The environment of buy-to-let mortgages has seen a few changes throughout the lockdowns in the UK. With house prices through the roof and changes to regulations such as restrictions on landlord’s ability to serve “no-fault” eviction notices, some existing and would-be landlords are questioning their options. That being said, some basic truths have remained the same. Let’s take a look at what BTL entails in a post-lockdown world.
What is a buy-to-let mortgage?
The nature of buy-to-let hasn’t changed. It’s a mortgage that is sold to people who are buying property as an investment, rather than a place for themselves to live. Most lenders will be reluctant for buyers to finance their properties with a residential mortgage, should they have plans to rent it out.
For experienced investors and brand new landlords alike, buy-to-let mortgages allow people to take their first steps into the rental property market or continue to grow their portfolios. They are, however, less attainable than a typical mortgage, generally requiring a deposit of between 25% and 40%. Often, borrowers will opt for interest-only mortgages when purchasing buy-to-let. This means that they will only pay the loan’s monthly interest as it accrues, with the full amount of the mortgage paid at the end of an agreed term. The monthly payments can generally be paid from the monthly rent collected.
The impact of Covid
Broadly speaking, the buy-to-let market is in a good place. That’s in part due to the high demand for social housing and a generation of renters who are unable to get a foot on the property ladder. Having said that, the pandemic has made an impact on all aspects of the economy, and that includes the BTL market.
For people hoping to secure a buy-to-let mortgage, the biggest impacts have been on lender service times and mortgage loan to value ratios. While pre-pandemic, 85% or even 90% LTV buy-to-let mortgages were available, during the pandemic an 80% LTV for personal applicants and 75% LTV for limited company applicants is as good as it gets. The stamp duty holiday led to a very high volume of applications, which, combined with the difficulty that surveyors have faced completing valuations, meant that lender service times slowed. These are both, however, issues that are overcome with time.
Interest rates have also been impacted through the pandemic, leading many people to look to new ways of achieving good returns on their investments. For some, this means considering buy-to-let. Quotezone, insurance comparison experts, recently undertook research which showed that 85% of people looking for landlord insurance between 2019 and 2020 own one property. The data also demonstrated a 22% year-on-year rise in people searching for landlord insurance for properties that they have owned for “less than one year”. This suggests that small and first-time landlords are on the rise.
Another interesting finding from the research is that only 52% of landlords used cash to purchase their property during 2020. That is the lowest percentage on record, demonstrating that buy-to-let mortgages are an attractive and viable prospect for buyers.
Considerations for customers
For customers in the market for buy-to-let mortgages, post lockdown, there’s plenty for them to consider. Here are some examples:
- How large is their deposit, and where is it coming from?
- Are they a first-time buyer?
- Will they purchase as an individual or through a limited company?
They’ll also need to be aware of what is required of them once they are successful with their mortgage application. Landlords will require:
- A managing agent
- All relevant utilities inspection reports and certificates
- Their landlord license
- Safety equipment to ensure habitable premises
- Landlord insurance
While nobody can predict the exact course of the pandemic and its future impacts, there is reason to remain hopeful, and even excited, for the future of the buy-to-let market. Landlords are continuing to purchase rental properties and in doing so hold the potential to accumulate healthy returns. The research also suggests that there are many more landlords-to-be considering entering the market too.