jeremy duncombe interview

The Interview… Jeremy Duncombe, managing director of Accord Mortgages – the intermediary arm of Yorkshire Building Society

Homeownership in the UK is increasingly seen as an elite privilege, while landlords are feeling the squeeze of higher rates and tighter inflation – making for difficult times across both the residential and rental sectors.

With this in mind, The Intermediary sits down with Jeremy Duncombe to discuss landlord pressures, the need for Government support, and why we should see the market as a holistic machine rather than disparate parts.

What is your view of the market as it stands now?

If we look at the context, we are roughly where we were before Covid-19. If we go back to about 2019, to whatever ‘normal’ was then, and then look at the numbers that are being delivered this year, it won’t be far away from that.

We’ve had some exceptional years, and then this year will be £100bn less than we saw in 2022, which saw £310bn, whereas this year will be around £210bn. Then next year we’ll probably see a similar market size to this year, mainly because things are unlikely to improve as quickly as the original forecasts.

There was a fair bit of optimism around March of this year, where people thought rates would start to drop in a really smooth, nice, gradual glide back down towards rates of about 4%. Because of market economics, swap rates, conflicts, inflation staying higher than expected for longer, we’re just not seeing rates edge down how people thought.

I think we’ve probably got to about the peak in terms of base rates, roughly, but it still hasn’t come down as quickly as people thought. So, as we go into next year, we’ve got higher than expected rates, higher base rates, and then it depends on the impact on swap rates as to whether we see the volatility that we’ve seen in the past 18 months. Volatility of swap rates is what drives fixed rates rising, which can be a different trajectory to base rates.

So, that’s the context behind the market. 

The residential market is down by about 30% this year, but the buy-to-let (BTL) market is down between 50% and 60%. 

Can you tell our readers about your recent research, and the themes that stood out the most for you?

We’ve gone out to about 1,000 purchasers or home-owners and 500 landlords. It’s a really broad-ranging piece of research. We really wanted to find out the state of the nation – what people think, what they’re telling us, does it link into what we’re seeing, and does it give us any concerns or opportunities? 

We looked at both buy-to-let and residential, and I’d suggest the two do come together in certain ways.

What the residential respondents are telling us is that owning housing is becoming almost an elite privilege – it’s more and more difficult to get on the housing ladder, they feel that the UK is going to become a nation of renters. We also know  that it’s really difficult to get into a rental property, because costs have gone up significantly and there’s more competition and less choice. So, as much as the potential residential customers are telling us they might struggle to get onto the property ladder, renting has also become more difficult – it’s a double-edged sword.

Have landlords been leaving the market, as some headlines would have us believe?

Landlords told us that they feel really squeezed by the taxation burden and increased costs, but they really want to continue to be in the market, and they do intend to be here long-term. They’re just finding it more difficult to be profitable and sustainable. 

There’s certainly a view that the Government and regulation is trying to push them out of the sector.

Is the pain for landlords a potential help for buyers?

From my perspective, this isn’t an ‘either/or’. We don’t want to get rid of landlords so that everybody can buy a house. It just doesn’t work like that. We need a really strong rental sector to be able to deal with the amount of demand that’s out there. Not everybody wants to buy a house, and not everyone can buy a house.

What we found with our research is that lots of private rented sector (PRS) landlords that we talked to were supporting the under-served customers – those who might not be able to get a mortgage, perhaps single parent families, those with credit challenges or people with temporary jobs. Even those who just don’t want to be on the housing ladder, but need somewhere to live.

It’s not as simple as saying that if we stop landlords being in the PRS then all those houses go to owner-occupiers and people can just buy them – it doesn’t work like that.

So, in the face of taxation and increased legislation, these landlords are businesses at the end of the day, and there’s no other market where you would try and stop people being able to make a living.

At the moment, landlords feel they’re being targeted, but they are a business providing a service, and they have to be able to run that business profitably, at a time when their costs have gone up significantly.

Obviously, there are those who are on a fixed rate mortgage, and when that comes to an end, their costs go up – they can’t absorb all of that.  

However, quite a few of them are telling us that they felt they were OK, and that they were protecting their clients by not passing on all of their costs, and trying to absorb as much as they can. Inevitably, they are having to pass those costs on, but typically the average rent increase was around 10%.

Has pushing back changes to the EPC requirements helped ease some of the pressure on landlords?

With the Energy Performance Certificate (EPC) ratings, landlords were really concerned about where the money was going to come from to make the changes, and how quickly they might have to do them. With no specific dates, and little real guidance, landlords were reluctant to make changes until they understand the requirements, costs and implications.

They weren’t saying they didn’t want to do it, but pushing it back gives a bit of breathing space. Landlords are telling us they still want to do that work, it’s just about the timing, and understanding exactly what’s needed

They’re really saying they want to be in the market, they want to be in it long-term, and they want to be able to run a sustainable business, and pass ton the benefit to  their tenants wherever possible. 

What about the proposed rental reforms, how are they affecting landlords views on the market?

Of course, the potential eviction ban – which has been pushed back, again –is another uncertainty. There’s also potential rent caps. New legislation is coming out all the time, and I don’t think landlords quite know what they need to do, by when, and what’s going to happen.

Is the solution to some of these concerns moving into a limited company structure, and the ‘professionalisation’ of the sector?

That’s happening to an extent. People buying BTL properties now often buy them in limited companies, which gives them some protection.

