The importance of lender/broker relationships: what has 2022 taught us about the Buy-to-Let market? 

by Jason James, Corporate Account Manager

To see our current Buy-to-Let rates and offers, see our Buy-to-Let page. 

A year that started with optimism for a strong performance in the Buy-to-Let market became a year that featured much doom and gloom and challenge. This period of difficult for all concerned, client, broker and lender, prompted cause for renewed activity as we approach 2023. 

With 2021 seeing a huge increase of 83% in purchase activity over 2020, and the high proportion of remortgage activity expected in 2022 led many in the industry to predict a record year for Buy-to-Let.

That continuing growth hasn’t quite materialised as economic headwinds took their toll. But as we reflect on the year it is important to note where the market has succeeded, as well as how it has struggled and how such struggles prompted positive action. 

From buoyant optimism to doom and gloom

For the first few months of 2022 Buy-to-Let transactions appeared to be continuing as normal following the positive post-covid flurry in Buy-to-Let activity.

The private rented sector grew nearly 6% in the year up to 2022, and landlords who last remortgaged in 2017 to get ahead of regulatory changes were planning for potential new finance options to either remortgage pound for pound, capital raise with the purpose of expanding their portfolios, or obtaining a mortgage for a new property purchase, meaning brokers and lenders were looking to a busy purchase and refinance market. 

On top of this, the specialist area of the Buy-to-Let market was set to grow, as well as landlords busy with property refurbishments and remodelling. 

They were also looking at diversifying their portfolios, potentially expanding into opportunities for HMO, MUFB and Holiday Lets. With more Limited Companies being set up for property purposes, these types of specialist complex applications were expected to continue to rise.

The increase in remortgage activity was also set to support landlords planning for the future, with looming EPC requirements meaning many were taking the opportunity to upgrade property in their portfolios and in so doing benefit from cheaper, green mortgage products. 

However, as is well documented now, global economic challenges put pressure on funding impacting Buy-to-Let swap rates, in turn putting pressure on lenders and the pricing of their mortgage products. 

Over the summer we saw a steady increase in rates across 2- and 5- year fixed products, which were then compounded by events like the mini budget and the global economic impact. This prompted the wholesale removal of 2-year fixed products from many lenders  as the markets struggled to react quickly enough to the speed of the challenge in the economic crisis. 

In addition to product changes, some lenders withdrew from the market entirely. DIPs were cancelled, applications and in some instances even offers were withdrawn as some lenders  hastily tried to protect their lending futures and assess how they could regain some stability in a very turbulent period for the market as a whole. 

Where did this leave us? 

In September the situation looked challenging to say the least, leading some reports stating the death of the Buy-to-Let market. 

Indeed, this period wasn’t without its problems:

• Extremely limited notice of product withdrawals
• Mortgage products experiencing dramatic rate increases
• Increased ICR stress tests left many unmortgageable
• Max LTVs impacted due to new ICR stress tests
• Many clients having their mortgage applications withdrawn at advance stage
• Not enough property stock – demand outstripping supply
• Managing the fear generated through reports of a market crash or dramatic drop in property values 

All of these concerns at the time may have had some merit and it’s true some challenges remain. But rumours of the death of Buy-to-Let were greatly exaggerated, for several reasons.

Firstly, the fundamental truth of the matter in the UK is that there is a growing demand for private rented accommodation and therefore the need for landlords. 

The continuing rise in Limited Company setups for property purposes. And despite the challenging period experienced from September onwards, brokers and their clients were still busy during this period in trying to obtain the best mortgage available with many lenders having to innovate to provide the solution. 

Secondly, the response from lenders to meet the challenge. 

There were innovative solutions, such as  promoting bridging finance as a short-term option, or launching ERC-free variable tracker products which benefited from a more usable and attractive IRC stress.

This has supported many brokers to provide solutions to their clients’ needs. 

Also many lenders used this opportunity to stay close to their broker in taking the lead by providing insight and education into the reasons why products and pricing were impacted the way they were delivering informative context around SWAP rates which could help the brokers and in turn they could share this information with their clients. 

Indeed, where a landlord may have started the year looking to expand their portfolio by three or more properties they were now looking at perhaps just one. So while landlords may have scaled back their ambitions, at least for now, they weren’t withdrawing entirely, there was still business to be done and lenders who still wanted to lend could support these ambitions. 

I think most importantly though, as we exit the year and reflect upon 2022 we saw the relationship between lender and broker become more fundamental, with the need for continued support, education and engagement with our broker community to face any new challenge and find the right solution for the clients needs, I am sure this will continue as we look forward to the opportunities in the new year.  

To see our current Buy-to-Let rates and offers, see our Buy-to-Let page.