One area of the market, however, appears to have weathered the storm better and bounced back a little more quickly than others: the specialist buy-to-let sector.

Several lenders in this space are now back to offering their pre-Covid-19 criteria, with some even returning to market more competitive than before.

What has been the secret to the specialist BTL sector’s resilience during the pandemic?

Meeting a need

“We’ve seen LTVs drop in the mainstream market but, generally, the LTVs on specialist products haven’t changed, which is definitely a bonus,” says Just Mortgages national operations manager John Phillips.

“Overall, rates have also become more competitive,” he says.

“Specialist lenders tend to have more in-depth, individual underwriting, which may mean they can continue lending based on a greater understanding of the individual circumstances of borrowers.”

Alexander Hall director of lender relationships and new homes Greg Cunnington has also been impressed by how the sector has got back to business so quickly.

“The options for specialist BTL are now almost back to pre-lockdown levels of normality, which is a real testament to the hard work of the lenders in this space,” he says.

“During lockdown, these options were impacted and limited more than the high-street market, which was no surprise as these lenders have historically always relied on physical valuations. They also needed to ensure there would be demand in the securitisation market,” he adds.

No doubt one of the reasons that lenders in the sector have been so eager to get back to lending is the current boom in the BTL market. It is one of the very few sectors in the UK to have experienced an uplift in business since Covid-19 – thanks predominantly to the chancellor’s stamp duty cut in July.

Cunnington says his firm has seen a spike in limited company applications for BTL purchase in particular, as well as in enquiries for houses in multiple occupation and multi-unit property types.

“We have also seen an uplift in holiday let enquiries, which is not so much specialist BTL but has been notable. This is no surprise given the combination of the stamp duty changes and lockdown seeing more demand for staycations – something investors are looking to take advantage of,” he adds.

In fact, he says Alexander Hall has seen increased demand from landlords across the board, and it is not alone.

“There was an inevitable lull in the early weeks after lockdown restrictions came into force, but demand gradually picked up as it went on,” says West One Buy-to-Let managing director Andrew Ferguson. “The real uplift came once physical valuations resumed from May onwards. Since then, we have seen demand increasing week by week.

“Demand for specialist-type transactions has been strong, with HMO/multi-unit freehold blocks, short-term lets, bridging and developer exits onto BTL products, and ex-pat enquiries being consistent, which bodes well for specialist lenders,” he says.

The uplift in enquiries looks to be a trend among most specialist BTL lenders. “The BTL market has been robust enough to recover at a quicker rate than the residential market,” says The Mortgage Lender head of sales David Eaves. “We carried out research among landlords in July and found the number who were looking to increase the quantity of properties they owned had actually gone up since last year. Investors with significant portfolios have spotted opportunities in the market, which has been helped by the stamp duty holiday, so it’s brought forward their investment plans.”

LandBay managing director of intermediaries Paul Brett agrees that the turning point seemed to be when surveyors were able to get out to view properties again, as well as the tax changes.

“Demand has gone through the roof since the chancellor’s announcement of the stamp duty cut,” he says. “There is a lot of demand for good-quality private rental properties at the moment.

“It is now harder for people to raise the deposit they need to get onto the housing ladder and this is likely to fuel the rental market for some years to come.”

Eaves has seen a huge increase in demand for specialist BTL in recent months.

“When I look back to where we were in April and the start of lockdown, it has increased ever since. We received more than £100m in BTL applications in both June and July, and August is following a similar pattern,” he reveals.

Finding the funds

Have lenders been able to keep up with this demand and, if so, how?

“We were determined to continue to serve brokers and our landlord clients throughout the lockdown,” says Ferguson.

“Understandably, that meant we had to streamline our products and make a number of changes to key criteria. However, our ability to respond to changes meant our brokers remained supported.

“We have kept our product offering and the market under close review on a weekly basis and have reacted and responded to rising demand. As a result, we have recently reintroduced several key criteria and launched a new range of products to meet that increasing demand,” he says.

“Specialist lending is all about being flexible and pragmatic, and adapting to individual circumstances, so in a way our response to Covid-19 has been an extension of that approach. Our processes have proved pretty robust and we’ve been able to carry on lending through the lockdown.”

Ferguson adds; “Clearly, Covid-19 creates a higher-risk environment and that’s meant we’ve taken some extra steps to ensure clients’ finances are resilient to any future bumps in the road. It’s in landlords’ interests as well as ours that we lend responsibly, so we need to be confident that landlords aren’t going to find themselves in difficulty in the event that there is an extended void period.”

