How many articles have you seen and read about the increasing ‘professionalisation’ of the sector? Of the decline in ‘dinner party’ landlords? An odd phrase we’ve never quite got to terms with, but there you go. Or of more landlords treating their property portfolio as a business? Or of the sector as a whole moving towards a much more professional and portfolio approach? Answer: lots.
And yet, there are some nagging issues in mortgage market circles which don’t show this progression at all. Which do not really acknowledge it. Which treat landlords and buy-to-let like it is somehow still 2008/2009, like it is still a sector dominated by individuals with one or (at most) two properties, who come with huge risks and should be treated as the riskiest of all potential borrowers.
Just recently, we were asked to cast our eye over the product ranges of various buy-to-let lenders, particularly the larger banks, the high street operators who provide finance to landlords.
What is downright surprising – especially in 2022 – is just how many of these do not lend to limited company buy-to-let borrowers, preferring only to lend to individuals investing in property. This, despite the sector, moving in this direction ever since the cuts to mortgage interest tax relief and the changes to stamp duty.
All advisers will be acutely aware of the benefits for landlords in purchasing via a limited company – hence the huge increase in this type of borrowing, and a much larger specialist lending product range aimed at this borrower. However, when it comes to more ‘mainstream’ lenders active in the buy-to-let space, there is still a reticence to go there.
Do they deem limited company borrowers more risky? If so, why? After all, when it comes to the provision of mortgages to this demographic, they are doubly safe – not only do you have the company guarantee, you also have the personal one of the director(s).
Portfolio landlords are less risky and expected to increase
Talk to a portfolio landlord – with perhaps 30/40 properties within a portfolio – and they are often staggered that, due to this lack of limited company lending by the mainstream – they are often having to pay twice as much in interest costs compared to the rates they offer to individual landlord borrowers.
Again, this is despite the fact that the risk is less. A portfolio landlord with those number of properties could have 10 properties vacant and still cover all the mortgage payments of the entire portfolio.
Compare that to an individual landlord, with one or two properties, for whom a vacant property may well mean they can’t cover the mortgage payments of one or either.
So, why steer clear of a sector of the market which has grown significantly, is likely to grow, and in all honesty, represents less of a risk than the ones you are currently active in? Perhaps it is purely down to the legacy systems and processes they have in place? Perhaps they don’t want to spend the time or the resource on updating the systems in order to work with limited company landlord borrowers? Perhaps what works for them now is deemed enough, because there are enough individual landlords to service?
It seems like an odd and somewhat dangerous game to play. If the buy-to-let sector is becoming more professional and limited company buy-to-let is likely to grow further and dominate, then at what point do you acknowledge and recognise that demand and need? When you’ve run out of individual landlords to lend to? A point when it will be too late to change tack, because the market will be far in advance of your offering? At that point it really will be too late.
Activity within the private rented sector and the notion of buy-to-let investment has already changed significantly. Landlords take this seriously and use limited company vehicles seriously – it would be a real positive for the market if a number of large-scale mainstream lenders did the same.
