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How landlords are diversifying to combat a changing buy-to-let market – Marketwatch

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  • 19/10/2016
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With most industry experts preparing for a slowing of the buy-to-let market toward the end of 2016, this week's Marketwatch looks at how investors will adapt their portfolios to keep business buoyant.

A recent Countrywide report shows that rents are rising faster in northern cities than those in the south, while rental growth has slowed across most cities in southern England over 2016. In addition, recent findings from RICS showed that prices continue to fall in central London and the North East, although the North East’s pace of decline has begun to slow.

This week we’ve asked a panel of industry experts to tell us how ongoing pressure being piled on investors, such as extra Stamp Duty costs, limitations on mortgage interest relief and stricter underwriting, is changing the geographic pattern of the buy-to-let market.

Doug Hall, director at 3mc, says that instead of diversification on a geographic level, he has witnessed landlords respond to change in the market by exploring different asset classes to enhance returns.

John Phillips, group operations director at Spicer Haart and Just Mortgages, points to a flourishing rental market in Manchester, where 85% of the population in the city centre rent their home.

Chris Norris, head of policy at the National Landlords Association (NLA), says that research conducted by the NLA indicates that those looking to expand their portfolio or sell up varies according to location.

 

Smiling Doug HallDoug Hall is director at 3mc

There is always a danger in talking in generalisations, especially about the buy-to-let market. However, it’s probably true to say that most investors will tend to buy property within the geographical area in which they are based (typically a one to two hour drive time).

I am aware of some landlords who have started buying property in the same asset class but in a different region in order to generate higher yields, but they tend to be the exception rather than the rule.

I have far more evidence, however, of investors buying property in different asset classes in order to enhance their returns. During the course of this year, for example, 3mc has received significantly more enquiries about HMOs, limited company buy-to-lets and multi units on a single title. Sure, the issues driving this change are not just to do with rental yields but tax changes and also having the ability to leverage more with limited company buy to lets. However, all of these factors are impacting landlords’ bottom line and are therefore influencing their decision-making.

The good news is that specialist lenders have been very good at responding to this changing demand and supporting these emerging markets. Products have not only become more accommodating, but also more competitively priced. For example, I recently compared rates on offer for limited company buy to lets, to rates on offer from the same lenders back in March and the rates had fallen by 0.4% over a six-month period.

I have no doubt we’ll see more landlords investing in different asset classes in the future, as yields continue to come under pressure.

 

John PhillipsJohn Phillips is group operations director at Spicer Haart and Just Mortgages

In the past year, buy-to-let landlords have been hit by a barrage of changes, facing tax relief cuts and Stamp Duty hikes and, according to the Residential Landlords Association, almost a third of landlords are considering leaving the market altogether. However, as part of the UK’s ‘rental revolution’, one million new homes to rent are expected to be required by 2021.

It is difficult to say whether there is a definite trend of landlords moving away from London. However, we have seen a slight upturn in landlords widening their property portfolios by investing in places outside the capital including the west country, Wales and the north east of England, which is no surprise considering it has the best rental yields for buy-to-let landlords.

In fact, Manchester has seen the highest growth, with rents of new lets rising by 7.1% over the past year alone. It is possible that this strong economy has been helped by the prospect of the high speed rail links reducing the distance to London, and the majority of properties in Manchester are flats or two/three bed terraced houses which offer a relatively high rental yield. Therefore, with 85% of people living in Manchester’s city centre now renting, it is possible that more investors will turn to the city to find a property asset that can deliver a strong income.

It is possible that Brexit-induced uncertainty is boosting the rental market, as more lets are being agreed and tenants are choosing to renew their contracts, and I am confident that investment will continue to return to the UK’s buy-to-let market in the coming months.

 

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Chris Norris is head of policy at the National Landlords Association

The private rented sector is undergoing many changes at the moment, and landlords across the UK are adapting in different ways.

If we look at landlords’ purchasing intentions over the next year our research suggests that more landlords in the east midlands (29%) and North West (21%) intend to buy compared to other regions of the UK. By contrast, more landlords in Scotland (35%) and the North East (27%) are looking to sell property or reduce the size of their portfolio.

And while we have no evidence to suggest any changes to the types of property being targeted, we are seeing an interesting development in terms of the kinds of tenants that landlord are looking to attract.

Our research suggests that landlords are increasingly specialising on particular markets and looking to reduce the variety of different tenant types in their portfolios, despite the continued growth of the sector and the increasing demand for homes. This is something that is is undoubtedly being driven by a desire to maximise profits in what is a competitive market that offers modest yields and has an increasingly bleak outlook.

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