It is approaching 5 years since the PRA regulations relating to rent stress tests and portfolio landlords came into effect in 2017. The significant changes to rent stress tests across the buy-to-let mortgage market meant that many landlords were unable to meet the new rental calculations for short term fixed rates, such as 2or 3 year products.

The PRA regulations do not apply for fixed rates of 5 or more years, so landlords were often obliged to take out a longer term mortgage product. For this reason, the popularity of 5 year fixed rates has rocketed in recent years.

For portfolio landlords, defined as having 4 or more mortgaged buy-to-let properties, additional underwriting requirements were also introduced in 2017. Lenders are now required to stress test the applicant’s entire buy-to-let portfolio as part of their underwriting process, to ensure that it isn’t too highly leveraged. Portfolio customers may also be asked to provide business plans and cash flow forecasts to support their applications.

Due to the increasing regulations and tax changes applied to buy-to-let over the last 5years or so, there has been talk in the sector, supported by research evidence, that some landlords have considered exiting the buy-to-let investment market or reducing the size of their portfolios.

However, for many professional portfolio landlords buy-to-let still makes sense, and for those with 5 year fixed rates that are approaching maturity, now could be a good timeto look at refinancing options.

Portfolio landlords have a diverse range of mortgage needs depending on the property type, LTV requirements, age range, tax bracket, limited company status and a whole host of specific criteria points that lenders will look at when assessing a case. There are lenders in the market who have opted out of the portfolio landlord space, preferring to focus on more ‘vanilla’ customers. This means that professional property investors will often find themselves using more specialist buy-to-let mortgage providers, possibly with a lengthier application process and slower decision making as lenders now have more information to assess.

Some lenders have a limit on how many mortgages they will provide to customers or will only lend to landlords with a portfolio up to a specific size. Other lenders such as Paragon, Foundation and Landbay have large aggregate lending policies or no limit on the total number of properties in the applicant’s portfolio.

Buy-to-let lending policies vary enormously with no two lenders taking exactly the same approach. Some buy-to-let cases can be complex and broad technical knowledge is required by a specialist broker to find the best solution for their clients.

For portfolio landlords looking to remortgage one or more properties in their portfolio, there are some excellent rates available and there are usually solutions for all scenarios, even the most complex cases. Like-for-like remortgages where no capital raising is required are normally a straightforward option providing the portfolio application meets lender underwriting criteria.

If the client is looking to release equity from their property, it is worth checking buy-to-let lending policies to ensure that the reason for capital raising is acceptable to the lender. Lenders normally allow capital raising for a further property purchase, but some may not accept paying tax bills or debt consolidation, while others will provide capital raising for any legal purpose.

Handling large portfolio cases can be more time consuming and it may take considerable effort to find the right provider for the client, but it can also be rewarding especially if multiple properties are being remortgaged at one time. Perseverance and patience are key with these clients.

The buy-to-let sector is known to be resilient and there are always opportunities for intermediaries to write the buy-to-let mortgage business that arises in the prevailing market conditions. For example, in 2020 there was an uplift in purchase business with landlords seeking to benefit from the stamp duty holiday, saving thousands on initial cash outlay.

In the recent Budget, the Chancellor announced that the stamp duty holiday will be extended by three months to June, with a further three month taper to the end of September. This will be welcome news for clients who are currently partway through the mortgage process, enabling them to complete without incurring additional costs. It is also likely to buoy up the housing market for another few months. However, it has been pointed out by numerous industry pundits that extending the deadline just delays the inevitable cliff edge for those that don’t complete in time, prolonging the current difficulties being experienced within the purchase market.

Surveyors and conveyancers are already dealing with significant backlogs so there are still calls for the stamp duty holiday to be phased out, rather than abruptly come to an end. It is also worth considering the potential efficiencies to be gained by lenders using desk top valuations to speed up the process, particularly for lower LTV and lower risk applications.  This approach was taken by many lenders during the lockdown period when visual inspections were halted, so there is an argument for it to continue in certain circumstances if it would improve service levels.

In 2021 a new opportunity presents itself for buy-to-let brokers in the remortgage sector. It is coming up to 5 years since the 2016 PRA regulations were introduced which caused a dramatic rise in the number of landlords choosing 5-year fixed rate products. This has lengthened the remortgage cycle for many landlords and reduced the frequency of business for their mortgage brokers, who for many years had relied on a 2-year cycle for a majority of buy-to-let clients.

The good news is that for many clients on 5-year fixed rates, these products will start maturing in 2021, which means it could be an ideal time to review existing client banks and start discussing refinance options with them.

It could also be the perfect opportunity for landlords to consider the benefits of capital raising on their buy-to-let properties, especially as there has been a considerable rise in house prices in the past year. The ONS House Price Index for December2020 showed that there had been an annual increase of 8.5%, the largest annual increase since October 2014. The average house price was recorded as £251,500.

Professional landlords may consider releasing equity from their properties to provide the deposit for further buy-to-let purchases, however many lenders accept capital raising for any legal purpose including home improvements.

The coronavirus pandemic has caused changes to the working lives of most people, with many more of us now working from home. This has led people to re-evaluate their housing needs or consider how best to configure their existing home to accommodate new working arrangements. A report by Indeed Ratedpeople.com showed that 55 percent of people are currently working from home and 50 per cent of those polled are planning to make some home improvements.

Projects such as a loft extension, self-contained annex or garden office can not only add value to a property, but also increase the amount of space available for those who anticipate more flexible home working arrangements to continue into the future beyond coronavirus. Some landlord clients may wish to raise capital on their buy-to-let property in order to improve their own home.

There is reason to be optimistic that the coronavirus is getting under control in the UK and we can expect some level of normality to return soon. As for those who are working in the buy-to-let mortgage sector, there is reason to anticipate a healthy level of business in 2021.