Among the many heated debates swirling around the buy-to-let market at present – and there are many – one that gets relatively little attention is liquidity and its importance to landlords.
Other topics tend to dominate conversations at the events I attend – affordability constraints, tax pressures and regulatory change, for example. All of these are important, of course, and we know why they’re at the forefront of landlords’ minds. But in many of the one-on-one conversations I’ve been having recently, the issue of liquidity comes up regularly, even if it’s not a featured theme of an event.
Liquidity – how much financial flexibility a landlord really has once the deal has completed – sits a little outside the decision-making process for lenders. We assess cases on other important questions. Does the rent cover the mortgage? Does it meet ICR requirements? Does the borrower fit the criteria? Quite rightly, too. These are all fundamental in determining whether the landlord can safely repay the mortgage.
But even if not integral to mortgage decisions, the fact that liquidity is playing on the minds of landlords is noteworthy, and it’s something we all ought to consider.
WHY LIQUIDITY IS BECOMING MORE IMPORTANT TO LANDLORDS
Over the past year or so, landlords have been operating in an environment where costs are less predictable and, in many cases, steadily rising. Service charges, for instance, have become a growing concern, especially for landlords that own flats. Maintenance costs are increasing. Regulatory requirements continue to evolve, often requiring further investment in properties.
At the same time, void periods are not always as short or as easily managed as they once were. Whether due to local market conditions or changes in tenant demand, even experienced landlords can find themselves navigating gaps in income.
Individually, none of these factors are new. But taken together, they underline why liquidity is important to buy-to-let investors, even if that’s not a criterion within lenders’ mortgage assessments.
Ultimately, a landlord with strong liquidity has options. They can absorb a temporary shortfall in rental income; they can fund unexpected works without immediately needing to refinance or restructure their borrowing; they can take a longer-term view when dealing with tenant changes or regulatory requirements.
Without that flexibility, landlords become more exposed to market fluctuations, regulatory shifts or rate hikes.
BROKERS ARE TAKING NOTE
In conversations with brokers, I’ve noticed an increasing awareness of this. Many are looking beyond the headline numbers and speaking about their clients’ wider financial position. How much cash reserve do they hold? How reliant are they on continuous rental income? How exposed are they to rising costs across a portfolio?
These are not always easy questions to answer, but they’re becoming increasingly important. And by opening up more conversations about liquidity – between lender, broker and borrower – we’ll get a more rounded view of a portfolio or situation.
At CHL Mortgages, this is something we’ve been thinking about carefully. With two distinct buy-to-let lenders under one roof, we’re already used to assessing cases in a more holistic way. This helps when we’re working with brokers, and conversations can evolve over time beyond a simple product fit to instead understanding a borrower’s overall strategy and circumstances.
That same mindset naturally extends to how we think about resilience. It’s about understanding not just whether a case works today, but whether it will continue to work if conditions shift.
None of this is to suggest that affordability, tax or regulation are becoming less important. Far from it. But as the market evolves, so too must the way we assess risk.
Liquidity may not be the most headline-grabbing topic, and it might not prove influential in lenders’ decision-making. But it’s seemingly increasingly important to landlords, and therefore to brokers.
Because in the end, resilience in the buy-to-let sector isn’t just about getting a mortgage over the line; it’s about ensuring landlords are in a position to weather whatever comes next.