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Buy to let will get more complex as landlord attitudes shift – Cox

by: Steve Cox, chief commercial officer at Fleet Mortgages
  • 17/04/2024
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Buy to let will get more complex as landlord attitudes shift – Cox
‘Horses for courses’, ‘cutting your cloth accordingly’ and ‘make do and mend’ could all be used as phrases to sum up what landlords have needed to do over the past few years, particularly in light of the shifting interest rate environment and the increase in costs they would have seen as a result.

Which, of course, is not to say that they’re not as committed to the private rental sector (PRS) as they have always been – particularly professional players – but it does mean they may have needed to look at their investments in a different way, to reshape their portfolios in order to meet these challenges, to stay invested and keep making a profit. 

And that is not as easy as it might sound. As we have seen, a number of landlords – particularly those with one or two properties – have found their involvement in the PRS to be unsustainable.  

Even for those seasoned landlords, it may well have required moving into different areas of the sector – holiday lets, for example – or it will have required them disinvesting some properties in order to keep the portfolio profitable.  

What is interesting here – in terms of ongoing landlord approaches to their PRS investments – is how they are shifting to properties that are likely to be bringing them in higher yields. 


Increasing complexity not a shock 

Again, this is perhaps no surprise, and it has been a narrative for the sector for the past few years, but we have certainly seen a noticeable increase in this type of activity over the past 12 months.  

It should be instructive to advisers because they will certainly need to have stronger knowledge, relationships and interest in the more complex areas of buy to let as a result. 

Fundamentally, it’s what we should all have expected in not just a higher interest rate environment that produces higher mortgage costs, but also higher costs for landlords right across the board, whether that is maintenance costs, costs to up energy efficiency within homes, meeting licensing costs, perhaps they have been part of a rent control region, etc. 

This has all added up to a hit to profitability and, in order to stay invested, landlords are having to ‘cut their cloth accordingly’ and, where possible, either shift existing properties into, for example, houses in multiple occupation (HMOs) or multi-unit blocks (MUBs), or, when adding to portfolios, concentrate on those properties that can deliver higher yields. 


More interest in complex buy-to-let investments 

Our figures show a clear movement in the HMO direction. Looking at the loan origination detail by property type per quarter, we can see that for houses in particular, a bigger percentage of these are now being bought or refinanced as HMOs. 

Back in Q3 last year, the percentage of HMO houses was down at 14%, however in the first quarter of 2024, this had increased to 22%. And we can see a similar trend across all property types.  

In Q3 last year, the proportion of HMOs across all properties was just below 10%; in Q1 this year, it had risen to over 14%.  

It tells us that landlords want to maximise rental yield, and they understand that it is properties such as HMOs or MUBs that allow them to do this. Plus, of course, they are also reacting to the increased demand from tenants for private rented property at a time when supply has not been able to keep pace with that demand, or indeed with population growth, or the inability of people who might wish to buy to be able to do so, or indeed the increased demand for renting anyway. 

For advisers, it therefore makes perfect sense to ensure they are at the top of their game when it comes to the more complex areas of the specialist buy-to-let market.  

Our borrower type is split between two-thirds limited company/one-third private investor. So, it’s increasingly likely advisers will be dealing with limited company landlords with bigger portfolios – our average is 11 properties per landlord – who increasingly need finance for HMOs/MUBs, or who are looking to potentially redevelop existing properties, or looking to move into different sectors, or looking to diversify across the country, or all of the above. 

In that sense, it’s going to be increasingly important for advisers to be specialists in all of these areas as well, and to have strong working relationships with lenders who also specialise here.  

Buy to let continues to grow in complexity, and so do the needs of landlord clients – make sure you’re able to service those needs, and you’ll be in a strong position to grow your business alongside that of your clients.  

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