The market has skewed towards five-year fixed rates because the pay rate is used when stress testing these types of products
Remortgaging is going to be big in buy-to-let in 2022, especially towards the latter part of the year, according to Paul Brett, managing director of intermediaries at Landbay.
Brett explained that this is because of the rise in popularity of five-year fixed rates in 2017 when the Prudential Regulatory Authority brought in new rules around stress testing.
The market has skewed towards five-year fixed rates because the pay rate is used when stress testing these types of products.
Many of these five-year fixed rates will be maturing this year, and next, which means intermediaries have a great opportunity to be revisiting clients to help them refinance on to new deals.
Another key area of growth within the buy-to-let market is expected to be green mortgages, according to Brett.
He said: “Green mortgages are also set to be more popular, as landlords become aware of them and of the proposed Energy Performance Certificate (EPC) changes initially due in 2025.”
Currently, all rental properties must be E rated or above but this could change to band C if the rules are adjusted. Offering a discount on the mortgage acts as an incentive for landlords to upgrade their properties to at least a ‘C’ rating.
Providing a discount in the form of a reduced rate or cashback for a green mortgage product has be-come increasingly common over 2021 and into 2022.
“All rental properties and sold homes must have an EPC and, currently, 54% are rated ‘D’ or lower for energy efficiency,” said Brett.
He went on to add: “For carbon dioxide emissions, the figure is 64%. These are the latest Q4 2021 figures from the Department for Levelling Up, Housing and Communities and are a little lower than Q3 where it was 58% and 68% respectively.”
He believes that landlords buying new build properties could also take advantage of green mort-gages as most new builds are ‘B’ rated.
“So, again, a good opportunity for brokers to discuss EPCs and discounted green mortgages, both for remortgaging and new purchase,” added Brett.
He explained that Landbay carried out a survey recently and found that one in three landlords (35%) would be willing to buy ‘D’ rated property and upgrade it, rising to more than half (53%) of large portfolios landlords who own at least 10 properties.
“Another growth area we are seeing is houses in multiple occupation (HMOs) and multi-unit free-hold blocks (MUFBs),” Brett said.
The advantage of these types of property over single units is higher rental yield, but they do need more management.
Typically, it is the more experienced and professional landlords who will operate in this sector of the market, as part of a wider portfolio.
Student properties are often operated at HMOs, and while there is the increased risk of damage and additional management required, this property type does enjoy high yields.
Brett added: “Having said that, we launched a product for first-time HMO landlords last year and it has been well received in the market.
“These borrowers tend to be younger and entrepreneurial – providing good quality housing in high demand areas, such as towns and cities for young professionals and university areas for students.”
Finally, Brett explained that there will still be a decent number of smaller landlords who just want one property as an investment for retirement or to bring in some extra income.
The buy-to-let market is a good investment area for those looking to make some additional money on top of their salary. However, Brett said it is attracting more professional landlords than amateur ones, due to all the changes around rules, particularly taxation, since 2016.
The increased regulation and restrictions have resulted in a number of amateur landlords exiting the market due to the complications caused by these changes.
Brett concluded: “Many landlords have set up limited companies and I expect this to continue as new investors enter the market in a more professional capacity.
“The demand for more complicated loans will therefore increase – but brokers should not be put off by complexity.
“Specialist lenders, such as ourselves, handle complex cases day in and day out and we are always happy to talk through any complications with you and your client.”
