We’ve now had 14 base rate rises in a row and yet no one can be sure that the Bank of England’s Monetary Policy Committee (MPC) won’t vote for another increase in September.
After all, while six MPC members voted for a 0.25 percentage point increase in October, two of the nine-strong committee actually wanted to increase the bank rate by 0.5 percentage points, to 5.5%.
After so many consecutive rises – which followed such a long period of very low borrowing costs – it’s not a surprise to me that many borrowers are finding things tough right now.
With the cost of living a real issue for many, having to also deal with significantly higher mortgage repayments is the source of much stress for thousands of mortgage holders.
Of course, these repeated rises also mean many landlords are equally feeling the strain. In fact, higher buy-to-let mortgage costs have been the final straw for many ‘amateur’ landlords, who just can’t make the numbers work, especially on top of losing various tax benefits over recent years.
But while they have been forced to conclude that they need to exit the market sooner rather than later, their properties are invariably being snapped up by those investors who aren’t over-leveraged and are looking to increase the size of their portfolios.
While we may we be seeing a structural change in the private rented sector (PRS) at the current time, it seems likely that this will not also result in a reduction in the overall number of rental properties.
Refurbishment conundrum
That’s not to say that those landlords who aren’t finding market conditions too much to bear aren’t also in search for better yields – in fact many are opting to refurbish their properties in order to attract higher rental returns.
This could include making energy efficiency improvements to meet the changes to Energy Performance Certificate (EPC) requirements which are currently scheduled to come into force in 2025.
However, many landlords looking to do this will face a ‘Catch-22’ in today’s market: most refurbs need to take place when the rental property is vacant, but this can affect the borrower’s ability to meet affordability requirements.
At Mercantile Trust, we work to help landlords by providing them with appropriate lending solutions to meet their individual needs, even if their particular circumstances aren’t normally catered for by the majority of lenders.
That’s why we allow landlords to have a break in their rent while refurbishment works are being carried out.
Providing the borrower can provide evidence they can cover the rental void period while works are being carried out then we are happy to lend to them, allowing a rental void of up to three months.
We simply stipulate that the refurbishment work needs to be done over a set period of time and for the property to be ready for rent within that same time frame.
Overcoming a shortfall
Another example of how we help investors with affordability is with buy-to-let remortgaging, where we allow ‘top-slicing’.
Landlords can use a certain level of their personal, earned income to make up for a shortfall in projected rental returns when applying for a mortgage.
At Mercantile Trust, if there is not enough surplus or any surplus from a portfolio then we can look to utilise earned income within our calculations, subject to a full Income and Expenditure analysis. If that results in a surplus and it covers the deficit then we can look to use it to cover refurbishment costs, for example.
During these times of economic challenge, the positive message that needs to be heard is that there are specialist lenders who can help those overlooked by other providers.
Throughout my long career in the mortgage market, it has been my mission to offer solutions in areas typically limited by traditional lending; that’s why Mercantile Trust has a real appetite to help landlords realise their goals, even in a difficult market.
Maeve Ward is director of commercial operations at Mercantile Trust
