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Private rental sector, buy-to-let… it’s all the same isn’t it?

by: Mark Long
  • 04/06/2013
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Private rental sector, buy-to-let… it’s all the same isn’t it?
Well, not quite. Did you know that around one in three landlords don’t owe a penny on a traditional buy-to-let (BTL) mortgage across their entire property portfolio?

We’ve been tracking the ‘unleveraged’ segment of the private rental sector (PRS) through our regular Landlords Panel survey of UK property investors for some time, watching with interest as individuals increasingly choose bricks and mortar as a better investment bet than the FTSE.

In our Q1 survey, the PRS landscape breaks down as follows:
Own letting portfolio outright 34%
Own letting portfolio via BTL 38%
Mix, some owned, some via BTL 28%
Sample size: 630

So, whilst the majority, around two-thirds, of landlords do borrow to fund their letting property, a very sizeable minority do not. How does an individual end up in this fortunate minority segment? Well there are a variety of routes to outright portfolio ownership.

Here are the top four reasons given:
1. Purchased properties outright – using previously invested funds 39%
2. Purchased properties outright – using a lump sum (non-invested) 27%
3. Previously had BTL borrowing but fully repaid 20%
4. Inherited letting property(ies) 18%
Sample size: 210, multiple answers permitted

The proportion of unencumbered landlords acquiring property through previously invested funds has been growing consistently over the last couple of years. It’ll be interesting to see whether this trend continues now that the FTSE is showing signs of sustained recovery.

Clearly buy-to-let remains a critical facilitator of the private rental sector, and it’s generally a good time to be a borrower. When asked about the typical interest rate payable on their BTL loan(s) our sample of landlords gave an average response of 3.6%.

One looming issue which lenders and mortgage advisers might want to consider is the extent to which BTL lending ceilings are a constraint on further expansion of the PRS.

One-in-three (32%) borrowers agreed with the statement “I have reached my lending limit (properties/value) with at least one BTL lender” – indicating a need to revisit current lending criteria, in particular for landlords with established, profitable portfolios, who will be the main drivers of PRS expansion across the rest of 2013.

Mark Long is director of BDRC Continental

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