Unlocking opportunity through portfolio review

Recently released UK Finance data shows that Q4 2024 saw £6.3 billion in remortgage business, up from £5.7 billion in Q3 and 41.7% higher year-on-year. While more modest than the 58.9% growth in the purchase market, it was remortgaging that accounted for the largest share of new buy-to-let business in 2024.

While growing confidence and the continued undersupply of privately rented homes is expected to drive further purchase activity across the rest of the year, the strength of the remortgage market is also something we expect to continue throughout 2025.

This is because industry figures reveal that the year sees over 190,000 buy-to-let mortgages worth £26.2 billion reach maturity.  That number doesn't include product switches, so is likely to be significantly higher.

At Paragon, nearly 17% of the buy-to-let mortgages we wrote last year were against unmortgaged properties. This shows that a viable source of business can be found in unencumbered landlords taking advantage of the equity they have built, something that will most likely have been boosted by substantial house price growth seen since the pandemic.

Those borrowing against such properties are often doing so at lower loan-to-values, which means that they’re less likely to encounter the same affordability constraints faced by more highly leveraged landlords. They can also benefit from greater product availability and better rates.

These factors place landlords with wholly owned properties in a particularly strong position when looking to increase revenue generating potential through portfolio expansion - acquiring higher-yielding properties - or improving those they already own.

Aside from the business potential offered by remortgaging unencumbered properties, analysing the maturities market reveals a dynamic that heightens the benefit brokers can provide their landlord clients.

Of the 190,000 buy-to-let mortgages maturing in 2025, 137,000 are five-year fixes written in 2020 and 54,000 are two-year loans taken out in 2023.

The latter will be coming off products that were priced at 4% or more, after borrowing during a period defined by elevated rates following the mini budget. Recent analysis by broker Alexander Hall shows that average rates for buy-to-let mortgages were 5.34% in 2023, falling to 4.40% when the research was undertaken. Cross-referencing these rates with average property prices back in 2023 and today reveals that landlords now face lower monthly repayment costs of £1,083, down from £1,183 a year earlier.

Landlords reaching the end of five-year fixes written in 2020 are likely to see the opposite effect after benefiting from historically low rates offered during the pandemic period.

While a 33% increase in average rents over the past five years, along with rising house prices, may lessen this impact to a degree, it’s likely that a large number of landlords will face higher borrowing costs when refinancing.

Looking back to borrower behaviour over the past few years as rates have increased shows how the popularity of product switches has grown, peaking in Q2 2023 at £13.5 billion. Additionally, eight in 10 Paragon borrowers opted to stay with us at maturity last year.

Although we’ve seen rates come down over the past couple of weeks, some landlords may still struggle to overcome affordability challenges so product switches, which often don’t require full re-underwriting, may offer a solution. Not all lenders offer them, however, so it is important that brokers help clients understand that products should considered with a forward view and not just based on today’s rates and fees.

So, we can see that despite borrowing conditions improving, the economic volatility of recent years has shaped a buy-to-let mortgage market that looks markedly different from the relatively stable, low-rate environment we saw before the world spun from one crisis to another.

Mortgage brokers are best placed to help landlords navigate this current, more changeable borrowing landscape and in doing so, they can support both landlords’ long-term planning and their own future business pipelines.

Proactively plotting when mortgages are due to mature and reviewing unencumbered properties allows brokers to engage landlords with a broader strategic plan. This supports landlords in staying on top of their finances and ensures brokers are front of mind for future remortgage and purchase business.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.