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June 2020 | Buy-to-Let

Jeff Knight: The first steps on a long road

Jeff Knight is director of marketing at Foundation Home Loans

In scanning the buy-to-let (BTL) news section on the Mortgage Introducer website, it’s uplifting to see such a slew of positive stories around lenders re-entering the marketplace and restarting physical valuations.

Let’s make it clear, though, that this is certainly not a race. It’s vital that all lenders work closely with their valuation partners to ensure a range of safety measures and social distancing restrictions are firmly in place to minimise any risked posed by COVID-19 before proceeding.

Strong levels of communication along each link in the property chain will also help to ensure that this process is as secure and seamless as possible.

The lending community is obviously playing catch-up in terms of rescheduling visits and managing pre-crisis backlog cases, but we can’t afford to cut any corners and rush these without ensuring that the right levels of due diligence are in place.

That’s not to downplay just how important a step forward this is for the entire housing and mortgage market; nevertheless, we have to remain circumspect about expecting too much, too soon.

The market has changed. We all know that. It’s difficult to predict with any accuracy exactly what the specialist lending sector will look like in the coming months.

We’re still at the beginning of a long road when it comes to overcoming conditions the likes of which we’ve never seen previously, nor want to again, and seeing how this period will affect people’s financial wellbeing.

Comparethemarket.com’s Financial Confidence Tracker research – released on 1 May – found that nearly a fifth of UK households were struggling to pay their bills due to the lockdown.

According to the research, 20% of households surveyed were not confident that they would be able to meet due payments or stay on top of their household finances over the coming weeks.

Among those with children at home, this rose to nearly a third (31%). When asked why they were not confident that they would be able to pay or manage household bills in the coming weeks, 39% said that it was because their employment status had changed for the worse; for example, they had been furloughed, had to take a pay cut or lost their job.

Other common reasons for low financial confidence among respondents were that their household income was not sufficient to cover their outgoings (38%), and that the government’s newly introduced financial measures to help households facing difficulties due to COVID-19 were not felt to apply to them (31%).

We continue to operate in an environment full of unknowns. The scale of the economic fallout, not to mention the size, depth and length of an impending recession, remain difficult to determine.

This means that lenders and intermediaries must be agile in adapting to a new world, whatever that world might look like.

We can’t say for sure what the immediate future will bring, but what we can say is that we are in a better position to tackle whatever obstacles are in our way.

We can also say with confidence that the private rented sector will play an even more prominent role within the UK housing market over the course of the coming months and years.

What is the outlook from intermediaries? From our perspective it remains largely positive. This is also reflected in the latest Mortgage Lender Benchmark from Smart Money People, which highlighted that 77% of brokers believe that mortgage lending will recover to pre-COVID-19 levels within nine months, while 51% believe this will happen within six months.

Appointed representatives proved to be significantly more optimistic than directly authorised brokers, with 59% predicting that lending levels will recover within six months, compared to just 37%.

Brokers focused on the equity release market proved to be particularly sceptical. Just 19% agreed that the market would recover in six months. Meanwhile, 28% predicted that lending levels would take more than 12 months to recover.

Mortgages for Business recently highlighted two key areas in which landlords might be able to find bargains at the moment:

  • Competitively-priced vanilla buy-to-let properties, which yielded 5.7% on average last year;
  • Houses of multiple occupancy (HMOs), which currently have comparatively low mortgage rates.

Mortgages for Business also added that 5-year fixed rate mortgages on larger HMOs currently sit between 3.5% and 4%, while lower rates are available on shorter terms, as well as on smaller HMO properties.

Last year, of all the different property investment options, HMOs were reported to have produced the highest yields on average, at 9.2%.

I can’t disagree with either of these suggestions, and let’s also highlight the fact that seeking advice in complex times will only help landlords maximise their existing portfolios and generate stronger yields from a variety of property-related investments.

Now, let’s see what the next month has in store for the buy-to-let sector. Bring it on, I say.