Buy-to-Let will evolve and we will all support it

This year’s Labour Party conference was awash with promises and plans for changing Britain for the better. There were several announcements relevant to the housing market – a pledge to tackle homelessness for veterans, domestic abuse victims and young people leaving the care system among them.

Energy minister Ed Miliband was given the task of announcing a ban on landlords renting out properties that don’t meet energy efficiency targets by 2030.

While it was billed as a new policy, the move will reinstate the previous government’s energy efficiency rules requiring landlords to improve let properties’ energy performance certificate ratings to a minimum band C. Labour’s deadline is more lenient than under the Conservatives, who proposed these improvements be made mandatory by 2028 – a policy they later dropped.

“We all know that the poorest people in our country often live in cold, draughty homes,” Miliband told The Times. “This government will not tolerate this injustice and we will end it.”

A consultation is set for later this year, which should provide landlords with more clarity around how much they can be expected to spend on building work to bring energy efficiency bands up to standard. Further detail about funding support from government should also be forthcoming.

Most landlords have been preparing for these changes for several years now, with millions of properties already upgraded to band C. Yet the chopping and changing on deadlines and previous government’s decision to ditch the plans – part of the UK’s net zero delivery strategy – has been illustrative of the constant uncertainty faced by the private rented sector.

It’s almost a decade since George Osborne first announced the rollback on tax relief for buy-to-let mortgage interest. Portfolio rules, interest rate stress-testing and the Mortgage Credit Directive followed. More change is in the pipeline. The long-awaited, much-debated Renter Reform Bill has been replaced by the Renters’ Rights Bill and will ban Section 21 ‘no-fault’ evictions for new and existing tenancies. The Decent Homes Standard will be applied to the private rented sector for the first time and several other bans will come into force:

• A ban on rental bidding wars, by cracking down on those who make the most of the housing crisis by forcing tenants to bid for their properties. Landlords and letting agents will be legally required to publish an asking rent for their property. They will also be banned from asking for, encouraging, or accepting any bids above this price.
• Ban on in-tenancy rent increases written in to contracts to prevent landlords implementing too high rents mid-tenancy, often to push out the current tenants. Under these reforms, landlords will only be allowed to raise the rent once a year, and to the market rate.
• Abolishing blanket bans on tenants with children or those in receipt of benefits.

The King’s Speech also included reference to draft legislation due to be published on leasehold and commonhold reform with the intention to ban the sale of new leasehold on new flats.

A proposal to end the use of forfeiture by landlords or freeholders when a residential leaseholder falls into ground rent arrears is also included in the draft bill.

For lenders, assessing compliance with so many variable rules (let’s not forget the miasma that is licensing) underwriters need access to vast amounts of data and expertise so they can concentrate on the elements that matter in credit risk.

As a web based desktop platform that helps lenders comply with the Prudential Regulatory Authority’s SS13/16 portfolio landlord underwriting standards, our Buy-to-Let Hub is designed to do exactly that. With more than 20 lenders currently accessing our system, its success at speeding up the underwriting process and significantly reducing the administrative burden on brokers when submitting buy to let portfolios to lenders is evident.

The system also allows lenders to flex their own criteria to reflect their broader appetite for types of risk profile on originations. The Hub allows lender to figure their own rules around interest coverage ratios and loan-to-value exposure in real-time to reflect risk appetite and exposure levels within their business.

The software also provides brokers with the ability to easily import landlord data from multiple spreadsheets, which is automatically verified and converted into lender specific templates before an application is submitted.

In light of so many anticipated changes to regulation, we are already looking to develop the data and usage levers within the Hub to support lenders to get to grips with additional compliance as it comes in.

In such a fluid market, it’s perhaps understandable that there are those who focus on the challenges rather than the opportunities change presents.

Far from being over as an attractive asset class, buy-to-let is becoming a more robust prospect for lenders looking to strengthen their own asset risk exposure.