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.
“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 firstname.lastname@example.org to request access.
Chancellor should have axed stamp duty surcharge to help boost rental supply – Rowntree
I appreciate there is little political capital to be gained by supporting buy-to-let investors and, of course, the government does not want landlords competing head-on with first-time buyers for the same property.
However, including this group fully in the holiday would have achieved two important goals: oiling the cogs of the housing market by attracting more participants; and boosting the supply of rental property in areas where it is much needed.
Our analysis has shown that the stamp duty surcharge for buy-to-let introduced in 2016 disproportionately impacted new purchases by landlords in areas with above average property prices, predominantly in southern regions and more acutely in London and the South East.
Removing stamp duty for properties below £500,000 will not necessarily help those who live in these regions and aspire to move onto the property ladder.
The average property price in these regions takes home ownership out of the reach of many people and first-time buyers were already exempt up to £300,000.
Increased demand for renting
Southern regions have the widest average earnings to house price ratios, meaning more people rely on rented property.
Even with government support packages, the average property price in London remains 12 times average earnings and it is 10 times in the South East. The picture is not much better in the South West or East of England.
With the availability of higher loan-to-value mortgage deals reducing for first time buyers – making it harder to buy a home – we expect increased demand for rented property.
People are also likely to delay house purchase decisions until they have a clearer understanding of the state of the economy and job security.
We have started to see rent price inflation creep up in certain regions as the undersupply of new rental homes bites – Zoopla reported at the turn of the year that new supply of property for let in London was at a two-year low.
The stamp duty surcharge introduced in 2016 had a material impact on landlords’ appetite and ability to purchase new property, but more so in the South where it is more expensive to buy property.
A landlord buying a property in the North West at the Office for National Statistics December 2019 average property price of £164,893 would pay £5,744 in stamp duty before this reduction.
In contrast, a landlord in London buying a property at the average price of £478,576 would pay £28,286.
Today, the North West landlord would see their cost reduce to £4,946, whereas the London landlord’s tax bill would halve to £14,357.
This clearly makes new acquisition a more attractive proposition but removing the stamp duty surcharge altogether for a temporary period would have provided a stimulus for buy-to-let landlords to invest further in these regions and provide the good quality homes the private rented sector needs.
Constraining private rented supply at a time when it is more difficult for people to get on the housing ladder risks certain groups being priced out of both home ownership and rented property.
Gatehouse Bank appoints John Coles as asset manager
He has joined from Hearthstone Investments, where he was an investment manager for two year, and was responsible for a fund aimed at developing a portfolio of privately rented properties in the UK.
Coles (pictured) began his career as a surveyor, before moving to Mapeley Estates in 2014 where he worked as an asset manager for four years.
Gatehouse’s real estate investment advisory team sources, manages and advises on investments across the UK including build to rent schemes and private rented sector (PRS) properties.
In his new role, Coles will support the build to rent team in growing its portfolio of single family units and assist in the expansion of the bank’s PRS business and build to rent funds. He will report to chief commercial officer Paul Stockwell.
Stockwell said: “I am delighted that John has joined Gatehouse Bank, his expertise and experience in the build to rent sector will make him a great asset to the team.
“Gatehouse’s activity in the private rented sector and specifically the build to rent market has been expanding rapidly over the past few years, and 2020 is on course to be another busy year for the bank.”
Coles added: “Gatehouse has a proven track record of delivering and managing PRS and build to rent schemes.
“With both sectors expected to continue expanding over the coming years, this is an exciting time to join the bank’s real estate team and be a part of a growing market.”
Lenders are delving deeper into landlords’ personal income and job stability – Aldermore
Speaking at The Buy to Let Online Forum yesterday, McCullough, national sales manager, intermediary mortgage distribution, said lenders had become more forensic in their assessments of non-rental earnings to make sure there was spare cash to cover void periods.
Research carried out by BDRC BVA found that 1.7m renters expected to lose their jobs because of coronavirus. Furthermore, the National Resident Landlords Association found that 44 per cent of landlords had offered to help their tenants in some way, either by offering payment holidays, lowering or deferring rent.
Against this backdrop, lenders want to make sure landlords have a well thought through plan to continue paying their mortgage if the tenant is unable to do so, now and in the future.
