High yields, low interest rates and strong demand for rental property are tempting many investors back into the buy-to-let market. Many individuals see property as a low risk alternative to investing in traditional equity based pension funds.
However over the recession many first-time landlords found their ‘business model’ was not robust enough and struggled to make the expected financial returns. For example rental void periods were underestimated and tenant credit worthiness was not rigorously checked.
Now, growing confidence in the housing market has resulted in a further surge in new first-time landlords, with 38% of advisers seeing more business from new landlords. One-in-five mortgage advisers have also seen ‘boomerang’ landlords return to buy-to-let in 2013 after exiting the market during the property downturn. As a result, 72% of advisers have seen increased business from buy-to-let in 2013.
Experience has shown that first-time landlords need help with the risks in what is essentially a property investment and lettings business. The adviser is best placed to give this advice and help the landlord reduce and manage the risks.
This provides opportunities for the adviser in addition to advising on the mortgage to both develop on-going customer relationships and recurring income streams as investors increase and change their property portfolios over the years.
A key element for the landlord in managing the risks of property investment is getting the right mortgage to fit with their investment plans and containing the right mix of flexibility and affordability.
The boom in buy-to-let has created a wide choice of niche mortgages and a constant stream of changes in lending criteria, such as TMW’s recent decision to accept 36 month tenancies. The good news for the adviser is that a wide range of underwriting criteria means most landlords need mortgage advice.
Technology providers have responded to this growing market by developing niche sourcing tools to help the adviser research the market as efficiently and thoroughly as possible.
Providing this expertise presents further opportunities to sell ancillary services, alongside the mortgage including tenant credit referencing, landlords insurance and rent guarantees.
These services are increasingly being provided to advisers by leading insurance distributors. In addition, specialist conveyancing services are often needed by landlords when for example leasehold property is involved.
Through these ancillary services the adviser can help the landlord mitigate risks and maximise returns from their buy-to-let investment. The adviser can potentially double their income over a 10-year period from cross-selling these ancillary services whilst building stronger ongoing client relationships and increasing the potential for new business from the landlord as buy-to-let portfolios change and grow in the future.
Getting the right mortgage which fits the needs of a landlord still remains the core area of advice for a mortgage adviser. However ancillary services such as landlords building insurance, rent guarantees, credit referencing and conveyancing increasingly are being recognised as great opportunities to help the first-time landlord avoid the mistakes of the past, reducing risk and getting their property investment to deliver the best financial returns possible.
