As we emerge out of the latest Covid lockdown we are seeing an increase in interest around remortgaging in the buy-to-let market.
BTL is a buoyant sector, you only have to look at the number of lenders who specialise in it as a well as most mainstream lenders. There is certainly choice for borrowers and rates are competitive.
The BTL sector has increased every year from 2009 to 2019, representing a decade of growth following the global financial crisis.
In 2008 there were 114,740 BTL remortgages but in 2009 cases fell sharply to 32,850 as a result of the GFC. In monetary terms the drop off was £14.61bn down to £3.39bn in 2009.
The figures from UK Finance show how the BTL market has grown since then and in 2019 remortgaging peaked at 187,900 loans with a value of £31.1bn.
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Then the Covid pandemic came along and led to a fall in all lending with BTL remortgaging numbers going down to 163,300 in 2020 and a subsequent fall in value to £27bn.
But we are seeing a pick-up now with Q1 2021 rising compared to the previous quarter as 39,700 loans were issued at a value of £6.9bn.
Remortgaging for equity
These figures resonate with us as we are also seeing a rise in remortgaging especially for people wanting to take out more equity.
Talking to our underwriters, most borrowers want to use the extra money for further property investment. I would say this applies to around 70% of our landlord customers. A large chunk of our mortgage book is portfolio landlords, but it is also smaller landlords who are wanting to grow their investment property business.
There is a combination of factors here as to why that is. The stamp duty holiday has had an influence on landlords buying more property as there has been less tax to pay. Some landlords brought their buying plans forward to take advantage of the tax break.
Another influential factor is that house prices have been rising, therefore LTVs are lower, and more equity can be taken out. Coupled with the fact that many five-year fixes maturing this year, we expect remortgaging to continue an upward trajectory going forward.
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The other reason for borrowers taking out equity on their remortgage is for home improvements, and this applies to around 20% of our customer base. Some are using void periods to spruce up their properties, others are making repairs, but a newer reason has been to make properties more energy efficient.
Since 2018 all rental properties must have an Energy Performance Certificate (EPC) rating of at least E, but the government has its sights on all homes being rated C or above by 2030.
Astute landlords have been making improvements with changes such as cavity wall and loft insulation and installing new condensing boilers. But others are going further by replacing windows with double or triple window glazing and even installing solar panels.
We expect more landlords will want to improve their EPC ratings and quite a few lenders now are offering green mortgages as an incentive for them to do this, including ourselves. In our case, discounted rates are given for properties with EPC ratings of A, B or C.
By Paul Brett
Source: Mortgage Strategy
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