Buy-To-Let Watch: Landlords should select lenders carefully

Firms can do more to attract ambitious BTL borrowers

One common factor that many professional landlords have is the ambition to grow their portfolio. Without unlimited cash for deposits, they will need to turn to their portfolios to access the capital needed for subsequent purchases.

In fact, some landlords are particularly targeting properties that give them the opportunity to create capital growth via refurbishments or permitted development.

Capital raising against this equity can then be achieved in one of three ways: through a remortgage, further advance or second charge loan. A large percentage of landlords are opting for five-year fixed rates to maximise affordability. Even landlords without any need to maximise affordability are opting for fixes of this length as a hedge.

As these products tend to come with heavy early repayment charges, remortgaging to release equity within the five years will be costly. Godiva offers five-year fixes with no early repayment charges, while Precise and Foundation both offer five-year products with early repayment charges applying to just the first three years.

However, these types of options are few. This rules out remortgaging as an option for capital raising and the landlord will need to look at a further advance or second charge option for extra borrowing instead.

This involves the first charge lender consenting to the second charge loan. In the traditional high street BTL market, we are used to these lenders offering further advances and, in most cases, consenting to second charges. BMS and TMW have further advance options and can offer consent to second charges.

However, this is not the case with the majority of specialist lenders. In fact, of the 13 specialist lenders surveyed, only Kent Reliance is able to offer a further advance and a second charge.

The only other lenders that would complete a further advance were Aldermore and Paragon, but they will not consent to a second charge. Precise and Foundation could consent to a second charge, but do not offer further advances. This means that 70 per cent of the lenders surveyed do not have either option.

If the landlord plans to capital-raise at some point after the purchase, understanding when they intend to do this is key to making the correct recommendation.

For example, if a landlord plans to capital-raise two years after an initial purchase, and the adviser has recommended a five-year fixed rate with early repayment charges, from a lender that does not offer the option of a further advance or consent to a second charge. This could leave the landlord unable to capital-raise as planned or having to pay an early repayment charge and remortgage.

If the adviser cannot document that they had this conversation and highlighted the limitations to further borrowing, they could face a complaint.

Specialist lenders bring a lot to the market and offer a much wider range of criteria options to help landlords with various property types and circumstances.

However, it is also important for advisers to understand any limitations. I would certainly encourage any BTL lender who does not currently offer further advances or consent to second charges to seriously consider this when looking at ways to attract business from portfolio landlords.

Liz Syms is chief executive at Connect for Intermediaries

Recommended

Amicus Finance Plc enters administration

Amicus Finance Plc has entered administration, having appointed Begbies Traynor to act as agent of the company without liability. A notice on the firm’s website states that on 20 December 2018, Mark Robert Fry, Jamie Taylor and Kirstie Jane Provan were appointed joint administrators of Amicus Finance Plc. The news follows the announcement in mid-December […]

Houses, house, property, monopoly

Magellan closes doors to new business

Magellan Homeloans has announced that it is closed to new business. According to the firm, the measure is in response to competitive pressures such as lenders reducing mortgage loan interest rates and increasing credit risk. The lender confirms that decisions in principle and applications in the pipeline will not be progressed any further and that […]

First-time-home-house-buyers-mortgage-700.jpg

Four in five FTBs say using a broker was worth it

Four out of five first-time buyers say that using a mortgage broker was helpful, a survey by Comparethemarket has found. The comparison website’s research revealed that almost 80 per cent of first-time buyers found using a mortgage broker “added value”, while nearly 20 per cent felt that using a mortgage adviser had not added any […]

Financing properties owned in trusts

Part of a series looking at various niche markets within the buy-to-let sector where choice of lender is more restricted than for normal borrowers. One such area involves loans secured on residential properties owned through trusts. Properties can be held in trust for many reasons. For example, if a property is left to minors in […]

Newsletter

News and expert analysis straight to your inbox

Sign up