buy-to-let mortgage

Professional landlords fuelling buy-to-let sector boom

Lending trends are demonstrating a strong buy-to-let market, unprecedented levels of tenant demand and growth in appetite for green lending.

Buy-to-let landlords in the UK are continuing to borrow to buy as mortgage rates have steadied in recent weeks amid a rise in market confidence. Meanwhile, mortgage arrears have also decreased amid a booming buy-to-let market overall in the UK.

This is according to the latest results and figures from Paragon Bank, a specialist lender that offers buy-to-let mortgages including complex products such as limited companies, houses in multiple occupation (HMOs) and multiple property purchases.

Buy-to-let lending reveals strong market

Paragon’s full-year results have revealed that its buy-to-let lending leapt by 18.2% to £1.9bn. This was particularly spurred on by increasing appetite from professional and portfolio landlords, who may be more likely to stick out short-term market turbulence than smaller landlords.

The results mean that operating profit before fair value items at the lender increased by 16.4% to £226m. In terms of the new business pipeline in Paragon’s buy-to-let accounts, loans reached a record £1.26bn at year-end, which is up by 24.6% compared  with 12 months ago.

One particular area that has seen notable growth, according to Paragon’s lending figures is in the green finance space for properties rated A to C in their EPCs (energy performance certificates). Paragon is one of a few banks that offers special incentive products for more energy efficient homes.

It noted that over the past 12 months, the lender saw a huge 44% increased in the volume and value of borrowing in this arena, lending £832.2m on A-C rated properties in total. This is a further demonstration of the increased appetite for investing in energy efficient homes.

Another positive trend noted in Paragon’s results was a reduction in arrear’s across the company’s buy-to-let mortgage book. Total arrears among its landlords was at 0.15% by year-end, down from 0.21% the previous year. The average loan-to-value on loans from Paragon is now 57.9%.

According to Richard Rowntree, Paragon Bank managing director of mortgages, strong tenant demand is a key factor keeping the buy-to-let industry booming. Seasoned landlords that have been in the market for a number of years will also be more experienced in dealing with market wobbles.

“This was a strong performance from the mortgage division, reflecting our specialist approach and focus on professional landlords,” he said. “The UK is experiencing unprecedented levels of tenant demand and our landlord customers are providing much-needed new homes unto the private rented sector.

“I was particularly pleased to see strong growth in lending against properties with an EPC rating of between A-C; it’s important that the UK housing stock is upgraded as the UK transitions towards net zero by 2050.

“Paragon benefits from an excellent quality loan book, with seasoned assets and experienced landlords who have operated through different economic cycles. Our landlord customers now have over £10bn of equity in their mortgaged properties, so are well-positioned to withstand any economic headwinds.”

Property investors expanding portfolios

In a further sign of optimism in the buy-to-let sector, a recent report from bridging finance broker Finbri revealed that 50.45% of existing property investors are planning to invest more into housing in 2023.

Among the most seasoned property investors, even more activity is on the cards, with 68% of those with more than five property assets in their portfolios planning to capitalise on “increased opportunities in 2023”.

Finbri co-founder Stephen Clark said: “These findings demonstrate that those with a vast property portfolio are more likely to capitalise on the increasing availability of property as less experienced investors look to sell.”

Clark adds: “Experienced investors will be able to take advantage, hoping to achieve high yields. The average rental yield in the UK is 4.71%, but this varies from location to location and researching where the highest yields are will provide investors with a strong indication of where they should be looking to expand their portfolio.”

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