In the mainstream market some providers have reduced their lending to furloughed borrowers and increased their scrutiny of applications from the self-employed. Homeowners who took advantage of mortgage payment holidays have found it has affected remortgage applications.

The buy-to-let market has also faced its fair share of challenges. Some lenders offering specialist support in this sector have had to reduce the amount they lend or even stop lending altogether. This was largely due to concerns around funding in light of the closure of the securitisation market and the operational challenges presented by transitioning to a remote-working model.

One common issue was that processing mortgage payment holiday requests created additional pressures. Some BTL lenders had to channel extra resources into this area, which affected their ability to instruct new lending as well as process existing cases.  Those that were able to continue lending restricted criteria to manage volumes and risk. But, slowly, things have started to improve.

Legal & General Mortgage Club head of lender relations Danny Belton says: “As the securitisation markets have reopened, so too has the BTL market.

“Lending criteria have been steadily returning to pre-crisis conditions, with higher loan-to-value products on offer once again, and this shift has been particularly helpful for landlords with limited companies and portfolios where products and criteria had previously been affected.”

Specialist lending

Data from Paragon Bank shows continued demand for mortgages for houses in multiple occupation and multi-unit blocks during the past few months, with large-scale landlords with specialist requirements remaining active.

The lender has noted an increase in business from more complex limited company structures, such as multiple subsidiary companies, as well as landlords moving their business from a personal name to a limited company structure to take advantage of the stamp duty holiday.

It has also seen strong remortgage activity as landlords look to release equity to help fund further acquisitions.

Paragon Bank managing director Richard Rowntree says: “At certain points during lockdown, it was difficult to underwrite more complex cases because our regional surveyors weren’t able to physically assess properties. But that was only for a short period and business has rebounded positively since the housing market reopened in mid-May.

“We have seen more lenders enter the specialist space because margins are generally more attractive in this segment, but it’s not a market for everyone and lenders inexperienced in non-vanilla can get caught out.

“We have also seen some lenders move out of certain areas of the market, such as student lets. That is changing daily, though, as a clearer picture of the fallout of the pandemic emerges.”

Housing market

Industry data shows that the housing market has not only rebounded since the end of lockdown but is actually busier than normal. Rightmove recorded the highest number of home sales agreed since it began tracking the data more than 10 years ago.

However, it will be a while before we know the full effect of Covid-19 on the property market and house prices.

Some of the big banks and analysts are still expecting to see significant price falls this year. Lloyds Bank has priced in a drop of around 5 per cent, while estate agencies Savills and Knight Frank have both forecast similar falls before a recovery in 2021.

Product availability

Data from Moneyfacts shows that low LTV rates in the BTL sector are starting to rise. Although the average two- and five-year rates for all LTV brackets are lower now than they were at the start of the pandemic, two- and five-year average rates in the 60 per cent LTV bracket have increased and now sit 0.53 per cent and 0.45 per cent respectively above where they were in March.

When it comes to high-LTV lending, there are about 1,200 fewer products available today than in March. This has potentially made it more difficult for prospective first-time landlords to obtain finance.

Most BTL lenders have added a new layer of Covid-19 questions to mortgage applications. These typically include whether a landlord has had any void periods, how their business was impacted by lockdown, how tenants were affected, and if the landlord took a government Bounce Back Loan or a mortgage payment holiday.

Lending criteria

Professional landlords looking to add to their portfolio need to pay closer attention than before to their credit score.

Online mortgage broker Trussle has seen an increase in BTL mortgage applications of late – but brokers report that lenders’ criteria are generally tighter than they were before lockdown.

Trussle head of mortgages Miles Robinson says: “Furlough and loss of income continue to require more in-depth under-writing and this may impact the ability of lenders to support those with special borrowing requirements.

“Additionally, it seems that credit scoring has become a lot tighter for the BTL providers and, as a result, it’s harder for landlords with adverse credit to get a mortgage loan approved. While we’ve not yet seen the impact of landlords taking a mortgage holiday, the FCA said ‘it won’t affect your credit record but it could impact future lending decisions’.”

Foundation Home Loans director of marketing Jeff Knight points out that each lender will assess landlords differently.

“Some will be able to apply a more flexible, human approach; others, I suspect, will find that harder to do,” he says.

