A spike in buy-to-let remortgaging activity is anticipated in the year ahead, bringing with it a number of considerations for landlords – particularly those looking to raise capital for energy efficiency improvements, says Knight Frank Finance Landlord Specialist, Huy Le.
Landlords are set to drive a spike in remortgaging activity during 2022 as long-term deals struck between 2016 and 2018 reach the end of their terms.
Data from buy-to-let specialist lender Paragon Bank revealed a threefold increase in the number of five-year fixed rate mortgages written between December 2016 and January 2018, following the introduction by the Prudential Regulation Authority (PRA) in 2017 of stricter lending criteria on shorter fixed term buy-to-let mortgage deals.
The PRA rules “led to a big rise in the number of borrowers looking to lock in longer-term fixed rates, many of which will now be coming to an end,” says Knight Frank Finance Landlord Specialist, Huy Le. “Many landlords will be looking to once again securitise their finances for a longer period. I’ve already had a number of clients interested in securing 7-10-year fixed rate deals.”
But before landlords seek to secure a new deal, he says it’s worth considering the government’s impending energy efficiency rating changes to rental properties.
Expected to come into force around 2026/27, the regulatory changes will make it compulsory for landlords to hold a minimum energy performance certificate (EPC) rating of C for each of their properties.
“With rates maturing now, this means the window to raise capital to fund any EPC upgrades is closing since any long-term deal secured now will run past the date that their properties would need to be EPC compliant,” Huy adds.
With that in mind, Huy says it could be useful for landlords to carry out a cost analysis on their properties to understand their investment requirements when it comes to upgrading the energy efficiency of their stock.
“The average cost to bring a Victorian property up to a grade C rating from a D, for example, is about £6,000, which will have different implications for landlords depending on where their stock is based, given properties in the north typically have lower values to those in the south.”
Many landlords will now be eligible for green mortgages, a small but rapidly expanding corner of the mortgage market targeting homeowners seeking to make environmental upgrades. More than 10 mortgage lenders launched green mortgage products during 2021 and some 77% of lenders are planning to launch green mortgages that are cheaper or priced the same as a typical product during the months ahead, according to data from the Mortgage Lenders Association.
If you’d like to discuss your remortgaging options or would like to know more about raising capital to make energy efficiency improvements on your investment property, please do book a no-obligation mortgage consultation with our specialist buy-to-let broker Huy Le, who will be able to help you identify the best financial approach for your circumstances.