YBS Commercial Mortgages | YBS
YBS Commercial Mortgages has implemented some positive changes to its buy-to-let offering this week, providing much-needed support for landlords.
Following broker feedback, the commercial lender has reduced the stress rate applied to buy-to-let affordability calculations on its commercial buy-to-let products. The positive change effectively increases the volume of lending that can be provided to borrowers. The stress rate has been reduced from 125% Interest Rate Cover (or Interest Cover Ratio - ICR) at pay rate plus 0.30%, to stressing at 125% ICR at pay rate (pay rate is interest rate on the loan). This move recognises the reality faced by UK landlords who face a challenging interest rate environment, as well as ongoing economic headwinds.
These changes are designed to support landlords in areas where rents are lower relative to property value, taking into account the costs faced by landlords. The change will increase what they can borrow, subject to remaining within the lender’s 75% loan-to-value (LTV) criteria. This will enable landlords to borrow more on these properties, freeing up capital to invest, or to undertake property maintenance. For example, for each £1 million of assets, based on a yield of 4% (rental income of £40,000 per year), assuming a five-year fix at 5.60%, landlords will be able to borrow around 5.5% or £30,000 more.
Tom Simpson, managing director of YBS Commercial Mortgages, said: “We understand the role that landlords play in providing much needed, quality rented accommodation, which in the current climate, are in short supply.
“We hope that reducing our stress rate – which is another example of how we continue to respond to broker feedback - will provide the support that their landlord clients need, improving their ability to borrow more in the current, more challenging interest rate environment.
“As a responsible lender, focussed on the importance of high-quality accommodation, these changes will also benefit tenants, as more landlords have access to our product suite.”
ENDS – CMPR03-24
Tom Simpson, managing director of YBS Commercial Mortgages – the commercial lending arm of Yorkshire Building Society
Don’t let the scrapped HS2 line be all the North is known for – investment in the region can come in many guises. Now is the time to prove its worth, and many are already seeing the potential.
High streets in many towns and cities have faced a challenging decade; the most recent years posing the toughest hurdles yet thanks to the headwinds caused by the pandemic, the spike in energy prices and the ensuing knock-on effect on the wider economy. For some it’s been unsustainable, with big-name casualties in the retail sector, as well as numerous smaller businesses sadly closing for good, but for others it’s provided opportunity.
The rising interest rate environment afforded many commercial property investors a period of time to take stock; to reconsider their portfolios and to consider what’s most important to them. In some cases, this has meant diversifying their assets to spread risk, for example.
Focus on energy efficiency
This trend towards energy efficiency also explains why some owners are still struggling to let or sell older office blocks and other, lower-quality property. However, we’re definitely seeing a surge of interest in prime workspaces, as businesses seek to make their surroundings more attractive to employees – not just when it comes to energy efficiency - but also in terms of more collaborative workspaces, in keeping with heightened expectations post-pandemic.
Leeds is well-regarded as a financial services hub, as well as a home for media and technology-based firms, and, although there’s no doubt that investment in these has slowed down since the COVID-19 pandemic, the bottom line is that office space – despite the onslaught of home, or hybrid, working – continues to attract investment – as long as it’s the right type of property with the right features.
The wider view
The data we monitor and market insight from our team on the ground tells us there is opportunity even in sectors which have struggled. For example, retail footfall recovery in Leeds and Manchester is better than in London. Warehousing is also proving an attractive option, as demand for online shopping continues to drive quality builds along key transport links including the M62 and M1. Industrial property, too, remains in demand thanks to limited supply.
As for us – as a lender we’ve seen year-on-year commercial property approvals rise 150% and, since we fully launched YBS Commercial Mortgages in 2020, we’ve backed investments in the North to the tune of £100 million. We’re similarly committed to our North regional team to support this, creating jobs in the region - indeed, a recent recruitment drive has doubled the team. We’re plugged into the market, speaking to brokers and investors daily, and it’s clear they’re still as interested in the region as we are.
The future
As for investors taking advantage now, while property prices are slightly lower, they may benefit in the longer term, leading to improved capital-raising potential as the value of their investment increases.
There’s no reason to suggest the short-term outlook will change much; it will remain a challenge in some sectors while providing great opportunity in others. The fact the North has proved its resounding resilience during such challenging years - and we are continuing to see growth all around us - rightly paves the way for renewed optimism.
As for the scrapped HS2 line from Birmingham to Manchester – transport and infrastructure investment is vital to help grow the Northern economy, attract investment and talent, and will help us to achieve our net zero ambitions as a country – one for the government to consider further as we move into 2024.
So, long may the country continue to watch the North - for all the right reasons.
CMPR 11-23
Tom Simpson, managing director of YBS Commercial Mortgages, discusses the importance – and the challenge - of ensuring good quality homes in the rental market.
The rental sector has had some challenges in the last few years. Government policies, affordability issues and property shortages have all contributed to question marks over what the future of buy-to-let might look like – for both landlords and tenants.
