Placing tricky buy-to-let (BTL) mortgages can be challenging, but there are a few strategies that advisers can use to help their clients secure the financing they need.
Specialist lenders, for example, may be more flexible in their lending criteria and may offer more options for clients with complex financial situations or unusual properties.
A specialist lender is almost always needed for scenarios such as limited company BTLs, large houses in multiple occupation (HMOs), multi-unit blocks, holiday lets and BTLs involving offshore entities.
You need expertise, creativity and persistence
It’s important to have a good understanding of the specialist lender market and the lenders best suited to your clients’ needs.
Some of the cases we have recently been asked to assist with include flats with deck access, properties above takeaways, a consumer BTL for an expat and an HMO with vulnerable tenants in situ. Vulnerable tenants can be very tricky because lenders fear the reputational risk of having to evict them in the event of mortgage default.
There are very specialist lenders, such as Unity Trust Bank, that can consider these types of lending requirement and also can lend to charities or for other social-related lending needs.
Working with packagers or master brokers can help you find solutions you may not have been aware of
Another case we have seen recently involved shared accommodation of four tenants. It was not classified as a mandatory HMO, nor did the local authority require a licence. This could have been placed with some lenders such as Accord or Santander. However, there were locks on internal doors and each tenant had their own assured shorthold tenancy agreement, which is unacceptable to most mainstream lenders.
This case was placed with Fleet, which was also able to offer its standard lower BTL rates rather than HMO rates.
Good relationships
We have a Fleet underwriter in our offices, which really helps. Building relationships with underwriters and lenders’ BDMs can be extremely helpful in placing tricky BTL mortgages. By understanding criteria, the underwriting process and each lender’s specific requirements, advisers can better position their clients’ applications for approval.
A specialist lender is almost always needed for scenarios such as limited company BTLs or large HMOs
BTL lending can be complex. Providing detailed and accurate information about your client’s financial situation and the property they wish to purchase can help lenders better understand the risks and make a more informed lending decision.
One of the areas in which advisers can expect to see more enquiries is capital raising on BTL properties. Landlords are becoming increasingly aware of requirements to improve property standards, with pending regulations such as the paper on energy performance certificates, or the government’s ‘Reforming the Private Rented Sector’ report.
In the current market, capital raising has its challenges. The higher interest rates are causing problems with rental affordability for the existing loan, let alone for additional borrowing.
Building relationships with underwriters and lenders’ BDMs can be extremely helpful
More and more lenders are launching income-based BTL or top-slicing options, which could assist. However, if the landlord wants to raise capital on a property locked in to an existing fixed rate, a BTL second charge could be an option.
Second charge
Fewer second-charge lenders will consider BTL compared to residential second charges. Those that are available, such as Central Trust, Together and West One, have flexible criteria and some offer income-based solutions to assist with affordability.
Traditionally, obtaining and registering a second charge loan require consent from the first charge lender. This has been problematic, with restrictions from exiting lenders meaning consent is not granted or is restricted only where there is very low overall borrowing on the property.
Alternatively, some second charge lenders can hold a different type of security called an ‘equitable charge’, which does not need the first charge lender’s consent, giving the landlord more options.
Some of the cases we have been asked to assist with include flats with deck access and properties above takeaways
If you are unfamiliar with second charges or have any other tricky BTL cases you are unsure about, working with packagers or master brokers can help you find solutions you may not have been aware of.
Overall, placing tricky BTL mortgages requires a combination of expertise, creativity and persistence.
By being proactive, building relationships and leveraging a network of professionals, advisers can help their clients secure the financing they need to achieve their investment goals.
Liz Syms is chief executive of Connect for Intermediaries
This article featured in the April 2023 edition of MS.
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