Expert discusses the conditions facing BTL landlords
The rental income required to fulfill buy-to-let mortgage criteria is “ridiculous”, according to the director of a leading broker business, who says lenders’ stress tests are out of date and effectively make landlords mortgage prisoners if they want a better deal but don’t wish to increase rents.
Michael Staton (pictured), from Staton Mortgage and Protection Specialists, in Mansfield, in Nottinghamshire, suggests the stress testing system used in the sector is based on a market where interest rates were previously at 1% and 2%.
Furthermore, financial institutions charge borrowers “heavily, heavily inflated” fees, he said – for example, a 3% fee on a 3.99% rate. These factors continue to make buy-to-let ‘the punching bag’ of the mortgage industry, in Staton’s view.
Average UK private rents increased by 8.6% in the 12 months to July 2024, according to provisional estimates from the Office for National Statistics. They increased to an average cost of 1,319 (8.6%) in England, £748 (7.9%) in Wales, and £965 (8.2%) in Scotland.
“The amount of rental income that is currently required to get a new mortgage through is absolutely ridiculous,” he told Mortgage Introducer. “The buy-to-let industry needs to look at other ways of means testing and stress testing in order to have a more favourable outcome for a landlord
“I had a client charging £550 a month on their rent. To put them to another lender, on a more favourable rate with less fees, they had to increase their rental income to £750 a month. The client has said, ‘I’ve got great tenants in this property, they look after it, they’ve always paid rent on time. We don’t want to increase the rental income.’ So, if you don’t want to increase your rental income, you can’t go to another lender, which in effect is creating what I would consider a mortgage prisoner.”
Are landlords leaving the private rental sector?
There has been much speculation in the mortgage industry about landlords selling their properties and leaving the market, due to more restrictive legislation.
“What you’ve tended to see for the last 10 years, are every man and his dog being able to get an accessible buy-to-let mortgage and rather than use it as an investment, they’re using it as an income source,” Staton said. “You should only be entering the buy-to-let mortgage market now if you are a serious landlord looking for a long-term investment, potentially a pension pot, and not somebody who is looking to subsidise their champagne lifestyle on a lemonade budget, at the moment.”
He added: “I haven’t lost a lot of portfolio landlords over the last two to three years. I don’t think good landlords are leaving the market. I think what you’re seeing is a an exodus of cowboy landlords - landlords who want to make a quick buck; they’re not really bothered about what standard of living their tenants are living in.”
Read more: Holiday let mortgage options increase - Moneyfacts
Will the new government improve the private rental sector for landlords?
Staton said he was not confident about the new Labour government making conditions more favourable for buy-to-let property investors than their Conservative predecessors did previously, because too much emphasis was being placed on tenants’ rights, leaving little power with landlords. He suggested that landlord licences should be standard across the UK, rather than within just a few authorities, as is currently the case.
“We’re talking about an unregulated and an unlicensed industry where the customer - the tenant - has more rights than the business owner,” he said.
Last week, the National Residential Landlords Association said a third of private sector landlords in England and Wales would consider selling their rental properties if rent controls were introduced, according to its latest research. Over the past year, 17% of landlords sold rental properties, compared to just 8% who bought new ones. Looking ahead, 10% of landlords plan to buy additional properties for rent, while a third intend to sell.
Property website Rightmove, meanwhile estimates that an additional 120,000 rental properties are needed to rent growth levels of around 2% per year. ONS figures suggest the highest average rent for detached properties is £1,478 and lowest for flats and maisonettes - £1,244.
