Tax changes and proposed energy efficiency requirements have already put a question mark over the viability of buy-to-let, but higher mortgage rates have added an extra challenge for landlords.
According to research for the National Residential Landlords Association, three in 10 landlords (30 per cent) plan to cut the size of their portfolio this year. The organisation says this marks the highest level of planned disinvestment in more than six years.
So if landlords do realise their plans to scale down their portfolio, or even exit the BTL market altogether, what impact might this have on the mortgage market?
The potential for amateur or accidental landlords to exit the market could see a reduction in BTL business across more ‘vanilla’ lenders, and tighten criteria for those remaining in the market, says Jon Cooper, head of mortgages at lender Aldermore.
“Specialist lenders that focus on limited company BTL and portfolio landlords, which by tradition have a more flexible lending approach, may receive more business as a result,” he says. “If this were to occur, it would have a knock-on effect on some specialist lenders’ operational rhythms and delivery timescales.”
Stephanie Charman, strategic relationships director at Sesame Bankhall Group, says she has seen a small number of amateur landlords selling properties due to pressure from interest rates, the potential for significant spending to bring properties up to EPC specifications, and concerns around increases in rent arrears.
“However, if amateur landlords continue to exit further, we could see mainstream lenders who don’t offer a more specialist product range look to pull back from the market,” she says.
How could mortgage rates be affected?
Although mortgage rates are influenced by factors besides demand, Charles Ayton, senior commercial manager at largemortgageloans.com, says there would be some impact on rates if there were fewer BTL landlords, and therefore less demand for BTL mortgages.
“There will be fewer providers chasing that market, and therefore those that are left providing it may be able to increase their prices because they are the go-to provider. But of course, the whole thing needs to be competitive still,” he adds.
With UK Finance having forecast gross mortgage lending to fall this year, Chris Kirby, head of key accounts and specialist distribution at The Mortgage Lender, says lenders will be as competitive as they can to acquire the levels of business they need.
But he also says it is unlikely that lenders will just reduce rates.
Lenders and landlords shifting focus to HMOs
Dale Jannels, managing director at Impact Specialist Finance, a broker, packager and distributor, likewise cites how the market is going to shrink this year. “There’s going to be a lot of lenders going for a lot less business,” he says.
“And therefore they’ve got to come out with something that’s pretty unique to attract that volume to them, to hit their targets and make it a viable year for them.”
