The buy-to-let sector is facing many challenges. Rising or fluctuating interest rates and government intervention are putting pressure on landlords and their advisers to adapt to rapid changes.

But there are lots of opportunities too. According to research from the National Residential Landlords Association, there is still an average of 21 prospective tenants for every rental property.

The government hopes to address the shortage of property through its latest proposals for the National Planning Policy Framework and its consultation on changes in legislation, intended to help local authorities deliver on its promise of 1.5 million houses. However, this does not address the shortage of homes today, so we expect to see the increased demand for rental property continue for some time, pushing up rents further.

There is a lot for advisers to grasp and learn

While not great for renters, rising rents are helping some landlords maintain their portfolio, meet affordability requirements and address the costs of some of the other challenges coming their way.

The increased stamp duty surcharge, announced in the recent Budget, is one additional cost for landlords looking to grow their portfolio. It was a surprise move and it’s predicted to generate only a small amount of revenue, so I assume this is another move to slow the amount of new property being purchased by landlords.

We are moving even further towards a private rented sector that consists of just professional landlords who operate a reputable business. These landlords will consider additional costs, such as stamp duty, when evaluating the opportunity of any property investment.

Operational approach

Legislative changes, such as energy performance certificate (EPC) requirements and the Renters’ Rights Bill, are also causing professional landlords to consider their operational approach. The positive view is that these will create a more stable rental market, with longer-term tenants reducing turnover and void costs.

There are new landlords still entering the market, and they are not constrained by thoughts of how things used to be

Advisers can assist their landlords by understanding some of the up-and-coming changes and guiding their clients, particularly when reviewing an existing portfolio.

It is interesting how lenders have been adapting criteria to meet the changing landlord demands. For example, house in multiple occupation (HMO) property has become more popular with landlords due to the increased rental margins. More and more lenders now offer some form of HMO criteria.

Also, those criteria are improving. Many lenders cap the maximum number of bedrooms in an HMO at six, but lenders such as Hampshire Trust, Interbay, Market Financial Solutions and Together are now unlimited in that respect.

Another area of increasing popularity with landlords is assisted-living tenants. Also known as extra-care housing, this is a type of ‘housing with care’, which means the tenant can live independently while being assisted with tasks such as washing, dressing, going to the toilet or taking medication.

It is interesting how lenders have been adapting criteria to meet the changing landlord demands

A third party manages this on behalf of the landlord and it includes adapting the property to suit the tenant’s needs. The landlord benefits from enhanced rent, a longer tenancy term and rent that is paid regardless of occupancy.

Due to the vulnerability of the tenants, this can cause lenders an issue when granting a mortgage. Among other concerns, there is the moral dilemma that would occur if the landlord did not meet the payments, the property had to be repossessed and the tenants were served notice. Specialist lenders such as Keystone, TML and TMW will consider Housing Association tenants, where there is no overnight carer.

For assisted living, advisers would have to turn to extra-specialist lenders such as Market Financial Solutions and Together, which will consider mortgages for these types of property under certain conditions.

Recently, Knowledge Bank confirmed that the top criteria search in its system was ‘lending to limited companies’. This is no surprise as it is now the vehicle of choice for most professional landlords. More surprising is that, in second place, the search was for ‘first-time landlords’!

While not great for renters, rising rents are helping some landlords maintain their portfolio

There are new landlords still entering the market, and they are not constrained by thoughts of how things used to be but are making a decision to invest based on the market as it is now.

There is a lot for advisers to grasp and learn about today’s market. It is worth reading the renters’ rights and EPC bills, understanding the HMO licensing rules and brushing up on your lender criteria around HMOs, limited companies and first-time landlords.

The more an adviser understands these key topics, the more valuable they will be to the professional landlord.

Liz Syms is chief executive of Connect Mortgages

This article featured in the December 2024/January 2025 edition of Mortgage Strategy.

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