As of this writing, I have recently attended several industry events. Many people in the mortgage industry seem eager to reconnect with the potential risks that still exist, including me!
It looks like rental investors (BTLs) are feeling the same, with two busy days at the Consumer Real Estate Investor Fair a few weeks ago.
I’m talking about this because it was the first chance I had to be directly in front of BTL investors since the pandemic, and I was curious about who was attending, what types of investors and their levels of experience.
I was surprised at how busy it was, not just those who wanted to go out and about again, but the thousands of real estate investors who showed up with a thirst for knowledge about BTL property and finances.
There was a real mix of investors, including people with large existing portfolios, one with over 100 existing properties, and developers looking for development and renovation funding.
One particular category of investors that was in abundance was the non-portfolio investor of one to three properties. However, what was common between them was that they were there to learn as they wanted to grow their portfolio.
Talking to some of these investors reminded me of some of the conversations I used to have when I was actively advising and helping clients build their portfolios.
Helping investors think through their investment strategy is key to getting the right financing for each property and ensuring you have a lifelong client as an advisor.
Do they want to invest for income today or in retirement, do they want to invest for capital growth, what is their tax situation and how can that change, how many properties do they want to buy and over what time period? Asking these and other strategic questions is essential in order to be able to recommend the right solutions.
For example, many real estate investors like to create value in their existing portfolio through development and renovation. The created value can then be extracted and used as a deposit for the next property.
If you don’t understand this as an advisor, you may inadvertently tie your client to a five-year fixed rate with ERCs, with a lender that doesn’t offer further advances or allow additional fees. This applies to many lenders who specialize in BTL because of the way they are funded, a complaint that is waiting to happen!
It’s also time to start coaching your investor clients on green mortgages and the impact of EPC requirements. Beginning in 2025, new rentals can only be issued for properties rated from A to C. It will apply to all rentals from 2028.
If you go with a five-year fixed rate today and your client will have to borrow to do the required work on an substandard property, you risk putting your client in a difficult financial position.
Hopefully more lenders will look to introduce innovations in the BTL market around EPC requirements. At the moment, we are only looking at a handful of BTL lenders offering some form of product incentive ranging from rate cuts to cash back as below:
|BOI||THAT||1.76%||2 year correction||60%||Lower rates|
|BOI||THAT||2.12%||5 year correction||75%||Lower rates|
|Foundation||A||3.14%||5 year correction||75%||
Discounted rates and £ 750 cash back
Less attractive options for B&C ratings
|Foundation||A||1.99%||Variable over 2 years – no ERC||75%||Lower rates|
|Kensington||–||4.34%||2 years fixed||80%||£ 1000 cashback if rating improves within 12 months of completion|
|Landbay||A B||2.89%||5 years fixed||70%||
Slightly higher for the C rating
|LoanInvest||THAT||2.88%||5 years fixed||65%||Reduced rates and fees|
|TMW||THAT||2.24%||2 years fixed||80%||80% only available for AC values|
|Paragon||THAT||3.99%||5 years fixed||80%||Lower rates|
* Details correct as of 10/25/21
As you can see, most green mortgage lenders offer savings over their standard range. For example, Paragon offers a green product for each standard product at 0.1% less. Now is the time for all advisors to communicate these new mortgage incentives to their BTL clients to help them prepare for upcoming regulations.
If you do it right, working with real estate investors is very rewarding. You get to know your investor clients well and become an integral part of their business. Plus, there’s the bonus of a client building a portfolio who can take out a mortgage with you every few months instead of every few years!
Liz Syms, Managing Director, Connect for Intermediaries