Higher interest rates have heaped financial pressure on many landlords, running the risk of damaging the private rental sector that has evolved over the last two decades – something which, if left unchecked, would only serve to harm not just landlords, but also the tenants they serve.In light of this, many have raised questions about the potential long-term consequences of the Government’s policies and suggested reforms relating to this sector – including those designed to protect tenants from unscrupulous landlords. For me, this has sparked an interesting but very important debate. Namely, how can we ensure the private rental sector is sustainable, and that it remains viable for both reputable investors and their tenants?
Ensuring the right mix
There’s no doubt that there are unintended consequences to well-intended, but poorly-thought-through, tenant protection reforms. It is all about striking a balance and understanding the consequences of these in both the short and longer term. For example, whilst we must accept that protecting the rights of tenants is important, landlords too need to feel in control of their assets and have the freedom to make changes required to maintain the viability of their offering, which, after all, is in critically short supply.
The fact is that there has been a succession of changes in the buy-to-let market over recent years which have, arguably, made being a landlord less palatable. These include adjustments to taxation and the introduction of rent controls in Scotland. In other areas, there is uncertainty within the industry - such as with regards to the scope and timing of EPC requirements for rental properties, following previously proposed reforms being placed on hold, coupled with the upcoming election.I believe the blanket demonisation of landlords misses the point, which is the vital contribution reputable landlords make to the housing market machine – both in terms of making up the shortfall of quality homes for those who cannot or do not wish to buy, and offering a spring-board into homeownership for future first-time buyers. The Home Truths report published by Yorkshire Building Society last year can attest to the impact all of this is having on landlord sentiment – of those asked, 61%* said that being a landlord is less attractive now than it was in the past.
One of the most serious potential outcomes of changes which make landlords feel this way is what I could best describe as a 'race to the bottom'. We could see better-quality landlords exit the market, which would then become increasingly 'cost led' – in turn creating incentives for corners to be cut, leading to poorer quality, less safe accommodation and a rise in measures designed to extract greater yield from property, such as predatory ground rent practices, for example.
This brings into sharp focus the need for more strategic thinking around protections for tenants, covering vital factors like fire safety, accommodation standards and deposit protection, to prevent the scenario described above from becoming a reality. This should take the form of a long-term ‘joined-up’ strategy to promote a private rental sector that is viable for both reputable investors and tenants. Energy efficiency also has an important role to play here – as inefficient buildings increase energy bills for tenants.
Why it matters
That’s why we’ve committed to the Decent Homes Standard – a formalisation of what we’re already doing to ensure the rental properties we lend on are of a high quality. This will ensure any properties we lend on meet clear criteria, according to a framework through which we determine what good quality properties look like. This includes ensuring the property meets the statutory minimum standard for housing (such as not being affected by damp or mould growth); is in a reasonable state of repair (for example, having windows and doors which are watertight and secure); and has reasonable facilities (for example, a modern kitchen).
These standards are crucial, and landlords themselves agree that legislation to protect tenants is a good thing, with 63% of those surveyed for Home Truths stating that such measures were positive for landlords*.
Collaboration is key
There are already further government policies in train designed to support tenants, such as the pending legislation to prevent no-fault evictions. However, what we really need is a wider package of reforms which achieve that sweet spot of supporting quality landlords and improving conditions for tenants on a long-term, ongoing basis.
Recognising and acting upon this could be fundamental to the future of the sector, for everyone who plays a part in it.
* From Yorkshire Building Society’s Home Truths report, based on a survey of 500 landlords conducted with Opinium, April 2023.
YBS Commercial Mortgages has implemented some changes to its sales team this week, as part of its ambitious growth strategy with broker and client support at its heart.
The commercial lender has taken the decision to create a new London Hub, with a new regional director at its helm, supported by a new team of relationship directors - who have been deployed from existing internal teams. The new hub will have a business development focus at its core, with the aim of building a strong presence in the London area.
Recruitment for the role of regional director is now complete, with Andrew Edwards, an internal candidate, taking on the position, which is based at the Yorkshire Building Society Kensington branch, on Kensington High Street.
Andrew, who is currently regional lead for the South-East team, commented: “I’m really looking forward to taking our products and propositions to even more brokers and customers across the London area and adding even more value to the business.”
Andrew will be working closely with other team members of the new London hub, including senior relationship directors Mark Setchell and Gaynor Morgan; and relationship director Dan Sloman.
Tom Simpson, managing director for YBS Commercial Mortgages, said: “As a lender who can operate in any part of England and Wales, a nationwide presence is vital. London is a crucial market, and we’re thrilled that we’re now able to execute our plans to build out our presence in the region.
That’s why I’m delighted that Andrew has accepted the role of regional director for the London hub. This is another great example of supporting and promoting internal colleagues, and I wish Andrew all the best as he embraces his new role, growing our distribution reach in this area, in line with our strategic ambitions as a business.
As a strong, stable lending partner, we’re focussed on providing a dedicated personal service to all our brokers and their clients, wherever they are based. This move will enable us to strengthen our offering in the commercial market.”