When it comes to attracting new landlords into the industry, the sector has had few favours bestowed on it in recent times due to a somewhat heavy-handed government approach to tax, regulation and policy.
In addition, historically speaking, some lenders have not always welcomed first-time landlords with open arms. Thankfully, from a lending perspective at least, attitudes are changing as a growing number of providers are courting first-time landlords with a range of highly competitive products as demand for rental properties continues to soar.
Analysis of the first-time landlord market and product arena by Moneyfacts in early February suggested that around 64% of the deals available across the market were available to such landlords, a figure which has remained stable over the past year. In February, there were suggested to be 2,235 first-time landlord products on offer, up significantly from 1,311 at the same time last year and 1,801 as recently as August 2021.
Looking at the cost of these products, the rate of the average two-year fixed deal has crept up by 0.09% over the past year to reach 3.19% in February. In contrast, the overall average two-year fix – that is, deals available to all landlords – has actually fallen from 2.97% to 2.90% over the year. However, encouragingly, rates have fallen year-on-year on five-year fixed deals for both first-timers and more experienced landlords. The average five-year, first-time landlord fix fell from 3.66% to 3.47% in the year to February, while the overall average five-year fix dropped from 3.32% to 3.16%.
This data represents some encouraging news and demonstrates continued lending appetites in attracting those all-important first-time landlords who may be looking to cash in on the current rental boom. At this juncture, it’s also important to point out that first-time landlords still represent something of a ‘risk’ for lenders, meaning that the cost of borrowing – as outlined in the above data – is slightly higher compared to that being offered to experienced landlords. This perceived 'risk' is also reflected in the tighter lending criteria and policies still being demonstrated by some of the more mainstream, high street lenders who are often less inclined to lend to such borrowing types.
Whilst lending to first-time landlords is certainly not the exclusive domain of specialist lenders, it’s fair to say that a good proportion of the aforementioned deals are provided by such lenders. What’s also prudent to note is that many of these offerings are only available through mortgage advisers. Why is this?
Primarily this is all about control and funding limitations. Unlike the larger high street lenders, many specialist providers are privately funded and don’t have access to unlimited deposits or savings. Using intermediary distribution channels also allows them to better control their product exposure to the wider market, which ensures they can service the business they are receiving. Ultimately, such relationships offer more operational influence and also tend to result in better quality business being received.
Of course, this doesn't help a variety of landlords who are on the hunt for innovative, flexible and competitively priced products, but that's what mortgage advisers are for. And that is why the value of the advice process will continue to rise in 2022 and beyond.