Many buy-to-let (BTL) professionals are optimistic about the market outlook after a strong 2021. Mortgage strategy cited good mortgage availability, easing criteria and low rates as reasons for their optimistic outlook.
This positivity is despite tougher tax conditions for homeowners and the threat of additional costs to improve the energy efficiency of homes, which, on the other side of the coin, has led critics to predict an impending exodus from the Marlet.
Aaron Strutt, Product and Communications Director of Trinity Financial, said: “More and more lenders have relaxed their criteria to make it easier to get a BTL mortgage. Some providers have worked to remove their minimum income requirements and loosen their rent calculations to provide larger loans.
Property is still considered a reliable way to generate additional income
“The gap between the cheapest BTL mortgages and residential rates is still quite small for those with larger deposits. More homeowners would have exited the market had it not been for the low rates.
“There are also more small deposit BTL mortgages available, but they are quite expensive compared to the best buy rates.”
Moneyfacts financing expert Eleanor Williams adds: “With rental demand remaining high, BTL could be an attractive investment as the increased overall product choice and competitive overall average rates are positive.”
Increase in availability
Moneyfacts data shows a huge increase in the availability of BTL products over the past few years, with just under 3,500 on offer at the end of December compared to 1,806 in September 2020 and 2,424 in September 2019.
Typical rates also remain quite low. The average two-year fixed rate stood at 2.94% just before Christmas, with little movement over the past two and a half years. Of course, this figure is likely to increase if interest rates continue to rise in 2022 to combat soaring inflation, as many expect. However, few people believe that rates will explode this year.
Low interest rate climate means potential homeowners can secure a competitive mortgage
These conditions made last year an exceptional period for market growth. Trade body UK Finance estimates there was £18bn in BTL loans for purchases in 2021, a whopping 83% increase on 2020. Many attribute the rise largely to the exemption stamp duties.
The 2021 figure is just as healthy compared to the previous decade. The market has come closest to last year’s total over this period, coming in at £16bn for buying activity in 2015.
Strutt says, “From a new lending perspective, it’s been a pretty good year for the BTL sector. The stamp duty exemption brought more life to the market and loan volumes increased.
“As a business, we’ve had a real surge in inquiries from borrowers wanting investment property and from experienced landlords adding to their portfolios.”
However, UK Finance expects fewer homes to be bought to let in 2022, with a forecast drop to £13billion in loans for purchases this year, followed by another drop in 2023 to £12billion. of pounds sterling.
Since young homeowners probably haven’t experienced high interest rate environments, the experience and knowledge of brokers will be crucial in allaying any concerns.
Yet, with £12billion still in line with loans from 2017 to 2020, history points more to an extraordinary 2021 than a bleak future.
This narrative is also very different from predictions of an exodus of existing owners, but many headlines have been filled with such headlines in the second half of 2021.
These stories often came from research conducted by large companies that indicated investors were selling in droves. For example, surveys carried out last summer by insurance company Simply Business and the Nottingham Building Society both found that around a fifth of owners planned to sell a property to recoup pandemic-related losses.
Whether that happens or not, it’s clear owners haven’t had it easy in recent years. Many have suffered a drop in income from tenants who have been unable to pay their rent throughout the pandemic and have not been able to get much government support themselves.
Some homeowners have money set aside to cover unexpected costs, but that may not be enough to cover energy efficiency upgrades as well.
Meanwhile, the ban on evictions during Covid meant landlords could not evict tenants who were unable to make payments. However, it was a key measure to prevent people from becoming homeless.
This all follows major tax shocks for homeowners in recent years. Since April 2020, they only receive tax relief at the basic rate, which limits the after-tax income of the highest and highest payers.
The stamp duty holiday – which many say was a catalyst for growth last year – ended in September. This will increase purchase costs, which some experts say could deter potential buyers.
This is on top of the fact that most people buying anything other than their first home have to pay stamp duty 3 percentage points above standard rates.
Another concern is the cost of remediation work that owners may be required to undertake to comply with environmental requirements.
The Mortgage Works found that 52% of homeowners surveyed in November with properties rated D or lower on energy performance certificates were considering selling. This addressed the requirement for all new rentals to have at least a C rating by the end of 2025, and for all rentals to do so by 2028.
BTL could be a worthwhile investment as increased overall product choice and competitive overall average rates are positive
Those with larger portfolios were more likely to consider selling some or all of their properties that needed additional work, the research also found.
TMW Head of Loans Daniel Clinton said: “While our research suggests owners have cash set aside to meet unexpected costs, this may not be enough to also cover property improvements. energetic efficiency.”
However, some lenders allow homeowners to access financing at special rates for such work.
Under TMW’s Green Further Advance mortgage, investors can borrow between £2,500 and £15,000 at a lower interest rate than standard further advances, provided all money is spent on improvements such as the installation of solar panels, insulation, efficient heating systems or replacement. the Windows.
While green upgrades may prove a challenge for many, UK Finance’s remortgage forecast paints a less ominous picture. It predicts £27bn of such loans in 2022, which is the same as the estimated figure for 2021 and the confirmed number for 2020. For 2023, it forecasts remortgage to climb to £33bn.
More owners would have left the market if it hadn’t been for the low rates
If this turns out to be correct, any fears of an exodus could be far from the truth. Mortgages should only fall if the market contracts.
In a BTL report from the second half of last year, Shawbrook Bank identified the shift to sustainability as the next challenge for homeowners, along with the threat of rising interest rates due to economic conditions.
He added: “As younger owners are unlikely to have experienced high interest rate environments, the experience and knowledge of brokers will be crucial in allaying any concerns.
“Ultimately, confidence in the market remains high among owners.”
Trussle’s head of mortgages, Miles Robinson, acknowledges that the market picture is mixed. Nevertheless, he is optimistic.
Lenders have relaxed their criteria to make it easier to get a BTL mortgage
“It’s true that BTLs aren’t the bargain they once were,” Robinson says.
“However, property is still seen as a safe and reliable way to generate additional income.
“This can happen both by collecting rents and by increasing housing prices.
“Plus, the low interest rate climate means potential homeowners can get a competitive mortgage.”