords are currently undergoing.

Unrealistic

Mike Staton, director at Staton Mortgages, said the buy-to-let mortgage market had found itself the punching bag of the industry recently.

“Stress testing has led to lenders requiring unrealistic rental figures to meet affordability for the mortgage a landlord requires,” he said.

In turn, Staton added that this forced the landlord to remain with the lender they were currently with on extortionate rates, which he believed was very close, if not the same, as creating mortgage prisoners through no fault of the client.

“The fees lenders are charging are borderline profiteering; in a time when Consumer Duty is on everybody’s lips, the buy-to-let industry seems to have ignored the process,” Staton said.

Ross McMillan (pictured left), owner and mortgage adviser at Blue Fish Mortgage Solutions, said misguided government actions, coupled with punishing taxes and laws, had dealt a double blow to struggling landlords.

These landlords, McMillan said, were already grappling with skyrocketing mortgage rates, excessive lender charges, and gruelling stress tests that plagued other parts of the UK.

He added that landlords were adapting to the market by raising rents whenever possible, and striving to counterbalance the onslaught of negative factors hitting them.

“Though yields have taken a hit due to soaring rates, a diversified portfolio can still yield decent returns and hold promise for long-term capital growth,” he said.

However, McMillan said the realm of new buy-to-let purchases had all but vanished, and without substantial drops in rates and associated fees, he believed it was hard to imagine this landscape shifting anytime soon.

Lisa Martin (pictured right), development director at TMA Club, added that there were problems with housing supply as some landlords reacted to higher interest rates and the cost-of-living crisis by selling their properties.

As well as this, Martin outlined the pressures of the green agenda, which was being forcibly pushed on landlords by the government.

“However, tenant demand remains high, underpinning activity in the sector, and a sign that the market will remain resilient despite the tougher macroeconomic conditions,” she said.

Affordability

Martin said affordability continued to be the main challenge for the buy-to-let market, and had affected both lending for house purchase and mortgaging activity this year.

See the latest buy-to-let mortgage rates in the UK at the link.

However, she said there were some types of letting which were becoming more popular in the current environment.

“For instance, there is a greater demand for limited company buy-to-let deals, and we have seen a number of lenders now include these in their offerings,” Martin said.

Complex property types, such as HMOs and multi-unit premises, she said, were also becoming more common, and she added that holiday-lets offered some good yields.

“The recent Paragon Bank Summer Insight Report highlighted that with interest rates predicted to increase further over the next few months, some landlords are putting bigger deposits down on purchases in order to secure the best rates, and meet affordability challenges,” she said.

On top of this, Martin had also seen more cash purchases, which might get refinanced in the future when rates and affordability became more favourable.

Stimulate

Some landlords, Martin said, were concerned that proposed rules on environmental standards might impact the profitability of their properties in the future.

The lack of clarity on these rules, she said, meant that landlords could not prepare for the future, and added to the uncertainty of their investment.

“Further clarity to let landlords know if and when they will be coming into force would be helpful, as well as providing insight into whether there will be any exemptions to these rules, and what these exemptions might look like,” she said.

By addressing this issue, Martin said, the government could remove some of the uncertainty around and stimulate further investment in the market.

Do you believe the buy-to-let market is the punching bag of the mortgage sector? Let us know in the comment section below.