Seven things mortgage lenders can do to help landlords

As a mortgage broker, I receive countless emails from buy-to-let mortgage lenders boasting about their latest products and criteria. However, many of these offerings merely skim the surface and fail to genuinely support landlords, who are vital to the housing market. I really don’t need to read about how many awards lenders have won in the past, I want to know what they’re doing now! As Eddie Murphy famously said, “What have you done for me lately?”

If buy-to-let mortgage lenders genuinely aimed to assist landlords while making profits, they would consider real-world scenarios and develop more flexible products to meet today’s needs.

So as a nudge to them here are my top seven ways that mortgage lenders can better support landlords and, in turn, benefit themselves financially.

1. Cashback facilities throughout the mortgage term

I remember when cashback/drawdown facilities were more common, allowing landlords to access funds when necessary. I propose that lenders reintroduce cashback options specifically for landlords, enabling them to withdraw up to £10,000 to cover legal costs related to tenant disputes or eviction processes. Currently, landlords bear the entire burden when tenants fail to pay rent, often facing long waits for a resolution. This cash flow relief would significantly aid landlords, especially those with fewer properties.

2. Facilitating remortgages for limited company purchases

Landlords purchasing properties through limited companies is a growing trend in the UK property market; however, lenders often apply outdated policies that treat these remortgages as capital raising for ‘businesses’ rather than recognising them as strategic property management moves. A uniform policy across mortgage lenders would greatly ease the process and encourage more landlords to transition to limited companies.

At the end of the day, they can caveat that the money is used purely for property purposes rather than a trading business.

Although many buy-to-let mortgage lenders have this policy in place, some of their sister companies that deal with residential mortgages are still behind the curve – we are talking some of the big boys here such as Barclays and Santander.

3. Reducing costs for remortgaging within limited company structures

One of the most significant barriers to using a limited company structure is the high cost of remortgaging. Survey and legal fees tend to be higher in these cases, discouraging competition. To address this issue, buy-to-let mortgage lenders should offer more free valuations and legal services for limited company landlords.

While some lenders are starting to offer these incentives, the options are still limited, especially concerning legal costs. So a shout out to Godiva and Aldermore who at the time of writing currently offer both free basic legal and valuations as part of their product package. To the other buy-to-let mortgage lenders please take note as this broader offering would help ease the financial burden on landlords.

4. Cashback for home improvements relating to energy efficiency

With new regulations demanding higher energy performance standards, landlords face substantial costs to upgrade their properties. Many are locked into fixed-rate mortgages, which can restrict their ability to finance these improvements. I commend lenders like Fleet Mortgages and Virgin Money for introducing cashback incentives for energy upgrades, but I believe this should be standard across all long-term fixed-rate products. This would not only support landlords in meeting regulatory demands but also improve properties and potentially increase rental income.

I appreciate that lenders are protective of margins but they should know their bottom line and this could be for the ‘green’ incentive products, and then charge more for ‘non-green’ – it’s not rocket science! I recently heard at an industry seminar Keystone Property Finance calling for the government to offer tax breaks to securitisation funders that purchase ‘greener’ books. This lone holler I suspect falls on deaf ears, but a concerted lobby across lenders might get more traction, and apart from time it’s difficult to see a downside for the mortgage industry.

5. Flexibility for light refurbishments in buy-to-let mortgages

Many landlords find themselves stuck with properties that require light refurbishment but face challenges in financing these upgrades. Current lending criteria often undervalues properties based on their present condition without considering potential future improvements. Lenders should adjust their criteria to accommodate light refurbishments without classifying these properties as needing significant work.

Providing a nominal figure for renovations and a timeframe for upgrades could streamline the financing process and reduce reliance on more expensive bridging finance options. Ultimately it’s their stock to that is being improved.

6. Reference actual rental figures

It’s maddening when you have been charging say £1,500pcm in rent for the last two years, and in the remortgage application process a buy-to-let mortgage lender’s surveyor values the expected rent at £1,250, impacting the amount the amount they are willing to lend. Surely, as this is proven it’s nonsensical?

7. Payment breaks

With the new Renters Rights bill coming in later in the year it throws up the real possibility that buy-to-lets may be without the necessary rental coverage for a sustained period.

Firstly, evictions could take longer and any increases in rent (even if you believe them to be fair and justified), could be challenged by arbitration at the newly appointed Ombudsman – and take months! As the majority of buy-to-lets are written on an interest-only basis the obvious answer is to take a break while the problem is in operation and add this period to the end of the original term. I appreciate this may need an IT adjustment on behalf of the lender but would go a long way – working in partnership with landlords and also possibly a good retention tool.

By implementing these changes, mortgage lenders can better support landlords while also creating more profit opportunities for themselves. This partnership could ultimately lead to a healthier rental market and improved housing conditions for tenants.