There is no doubt that the buy-to-let (BTL) sector is in a good place. Landlords are looking to add to their portfolios, average rents are up 7% year-on-year, and tenant demand is still strong.
But there are some headwinds that are going to affect landlords and potentially tenants.
The green agenda and having to retrofit properties to meet the new standards will come at a cost for landlords. But first, the implementation of the Renters’ Rights Bill will change the dynamic for landlords.
On top of this, the Financial Conduct Authority (FCA) has recently proposed including rental payment history in mortgage affordability tests – a move that could improve access to lending for many tenants.
These factors are likely to affect tenants, with the most immediate being 44% of landlords will look to increase rents ahead of the Renters’ Rights Bill coming into effect.
Existing tenants now face a dilemma. Many became tenants because of a lack of deposit and affordability challenges with a view to buying property later in life, whereas others wanted to rent through lifestyle choices or life events.
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However, with rents still increasing, what are their options?
Renting your way to homeownership
For some, homeownership is still the dream, whether it be as a first-time buyer, or a single parent with a family.
Property availability has increased. Mortgage rates have fallen and the trend suggests they will continue to do so slowly over the coming months.
It is therefore not unreasonable to think that tenants are now looking at their options to purchase a property. However, some of the same issues they faced before still remain, the main ones being lack of deposit and affordability.
The good news is that some lenders have recognised that these tenants are a good risk, as they have managed to maintain regular rental and utility payments, and want to help and support them in their quest for homeownership.
First, we saw Skipton Building Society with its Track Record product, then Accord with its £5k Deposit Mortgage. Later came April Mortgages and Gable Mortgages, offering 100% loans, and now Hanley Building Society has just launched its Rent to Own product.
With all these options now available, the range of criteria and affordability now means more tenants’ dreams can be realised, but each tenant will need the right advice, so now is the time for mortgage brokers to really understand all the options available and help these customers become the homeowners they dreamt of being.
Danny Belton, mortgage sector consultant
