Strong demand and high rental yields mean that the buy-to-let (BTL) market is still a “very profitable market”, especially for professional landlords.
Louisa Sedgwick, commercial director for mortgages at Paragon Banking Group, a BTL specialist lender, said that there is a “supply and demand mismatch” in the private rented sector (PRS), with up to 25 new tenancies for every new property that comes on to the market.
“There is clearly massive demand, and if we look at yields, landlords are earning an average 5.5% yield, so there are still decent yields to be made on properties. [For] those with larger property portfolios, this is just shy of 7%, so [BTL] is still a very profitable market,” she noted.
Sedgwick said that there was still a “good, solid profit” to be made in the PRS, pointing to terraced properties and houses of multiple occupation (HMOs) as properties with the highest yields.
Andrew Montlake, managing director of Coreco, said that as soon as there were BTL changes or tax changes, “everyone trumpets the buy-to-let market is dead”, but that was “not actually the case”.
“There’s a very real split now between the amateur landlords, or the dinner party buy-to-let landlords, who got involved on a whim or maybe inherited a property and they do seem to be the ones who may be looking at the tax changes, rental yields and all the other things that are coming in and thinking actually it’s not for me anymore and selling up,” he said.
Montlake noted that professional landlords were much more “positive”, and was seeing a fair few landlord-to-landlord sales where amateur landlords sell to professional landlords, taking advantage of softer house prices and strong rental returns.
PT proc fee debate raging but remortgage on the rebound
Montlake said that the market was “very much in the middle of the debate” around product transfer procuration fees, which brokers have been calling for a realignment of, as they tend to be lower than purchase proc fees but now make up a larger part of business.
He said that it was a “very emotive subject”, and as a firm, its brokers were working longer hours keeping up to date with rate changes and contacting customers six months beforehand. He added that, in some cases, it was revisiting and changing the same application 3-4 times, with seven times being the record.
“Now, it’s a time when brokers need lenders’ help to make sure that brokers are still going to be there, because it is hitting broker firms’ pockets quite hard, and we need to ensure the brokers are still there to distribute the products that come from the lenders when the market really does return properly,” he added.
Sedgwick said that Paragon had increased its product transfer proc fee around two years ago so it was in line with its originations proc fee.
However, she said that while product transfers will still be a “challenge” due to affordability constraints with some borrowers, the remortgage market is “likely to come back and come back on a mission this year and beyond”.
“I do genuinely believe that there will be more options available for customers to look towards remortgage into a different lender, at which point, obviously, that product transfer issue very slight[ly] falls by the wayside,” Sedgwick added.
She said that there was a “disappointing” number of customers coming back to the firm who have not received broker advice.
“I understand that that’s probably because brokers are potentially chasing new customers in new transactions, as opposed to servicing their existing client bank, but I find [it] slightly concerning that such a vast number of these customers are orphaned by their existing brokers.”
Sedgwick said that there was a “lot more work to be done” and a “lot more meeting of minds” to discuss product transfers and advice, but the market is “likely to change in favour of the brokers enabling them to move mortgages around more freely”.
Watch the 9:45 video of Mortgage Solutions’ contributing editor Victoria Hartley talking to Louisa Sedgwick, commercial director for mortgages at Paragon Banking Group, and Andrew Montlake, managing director at Coreco, about the state of the BTL market, product transfer procuration fees and upcoming opportunities.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