However, for those people who already have a property, it’s not always advisable to move into a limited company. Having tax advice is still really, really important.

I think the answer that we are calling for, really, is to take a step back and look at this as more of a holistic problem rather than trying to tackle bits of the market and then facing unintended consequences. We need everybody to take a step back and start thinking about the whole issue of the mortgage, property and housing market.

What does that look like, practically?

The reality of it is that it needs to be taken out of politics. We need to start from the point of asking: what does the UK PLC need as a housing structure? And then it needs to be taken out of party politics, similar to defence or the NHS.

As it stands now, where every decision is made on a five-year cycle, you never get anything done.

If you just simplify it, what do we need? More houses. So, we need better planning systems to allow the houses – and the right types of properties – to be built. We need to get a social housing sector that looks after people who need the properties.

It’s easier said than done, but the Government needs to have a meeting of minds, along with lenders, as to how they can help facilitate that.

Lenders are a resilient group that are trying to create change with what we offer, but without the bigger picture, we’re still just tinkering round the edges.

Is there more lenders can do in terms of fixing issues in the market?

From a regulatory point of view, it’s all quite restricted, which is stopping lenders from doing the things they want to do. There’s very much a handbrake on the market from a regulatory, Government perspective.

What lenders are trying to do is help, with products and great opportunities, but that is still against the backdrop that it’s been a really difficult market for everyone to operate in.

So, while they are doing a lot, it’s not just about lenders improving their propositions, we need much bigger oversight of the market. Without that, we are still going to have the problem of being quite restricted in what we can do. We can’t change the taxation rules, we can’t build more houses, we can only work on what we can control, which is our product line.

For example, we’ve had real success with top-slicing, which has helped us continue to be a large BTL lender, albeit in a much smaller market. Our BTL share really has grown this year, but it’s a bigger share of a smaller market.

Is the idea of political neutrality on housing just a pipe dream?

It depends on whether it’s seen as political point-scoring, or whether there’s some substance behind it. There were some positive words at the Labour Party Conference around potential housing strategies, but if it becomes a battleground that could be a problem for the industry.

Considering the past few years, I don’t know how it could not be seen as a critical area, just like the NHS – at that same level of importance.

That said, if the parties agree it’s important and then fight it out in order to out-compete each other, it could be fantastic. It just needs that level of importance to be attributed to it in the first place, with parties taking it a bit more seriously.

That means lobbying from us as lenders, from customers, and from all of us as constituents.

We saw how important this is as rates started going up – it became a big topic, but that’s subsided a little bit now. We need to get that profile on housing, and not just mortgage rates.

Are there any other key points you would pull out of the research?

On the residential side, what was interesting was that as much as customers are telling us they think ownership is becoming an elite privilege, this has not put them off their desire to buy. So, they are starting to make lifestyle choices to help them get on the ladder – foregoing a nice holiday and going out for lunch, for example. These discretional items are taking a backseat, including things like getting married or having children, or at least scaling these things back. I find that quite reassuring.

For BTL, there’s some figures, such as that 62% said changes to tax and legislation have penalised landlords, but 63% said regulation to protect tenants is a good thing.

So, what landlords are telling us is that they’re not fighting the regulation, they’re not fighting the bulk of it, and they’re not against it because they’re ‘rogue landlords’ who are trying to get around regulation. They just want fair play to be able to make a decent living. But they do want tenants’ rights.

Yes, we need to focus on those rogue, profiteering landlords, and get them out of the market, but the vast majority of landlords are doing this for the right reasons – you can’t just make rules with the rogue landlords in mind, when most want to do the right thing. They want to look after their tenants, they’re happy with longer terms, happy to comply with whatever regulations are there, but not to just feel penalised all the time.

Does something need to be done to stem the negative rhetoric around landlords in the public sphere?

First of all we need the Government not to target landlord sector as being a negative. Would you ask any other business sector to make a loss – we need to treat them fully as a business and allow them to invest in their properties.

We need to change the narrative around the requirement for a quality BTL sector, and then allow landlords to come in and buy properties in the right areas, to get the supply levels back in. To do that, we need to have a look at the tax rules again.

I think we also need the media to shift towards seeing this not as two separate markets, residential and BTL, but as one holistic housing sector. What you see on the news is about mortgage rates going up, therefore mortgage holders have got to pay more money, and this during the cost-of-living crisis. You never get the other side, which is that it also affects landlords and therefore tenants.

Can market innovation help, or do we just need to lobby for tax and legislation changes?

I think we need to lobby for change, to make this market viable. Lenders can make products available – top-slicing is a really good example of how you can help landlords afford a property – but without these changes to regulation, you’ve still got landlords for whom this isn’t financially viable right now.

Lenders will continue to make improvements. For example, earlier this year we re-commenced lending on buy-to-let loans up to 80% loan-to-value (LTV) to help landlords with a smaller deposit but if the rental calculations don’t fit, nothing will really help.

What message would you want to get across to prospective borrowers?

People need to get used to higher interest rates, and not just put off until this time next year. If you want to buy, get good advice, work out your finances and find a way.

Anybody who has made a speculation over the past 18 months probably got it wrong. The point is, there’s no right time – the right time to buy is when you want to buy. There’s no magical crystal ball.

In terms of the market, yes it will be smaller  than last year, but it’s still a healthy and resilient market. Meanwhile, the majority of borrowers want to get advice from a mortgage broker – they understand the importance of advice, especially now.