Categorising landlords in this way has been notoriously difficult, however, the great increase in the regulatory oversight of the buy-to-let sector – notably, the introduction of the Mortgage Credit Directive (MCD) and the forthcoming Prudential Regulation Authority (PRA) underwriting changes, mean that those definitions are pretty much in place.
Now we are led to believe that a professional landlord will be someone who owns more than four properties, although not necessarily within a limited company structure. So, does this mean that we can define amateur landlords as those who personally own four properties or less? Well, perhaps. In the case of ‘accidental landlords’ the definition has (sort of) been set in stone by the MCD and refers to those who, for example, inherited a property and want to let it out and now have to go through a consumer buy-to-let process. Confused? Your clients certainly will be.
The notion of being an ‘amateur landlord’ in this day and age is of interest. Firstly, because of the recent comments by Andy Haldane, chief economist at the Bank of England (BoE), who effectively said property was a better bet for retirement than a pension, in addition to comments of ‘super landlord’ Fergus Wilson who on selling nearly half of his portfolio recently said “the days of the amateur landlord are over”.
These somewhat contradictory views perhaps underscore the confusing nature of buy-to-let investment at the moment, especially if you might describe yourself as an amateur landlord. On the one hand you have a highly-regarded BoE employee telling you property would be a good bet, while on the other, you have someone who has been there and got the t-shirt, saying it’s more difficult than ever to make a go of it.
The interesting point is that most, in our sector, would agree they’re both right. Given all the underlying demand and supply demographics around the UK housing market, property still appears to be a very good bet, especially if you’re willing to invest over a 15 to 20-year horizon.
However, securing the finance to be able to do this is increasingly difficult, and the likelihood is that it will be even harder when the PRA announce its underwriting requirements for lenders. Some of the most respected specialist lenders in the country anticipate that affordability measures will be tightened, criteria will be stricter, and of course maximum LTVs will fall. In short, investors are going to need even greater sums of money to purchase.
And yet are we really saying that this means amateur landlords have no chance in the current environment? Clearly not, because the evidence suggests otherwise. And while there may have been a shift from lenders more in favour of satisfying the financial needs of the professionals, this does not mean that an amateur can’t find opportunities, finance and success in this sector.
The recent moves in favour of supporting owner-occupiers, in particular first-timers, by the government, plus the stamp duty and next year’s income tax changes, have led some to speculate that landlords are now at a disadvantage too hard to overcome. This is not my view – indeed our own buy-to-let business levels continue to grow and with both rents and house prices continuing to rise, the opportunity to benefit from both over the long-term is still as attractive as it’s ever been.
For that reason we are urging advisers not to neglect the so-called amateurs but to ensure your commitment to them is maintained and they are aware of all the product opportunities in a still highly-competitive market. Many things are changing, but I believe the underlying demand for rental property has not.
