Five ways to save your buy-to-let clients

There’s no escaping it, the world of buy-to-let is tough right now.

In the wake of the ‘mini budget’, some lenders have increased their interest rate stress tests to around the 8% mark, when previously they were at c.5%. Allied to this, your landlord clients will also have to pass ICR tests, which for many lenders are now at 145% (and 165% for higher rate taxpayers).

Moreover, clients coming off low interest fixed rate deals are in for a payment shock. According to Moneyfacts, the average two-year fixed term deal across all LTVs has risen from 4.04% at the start of August, to 6.75% by 1st November. On a £200,000 loan, that’s a monthly payment increase of £552.

So yes, it is indeed tough in the buy-to-let world right now.

But on the other hand, the rental market in many parts of the country is booming. For example, rents in Manchester have increased by 38% in the last 12 months as the number of available rental properties hit a low of just 360 - according to recent research by Urbanbubble.

Perversely, while rising interest rates are making it a difficult world for buy-to-let landlords, they are also creating a healthier rental market, as first-time buyers are also finding it increasingly difficult to secure their first mortgage.

So how can you, as mortgage brokers, support your landlord clients right now?

I’ve recently read a number of articles from lenders suggesting that help could come in the form of considering discounted or variable rates as they come with lower stress tests that fixed terms deals. That is certainly true and is an option, but there are three other funding avenues to explore which lenders are unlikely to mention – as they typically don’t offer them – and is where a master broker like Crystal Specialist Finance can make all the difference.

And beyond that, there are two other opportunities you should be talking to your buy-to-let clients about right now. Let’s look at these in a bit more detail.

1. Top slicing

A string to a portfolio client’s bow is their portfolio. Some specialist lenders will consider sources of income across other properties (or indeed personal income) and take these into consideration when undertaking their stress tests, enabling clients to effectively ‘top slice’ from other income sources to help them get over the line.

2. Second charge

Again, some specialist lenders will allow a second charge on an existing buy-to-let mortgage. This feature could be a real bonus right now if your client still has some way to go with a low rate, fixed term deal. Additional monies can be borrowed, for example, to refurbish an existing property without disturbing the current deal in place.

3. Bridging

Once considered the last roll of the dice if all else failed, bridging finance has come a long way and now offers both competitive rates and fees. At the time of writing, we have available rates from 0.47% p.m. with a 1.5% product fee. That equates to an annual rate of 5.64%: somewhat cheaper than average two-year fixed term deals on the market right now. And with the added flexibility on no ERC or exit fees, no stress tests to pass and in many instances proof of income is not required. Plus, the speed of bridging to get a deal done is a godsend right now. At Crystal our completion record is just 8 hours!

4. Diversification

Not a funding option but something you should be talking to your portfolio landlords about in the current, low yield climate. Diversification into HMOs and MUFBs offers potentially much higher yields and could make all the difference for clients where affordability is a growing concern.

5. The weak Pound

And lastly one for overseas client and expats. The Pound is significantly weaker against major currencies like the US Dollar or the Hong Kong Dollar than it was at the start of 2022 – which creates a bargain buying opportunity for overseas investors or expats and we work with a number of lenders who specialise in buy-to-let for these markets.

While the buy-to-let market is indeed tough right now, these conditions also create opportunities for your clients and there are finance solutions for them to take advantage. If you don’t work with a specialist finance partner and have been struggling on your own to place deals – don’t. I can only speak for Crystal Specialist Finance but we’re here right now, by your side to get your deals done.