Buy to let and holiday let clients – maximising the opportunities

Hope on the horizon

Following a period of significant change, the buy to let and holiday let market is a hot topic. With the post-pandemic holiday let boom and regulatory upheaval set against a turbulent economic landscape, brokers can be forgiven for finding it hard to keep up. And, of course, there’s no escaping the fact that new purchases in the let space have fallen away considerably. In 2023, a 53 per cent reduction was reported and a further decline is forecast for 2024 (UK Finance, December 2023).

Despite the challenges, there are glimmers of hope for brokers. Concerns about the number of products in the market have started to abate and in April, Moneyfacts reported signs of stabilisation, with a month-on-month growth in the availability of 5-year products.

Plus, there are still opportunities in the market - it might just need a keener eye to spot them and some creative thinking to make the most of them. Let’s look at the remortgage market as an example.

The remortgage affordability challenge

There are over 200,000 fixed rate, buy to let mortgages due to mature over the next 12 months, growing to 245,000 the following year (UK Finance, April 2024). Yet, it’s not only the size of this market that presents an opportunity. With so much having changed in the sector, these investors are more likely than ever before to need a broker to explain the options and help them find a new deal.

The cost-of-living crisis lingers on. Rents have risen, but with costs remaining high, landlord profitability is being squeezed. In today’s higher-rate environment, the average UK buy to let Income Cover Ratio (ICR) dropped to 180 per cent in Q4 2023 from 238 per cent a year previously (UK Finance, April 2024).

This means that even with a strong history, some borrowers may find it harder to evidence affordability. Even if they have access to untapped liquid wealth, low-income, low-yield investors may find it even harder to source deals.

For some, internal product switching could be an option. In other cases, a new breed of mortgage prisoner is being created and those trapped on standard variable rates may be forced to sell.

To help tackle these scenarios, brokers need lenders who offer bespoke solutions and are willing to take a flexible, holistic approach when it comes to assessing affordability.

Supporting affordability with specialist lending solutions

As one of the UK’s fastest-growing mutuals, Market Harborough Building Society is a specialist lender that looks beyond income calculations and considers overall affordability to solve simple

and more complex buy to let and holiday let remortgage cases. Not all lenders top-slice and few offer it as standard. Market Harborough is one of those that can factor in clients’ surplus personal income to top up any shortfall in rental coverage and support the case affordability.

Alongside this, Market Harborough has taken other action to support clients, such as making no-fee products and low ERC deals readily available. It also offers joint borrower sole proprietor and multi-generation mortgages, which offer alternative ways to maximise affordability. Up to four incomes are accepted and no family connection is required.

High net worth clients are not always immune to affordability challenges and support is available for them too, with extra flexibility around the income the Society can consider.

Chris Thompson, Head of Sales at Market Harborough Building Society said “In these challenging times brokers and lenders must work in partnership. Innovative solutions that maximise the client’s affordability give them the best chance of finding a new deal. Specialist lenders like Market Harborough Building Society can help if the borrower's ICR doesn't fit. We consider complex cases, even those with multiple complexities and always look for ways to say yes!”

Not forgetting capital raising

Remortgaging to raise capital is another opportunity brokers can seize. 38% of landlords don’t have any borrowing to fund their rental properties (English Private Landlord Survey) and could use funds released from their unencumbered properties for a variety of reasons, including:

• Renovating and maximising the potential of existing let properties, such as creating more rooms. Latest reports show that HMOs are on the rise and have become an appealing strategy for landlords navigating a challenging economic landscape
• Investment in other buy-to-let or holiday-let properties
• Investment in business interests or other property
• Inheritance tax planning

As rates begin to fall, this could present an attractive option many landlords consider and specialist lenders like Market Harborough Building Society are best-placed

to find solutions for less common scenarios.

Turn to your trusted specialist lender

Specialist lending means different things to different lenders. At Market Harborough Building Society, it’s about helping more people fund their property investments by reviewing every case on its merits and taking a flexible approach to assessing affordability. Market Harborough puts the needs of brokers and clients at the forefront with Feefo Platinum Trusted award-winning service that includes direct access to the case BDM and underwriter throughout.

The Society is used to lending on properties that are often with let cases such as multi-units, part-let and sub-lets and offers loans to expats, foreign nationals, first-time buyers, first-time landlords and clients borrowing into retirement. It also accepts non-standard sources of income.

Visit mhbs.co.uk/intermediaries or call 01858 412345 to find out more about:

• How the Society combines the values of a respected building society with the agility and smooth processes of a modern-day lender
• Its tiered mortgages based on complexity – including new lower pricing for cases over £1m
• Its simple product switch process paying a 0.30% procuration fee for residential and let cases

Sources:

English Private Landlord Survey 2021

UK Finance Report December 2023, April 2024

Moneyfacts April 2024

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.