Eaves attributes The Mortgage Lender’s continued lending to its funding line with Shawbrook Bank.  “This gave us the backing and confidence to support brokers during a difficult and challenging time,” he says.

“To have the support of a bank like Shawbrook was very important to us.”

Brett also credits his firm’s funding model. He says: “It is different from many others.

“We act as a platform that funders can plug in to without too much hassle. Therefore, we have different types of funder on board with different attitudes to risk, which enabled us to keep lending throughout the lockdown period and expand our lending still further in the past couple of months,” he says.

Need for innovation

The ability of the specialist sector to keep moving during the pandemic has been down to more than funding.

Finding the right balance between remaining competitive and meeting demand seems to have been something many lenders in the specialist market have got right, and their use of technology has helped with this.

“We were paperless in the first place with technologically advanced computer systems, so the transition to home working was easy for us,” says Brett. “We launched our two-minute decision-in-principle process just before lockdown, which has helped brokers a lot. It means our processes are a lot more streamlined and we can process cases more quickly, which brokers find useful,” he adds.

Another way lenders were able to return to the market so quickly was through the use of automated valuation models.

“We introduced desktop valuations in May so we could underwrite our pipeline and new cases,” says Eaves. “While there were restrictions on certain property types, we were able to process a significant number of cases and issue mortgage offers. We also reviewed our proposition to find extra ways we could help brokers and their clients and as a result we reduced the completion fees on loans over £500,000 and abolished multiple application fees for portfolio landlords,” he adds.

Cunnington says the move by lenders to desktop valuations during lockdown was a great example of innovation.

“We saw lenders such as Precise and Kensington open up to new lending methods using desktop valuations in lockdown, and this spoke volumes for how open to lending these lenders were,” he says.

Staying in touch with brokers virtually also helped create a buzz around the sector.

“We have seen some great webinars on market conditions, with real transparency from lenders, which have added value to the broker community,” says Cunnington.

“Kensington Mortgages, Foundation Home Loans and Precise Mortgages really stand out here as hosting some superb webinars in recent months. This interaction has kept their sectors in brokers’ minds, which has been a great help now the market has picked up again and they are busy with enquiries from landlords.

“Most lenders are now back lending and HMO, multi-unit and limited company options are all available once more with several of these specialist lenders,” he adds.

Although many lenders have resumed offering high LTVs, Cunnington says some have strict rental income requirements, making the deals unviable for properties in London and the Southeast.

Phillips too thinks specialist lenders have pushed the boat out in response to the lockdown.

“We are finding lenders are stepping up to the challenge and pushing very hard on existing criteria,” he says.

Trinity Financial product and communications manager Aaron Strutt believes the specialist side of the BTL sector will continue to grow as clients become increasingly hard to place. He does, however, think the line between the specialist and the more mainstream BTL lenders is often blurred because many larger high-street names also offer their own niches – many of which come with cheaper rates, he says.

Strutt believes the regulatory changes over the years have had a large effect on the market and driven more landlords into the specialist sector.

“If somebody rings up now and says ‘I have 70 properties. Can you help?’, it may be a challenge to help them find a lender that will look at such a large portfolio, whereas a few years ago a more mainstream lender would have been able to help,” he says.

The Prudential Regulation Authority’s new underwriting rules that came into effect in 2017 and the BTL mortgage interest tax relief changes have inevitably made investing in the sector more complicated.

“There are many more things that come into it now and we don’t receive as many straightforward BTL enquiries as we once did,” says Strutt.

He also questions whether the specialist sector is seeing as much demand or granting as many applications at the higher-LTV end of the scale as residential lenders do – which could explain why they have been able to bring back so many of their high-LTV offerings so soon.

Nevertheless, the stamp duty cut and the increasingly diverse nature of landlords’ portfolios and finances look set to keep specialist lenders on their toes for the foreseeable future – which will also put their criteria to the test.

Long-term outlook

The current market trends indicate that the sector should continue to see increased demand until at least next March – when the stamp duty cut is due to end – but what about the long-term outlook?

“With the furlough scheme beginning to unwind there is a real risk unemployment will start to rise significantly, and that could have a damaging impact on BTL and the property market as a whole in the medium term,” says Ferguson.

“The market is recovering strongly but is not yet quite where it was pre-coronavirus, and our approach reflects that. We’ll be watching things closely over the next few months to see how it all plays out, but we are cautiously optimistic,” he concludes.