How important are specialist buy-to-let offerings?

Specialist buy-to-let lender Quantum Mortgages recently announced the launch of QML Pro, a unique range designed to accommodate properties that fall outside its standard criteria.

Jason Neale (pictured), founder and managing director at Quantum Mortgages, said when the firm launched in March 2022, he already had a good idea of where the professional landlord market was heading.

Neale added that this enabled him to put together a proposition that offered landlords more choice of properties and tenancy types to improve rental yields.

“Our ultimate goal is to become the UK’s only all status buy-to-let lender, offering products across the entire spectrum of buy-to-let lending,” he said.

Decisioning behind latest launch

Neale said the firm started with specialist buy-to-let but always intended to follow up with another range for highly complex situations.

“This is because we knew landlords’ requirements and circumstances would continue to change and become even more complex,” he explained.

The considerable increase in the cost of borrowing over the past year, Neale said, has expedited this change, so he found that even with the firm’s already wide criteria, it was beginning to see situations that it could not cater for.

As such, Neale said this prompted the launch of its latest product range a little earlier than originally expected.

Understanding landlords

“Our entire proposition is built around common-sense lending, which requires skilled human underwriters to assess sometimes very complex situations,” Neale said.

The firm underwrites loans, Neale said, that computer credit scoring or decisioning tools simply cannot understand. Neale added that Quantum Mortgages understands what landlords are trying to achieve and can help with most common-sense scenarios.

However, underwriting complex situations is one thing, but Neale said doing it safely is an entirely different proposition.

As well as seeing less lenders able to cope with this type of underwriting, he added that many will simply not have the understanding to correctly assess the risk, so will either avoid this type of lending completely or even worse, do it badly.

“We get the risk and have the expertise and infrastructure to underwrite increasingly complicated situations safely and efficiently, which we feel gives us a huge advantage for the future,” Neale said.

Expectations for the buy-to-let market

The days of an individual landlord with one unit property and one tenant, Neale said, are long gone, and the divide between professional landlords and the novice or accidental landlord is greater than ever.

“The overall buy-to-let market is likely to shrink as the higher cost of borrowing makes it very difficult for the single property landlords to break even, let alone make a profit,” he added. However, for those who do remain, Neale said they will see their portfolios become much more diverse.

On top of coping with the higher cost of borrowing, Neale said professional landlords face the ongoing challenge of increasing yield and income, reducing costs, and maintaining maximum tax efficiency.

He believes this will lead to even more complex SPV structures, including more holding companies, corporate shareholdings, beneficial trusts and even offshore SPVs.

“We are already seeing the shareholding of SPVs with property assets being sold rather than the traditional straightforward purchase of property, which is a trend set to continue should tax planning laws allow,” Neale said.

Moving forward, Neale believes that property conversions will evolve with larger units having the title split into smaller units for maximum income and capital growth. Multi-unit leasehold units, he added, are already becoming far more common, and beginning to replace the more common multi-unit freehold because the yield is greater.

“Specialist long-term tenancies, which give greater security against rental voids, albeit at a slightly lower yield, will continue to grow, especially considering rental arrears are expected to rise thanks to increasing prices and the continued cost-of-living crisis,” Neale said.

As a result, Neale said the buy-to-let sector will become much smaller but more specialist, with landlords’ circumstances becoming more complex and challenging to underwrite.

Professional landlords, he said, will continue to thrive and maintain reasonable yields and margins, but their portfolio will be far more diverse. In line with this, Neale said they will continue pushing the envelope with ever more imaginative ways to extract maximum value from properties.

“The challenge for lenders will be, do they have enough human expertise to underwrite these changing demands and, more importantly, do they have the appetite to bear the costs involved in processing time consuming and complex applications that will not fit into a neat and tidy automation box,” he questioned.

How important are specialist buy-to-let offerings in today’s complex marketplace? Let us know in the comment section below.