As I write, we are quickly approaching that ‘new school year’ period which often feels like something of a new beginning for the mortgage market, particularly for the next three months which tend to be busy times for all.
This year, I suspect, will be no different in terms of activity and demand, although there is clearly an unknown here in terms of how wannabe and existing borrowers will respond to high inflation, rate rises, etc.
Speaking of the latter group, and specifically within the buy-to-let space, 2022 continues to be a highly important year for those landlords whose mortgages are coming up for maturity.
There has been a lot of talk in the sector about the high level of buy-to-let remortgage maturities, which coupled with a significant amount of purchase business, has meant the sector has performed well thus far.
That existing borrower business is plentiful, with many landlords coming to the end of their five-year deals secured towards the tail end of 2017, and requiring advice to navigate a buy-to-let mortgage space which is fast-paced to say the least and offers a greater array of product types than back then.
Given the focus on all things cost of living and inflation, and with rates having increased in all mortgage spaces in recent months, there may be a temptation on some landlords’ part to refinance now on a like-for-like business, secure a rate they can live with for the relative short-term, and come back perhaps in a couple of years to see the lay of the land.
That might seem like a common sense approach, but of course, there is plenty else for today’s landlord to consider, not least what might be coming over the horizon in terms of the EPC requirements for their properties.
I’ve said this before, and we know the rules are not yet set in stone, but there appears little doubt that there will be a EPC C and above requirement for all tenanted properties from 2025/26/27 onwards. And, let’s be honest, there are a lot of properties out there that are being let right now which do not meet that standard.
Approximately 70% of the properties we see are below EPC C level, and in that regard, I suspect we are no different to the vast majority of lenders and the vast majority of properties out there.
2025/26/27 might seem like a long time away, but the reality is somewhat different, especially if the landlord is not minded to act now, but at the point they do decide to act, they do not have the money available in order to fund the work required.
This is why it’s important for advisers to tie up the remortgage needs of their landlord borrowers right now with the forthcoming action that may be required. It’s almost the first information you need from a landlord client whose property might be coming up for refinance – what is the EPC rating and how are you going to fund the work to improve it if it’s below C?
That does present an opportunity for advisers to combine the two; to review the landlord’s properties, to see if they can regear portfolios to release the funds required for the work, and to secure them the best terms possible that allow them to make the changes needed.
Lest we forget, this is unlikely to be a ‘one property’ problem for most portfolio and professional landlords. Again, it’s not a scientific review of the sector, but judging by what we see, if they have five properties, three of them are likely to be D and E-rated.
That means doubling/trebling up on the work needed and the cost, and again we should not forget that we have a very diverse range of housing in our country. What might be simple to achieve in a relatively new property, might not be quite so easy in those homes built potentially hundreds of years ago. The cost of upgrading will not be uniform across the piece.
Advisers do though have an immediate ‘in’ to this conversation with their landlord clients, and that comes with the end of their existing deals, a discussion around what they would like to do next, and a full reminder of the standards their property(ies) are going to need to reach if they are going to continue to let them out from the middle of this decade.
Product and finance solutions are growing in this area, and advisers are in the best place possible to deliver the right advice for landlord borrowers now and their future.
Steve Cox is chief commercial officer at Fleet Mortgages