“At Foundation, we have policies in place to assess certain cases with a more common-sense approach and this is proving popular with intermediaries. It does not mean we are able to help every landlord client, but we do take a pragmatic approach.”

Knight adds: “I don’t think it is necessarily harder for a landlord with a very small number of credit blips to get a mortgage. It was perhaps tougher during early lockdown, but now there are a number of lenders that can help.

“We help those landlords with minor credit blips and there are other lenders that cater for these borrowers as well, but I can’t comment on their actual appetite to lend.”

Fleet Mortgages chief executive Bob Young says lenders will always take into account a landlord’s credit record and circumstances.

He says: “The extent to which it will determine their access to borrowing, or the rates they pay, will really depend on the extent of the adverse credit they have. There are options for landlords with adverse credit to borrow but it’s going to depend on the type of credit issues they have and whether these blips are more recent or historical in nature.”

According to Rowntree, Paragon has tried to be consistent during the pandemic by making early changes to its criteria and offering a more streamlined product range. The lender also made a concerted effort to ensure communications channels between underwriters and brokers remained open throughout the period.

Rowntree says: “I believe the market has responded well to criteria amendments and has both understood the need for the changes and been able to cope with them.

“We forecast that total market lending for BTL will be down by less than 10 per cent during the first half of the year, which is a good result given the challenges faced. With the stimulus of the stamp duty holiday, activity in the second half of the year could make up that shortfall.”

Mortgage payment holidays

One of the first things the government did in March to help people who were struggling financially was to announce that all homeowners – including landlords – could take a three-month mortgage payment holiday. It announced a second three-month payment break in June, meaning mortgage holders could take a six-month payment break in total.

The government guidance stated that landlords should pass these breaks to any tenants in financial difficulty and agree on a repayment plan further down the line.

However, although the FCA said payment holidays would not be recorded as missed payments on credit reports, that does not mean they will not affect an individual landlord’s further borrowing.

Some borrowers who took mortgage payment holidays could face problems when they come to remortgage or expand their portfolios. Brokers are reporting that banks and building societies are asking investors if they have taken payment breaks when assessing their applications, resulting in some loan agreements falling through.

“We will look at such cases, as will some other lenders,” says Knight. “Each case will be different and there will be differences in approach to whether the landlord is portfolio or non-portfolio.

“Whether the landlord has the means to cover rental voids, and the credit score, may have an impact in some cases. The key is to have a good opening conversation with the lender’s local sales contact to discuss the case.

“On the whole, the industry is doing its best to help brokers and landlords.”

Many BTL lenders will take a view on the reasons why the landlord took the payment holiday in the first place, and whether they have now got back on track with payments. If the landlord’s finances were stretched and they took the holiday because of this, a lender may consider a past mortgage holiday as a credit risk. But if the landlord took the holiday because of more pre-emptive cashflow reasons, rather than actual need, and has paid it back, many lenders may be fine with it.

Mortgages for Business sales director Steve Olejnik says brokers at his firm generally advised clients not to take mortgage payment holidays during the pandemic unless they really needed to.

“However, some did jump on the bandwagon and lenders are factoring it in to future applications,” he says. “You can’t say you are financially distressed on one hand but want a new mortgage on the other.

“There are only a couple of lenders that will flatly refuse anyone who took a mortgage payment holiday, and most will look at it on a case-by-case basis. Some ask for borrowers to be back up to date with payments before they will consider a new application. We’ve found that most specialist lenders will be flexible.”

Bounce Back Loan Scheme

Landlords operating as limited companies can potentially receive up to £50,000 through the Bounce Back Loan Scheme, with no interest or fees to pay for the first 12 months. After 12 months the interest rate is 2.5 per cent.

Although these loans can help landlords in distress, they have become a controversial subject with some so-called property gurus promoting them as cheap borrowing that can be used as a deposit for a new property. Obviously this is not in the spirit of the scheme and lenders are likely to frown upon these applications.

The next few months could be interesting for the specialist BTL market. The end of the ban on tenant evictions is imminent.  However, new rules mean landlords face a more complex process to evict a tenant; they will be required to include any relevant information about how the tenant’s circumstances have been affected by coronavirus in the documents they submit to the court.

Delays in evicting non-paying tenants could have a devastating effect on landlords’ finances. It will be intriguing to see how lenders across the board react.