Amid all the challenges of 2020, it was a year that truly demonstrated the value of specialist lending. Faced with financial uncertainties due to the Covid-19 pandemic, many limited companies, property developers and landlords were in real need of mortgage lenders who would listen to their requirements. What they really wanted was Buy to Let mortgages (BTL mortgages) combined with specialist support and assistance appropriate to these uncertain times.
For many portfolio landlords and other Buy to Let borrowers, the financial shocks of Covid-19 caused interruption to rental income and plenty of financial uncertainty. Lenders of all sizes across the mortgage market supported customers by allowing them to take holidays from mortgage payments. However, specialist Buy to Let lenders really demonstrated their worth when it came to the new customer market. By enabling Buy to Let borrowers to continue to purchase properties, they helped them to grow their businesses at a time when this was difficult in many sectors.
These lenders were still able to offer Buy to Let mortgage deals thanks to bespoke human underwriting. This examined details of income and increasingly wide-ranging individual circumstances alongside potential future financial shocks that could affect factors such as rental income. By doing this, lenders kept the door open in 2020 for many borrowers to get deals. These deals had agreeable mortgage terms that took into account the uncertainties caused by Covid-19. As a result, the market has been able to keep going while other industries have suffered.
In particular, Buy to Let borrowers have benefitted from specialist lenders who work with them and their brokers to review the sustainability of their businesses. In most cases they have considered just one to two years of accounts and have created flexible deals designed to mitigate the impact of any sudden drop in income. For the portfolio landlord this has created the ability to buy a property when in previous decades the uncertainty of 2020 could have blocked their chances of getting a mortgage deal.
Further benefits have come from the speed with which lenders have switched to digital communications. From beginning to end, they have made it easy for borrowers to conduct their transactions online. This approach, coupled with the stamp duty holiday, has meant that the demand for buy-to-let finance has been high ever since the housing market reopened after the first lockdown. On top of this, low interest rates on savings have increased the attractiveness of real estate as an option for investors.
There has been a notable increase in applications for Buy-to-Let mortgages from limited companies. This is due to the phasing out of buy-to-let mortgage interest tax relief for private landlords in April 2020. It caused an increase in landlords deciding to incorporate, because the change in tax relief only applied to private landlords. The high demand for limited company finance is expected to continue throughout 2021*.
Another theme has been an increased interest in the holiday buy-to-let sector as more people seek holidays within the UK. As a result, there has been a growth in products specifically designed by lenders to suit this sector.
The outlook for the rest of 2021 remains cautiously positive: the re-introduction of further high-LTV products is good news for those seeking to buy rental property and once lockdown restrictions ease the market is likely to pick up further. On top of this, the Chancellor has confirmed that the stamp duty holiday will continue until the end of June. He told the House that the “sheer volume of transactions” that are still to be completed before the end of March means that the stamp duty holiday needs to remain in place for three more months. This is good news for the housing market, which had expected some buyers to pull out if their transactions were not completed before the stamp duty holiday ended.
After June 30, the zero-stamp duty band will drop from its current position of £500,000 to £250,000. This figure is still twice what the threshold was before the holiday was introduced in July last year. It will stay in place until September 30. Then, from October 2, the stamp duty threshold will revert to its initial position of £125,000.*
Another factor that could affect the buy-to-let market is the prospect of negative interest rates. This could stimulate the market by keeping mortgage repayments low. However, there is still a lot of uncertainty around the UK’s economic recovery and the appetite for property to rent. The continuation of the furlough scheme until the end of September does at least mean that worries about soaring unemployment have been reduced – for now at least.
It’s clear that the Covid-19 pandemic has wide-reaching implications for the economy as well as for the nation’s health. The health of the housing market is tied to that of the economy. But with the continuation of a flexible, responsive approach from specialist lenders, Buy to Let borrowers should be able to weather the storm.
*Please note Finance Angels are not tax advisors.