BTL2020: BTL remains attractive investment despite challenging climate

Landlord sentiment around capital gains, rental yields, the UK private rental sector as a whole and their own lettings businesses have all returned to above or close to levels recorded at the end of last year, after falling sharply in Q1.

Only feelings about the UK financial market have remained depressed.

Mark Long, director of financial and business at BVA BDRC, told the Buy to Let Online Forum its research found landlords’ main concerns were missed or unpaid rents, void periods and the ability to manage portfolios.

Void concerns

“Landlords confidence crashed [with the introduction of the lockdown] but there are early signs of recovery,” he said.

“More than half [of landlords] experienced rent problems or unanticipated void issues but landlords are helping where they can.

“One in five applied for a mortgage holiday and a similar proportion intend to do so in the future.”

For half of those who took one, the payment holiday was critical to their business continuity and Long noted there was “quite a lot of compromise to make things work for both parties”.

Around half of landlords approved rent deferments, while more than a fifth had agreed to rent reductions of more than 20 per cent.

There was positive news, with 28 per cent of landlords planning to remortgage this year – a figure unchanged from the end of last year, with most of these being portfolio and limited company investors.

However, Covid-19 debts will cast a shadow over next 12-24 months influencing market activity and future policy decisions.

Reasons to be cheerful

In his talk, Reasons to be cheerful, Craig McKinlay, new business director at Kensington, said brokers and landlords had lots of reasons to feel positive including the performance of buy to let compared to other asset classes, falling product rates and increased opportunities to advise to different segments of the market.

Presenting to property professionals at The Buy to Let Online Forum, McKinlay used an example of a £150,000 investment into shares listed on the FTSE All Share Index between 1995 and 2019.

Over that time, the investment would have grown by 67 per cent. If the same amount of money was used to be an unencumbered buy to let property, between those years, the property would be worth £325,000, an uplift of 116 per cent.

Landlords who used a mortgage to buy the property, which requires them to put less of their own money into the purchase, would see an even greater increase in their initial investment. “This is what we call leveraged investment,” said McKinlay. “And it also shows you the advantage of buy to let over shares.”

McKinlay also highlighted the expansion of several sub sectors within buy to let that created plenty of opportunities for brokers to grow their business. The numbers of older and younger landlords were increasing, he said during his talk, and products to serve both demographics were on the rise.

Falling rates, said McKinlay, were also another reason to be cheerful.

“Rates are still low and have fallen further since Covid as lenders look for solid low risk business,” he said.

“Although landlords have increasing costs in some way, more taxes for instance, and more regulation, the cost of having a mortgage has reduced. That has allowed landlords to maintain their profitability over the last few years.”

In the live chat, McKinlay hinted that Kensington would be announcing cuts to its rates shortly, following the announcement it had recently finalised a securitisation.

Registration is now open for brokers who would like to access presentations and content from the Buy to Let Online Forum 2020 which took place yesterday.
Email lorraine.francisco@ae3media.co.uk to request access.