Firms can do more to attract ambitious BTL borrowers
One common factor that many professional landlords have is the ambition to grow their portfolio. Without unlimited cash for deposits, they will need to turn to their portfolios to access the capital needed for subsequent purchases.
In fact, some landlords are particularly targeting properties that give them the opportunity to create capital growth via refurbishments or permitted development.
Capital raising against this equity can then be achieved in one of three ways: through a remortgage, further advance or second charge loan. A large percentage of landlords are opting for five-year fixed rates to maximise affordability. Even landlords without any need to maximise affordability are opting for fixes of this length as a hedge.
As these products tend to come with heavy early repayment charges, remortgaging to release equity within the five years will be costly. Godiva offers five-year fixes with no early repayment charges, while Precise and Foundation both offer five-year products with early repayment charges applying to just the first three years.
However, these types of options are few. This rules out remortgaging as an option for capital raising and the landlord will need to look at a further advance or second charge option for extra borrowing instead.
This involves the first charge lender consenting to the second charge loan. In the traditional high street BTL market, we are used to these lenders offering further advances and, in most cases, consenting to second charges. BMS and TMW have further advance options and can offer consent to second charges.
However, this is not the case with the majority of specialist lenders. In fact, of the 13 specialist lenders surveyed, only Kent Reliance is able to offer a further advance and a second charge.
The only other lenders that would complete a further advance were Aldermore and Paragon, but they will not consent to a second charge. Precise and Foundation could consent to a second charge, but do not offer further advances. This means that 70 per cent of the lenders surveyed do not have either option.
If the landlord plans to capital-raise at some point after the purchase, understanding when they intend to do this is key to making the correct recommendation.
For example, if a landlord plans to capital-raise two years after an initial purchase, and the adviser has recommended a five-year fixed rate with early repayment charges, from a lender that does not offer the option of a further advance or consent to a second charge. This could leave the landlord unable to capital-raise as planned or having to pay an early repayment charge and remortgage.
If the adviser cannot document that they had this conversation and highlighted the limitations to further borrowing, they could face a complaint.
Specialist lenders bring a lot to the market and offer a much wider range of criteria options to help landlords with various property types and circumstances.
However, it is also important for advisers to understand any limitations. I would certainly encourage any BTL lender who does not currently offer further advances or consent to second charges to seriously consider this when looking at ways to attract business from portfolio landlords.
Liz Syms is chief executive at Connect for Intermediaries