McCullough said: “Lenders and brokers need to be very clear on landlords’ personal income circumstances. Lenders are going to start looking at this in more detail so if there is an apparent risk of voids people have sufficient income to plug those gaps and also mitigate circumstances that could affect them in the future. Lenders are looking closely at that so brokers should do that too.”
Lenders are also getting deeper into a landlord’s employment situation, said McCullough.
“The income might look strong but is the employment secure?”, he said. “Or what if they are self employed? Have they had to stop trading in their current line of work?”
In the past, if a landlord was experiencing voids, or they anticipated a period of time where the property was not going to be tenanted, lenders would ask for this to be covered off in the business plan. Lenders have now become stricter on this point, said McCullough, and want to see evidence to support their plan.
To help brokers, Aldermore has put together a ‘crib sheet’ so they can cover off the new requirements with their clients.
Business plans could now become commonplace for all landlords, not just portfolio investors, he added. Aldermore is asking all landlords to supply a portfolio schedule and a business plan when they apply for a mortgage.
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.
The forum was Mortgage Solutions’ first online event, including live streamed speakers and attracted nearly 1,000 pre-registered attendees.
Anyone who missed out attending on the day can access resources and watch speakers for up to six months.
BTL2020: HMOs have required fewer payment holidays – McDowell
However, a survey of landlords conducted by the lender discovered administering HMOs can take four times the work of a standard buy-to-let property.
Speaking at the Buy to Let Online Forum, the lender noted that its HMO portfolio had been much less likely to require landlords to take payment holidays.
Charles McDowell, managing director of specialist mortgages at HTB explained the situation while discussing the pros and cons of HMO ownership.
“During lockdown, the HTB HMO portfolio has required much less support in terms of payment holidays than the rest of the portfolio,” he said.
“And we’ve had strong demand which is increasing. I think post-Covid we are going to see increased demand for HMOs.
“HMOs are not what they used to be, they are great assets, fantastically well furnished with a high calibre of tenant. But there are cons.”
McDowell also explained some of the main benefits and drawbacks of other specialist properties such as short-term lets and semi-commercial units, including likely workload and yields.
Content from the event will be available for delegates to return to for up to six months.
If you are interested in accessing the content, please email email@example.com for more details.
For more information visit the website here.
MCI adds Zephyr to lender panel
The move will give all members of MCI Club access to Zephyr’s range of buy-to-let deals, including limited companies, houses in multiple occupation (HMOs), multi-unit freehold blocks and flats above commercial premises.
Loan to values (LTVs) are available up to a maximum of 75 per cent with a maximum loan value of £750,000, and up to 70 per cent LTV for properties up to £1m.
Specialist products, including new builds have a maximum LTV of 70 per cent and a maximum loan value of £750,000 within the M25, or £500,000 outside the M25.
Melanie Spencer, head of MCI Club, (pictured) said: “The rental market continues to be an attractive market for property investors, especially post-lockdown where a surge in demand has already been observed.
“By adding Zephyr to our panel, our members have a wider set of product options to service their investment clients whether they are looking to expand or restructure their portfolio.”
Paul Fryers, managing director at Zephyr, added: “We’re really pleased to be able to join the MCI Panel and bring our range of buy-to-let products to MCI Club members.
“In light of the unprecedented events of this year, it is more important than ever that distributors and lenders work closely together to provide access to the broadest range of mortgage products and insight to brokers.”
Holiday lets could be a safer BTL option – Harpenden BS
Reductions in the hospitality sector, travel bans, limited air travel and, indeed, fear of catching the virus itself will severely limit UK citizens’ desire to travel abroad.
Considering the continued unpredictability around overseas travel, there is strong evidence to suggest that UK holidaymakers will look to stay closer to home this summer and beyond.
Harpenden Building Society has experienced a noticeable surge in holiday let inquiries since the pandemic began.
At a time where people wish to minimise contact with others and journey to more remote parts of the country, this is a prime opportunity for the holiday let market.
Holiday-lets had risen in popularity even before the pandemic hit.
Increased taxation and regulation around buy-to-lets had led buyers to transfer their attention to holiday-lets for alternative sources of income.
Additionally, the popularity of websites such as Airbnb has increasingly led to a global demand for self-catered accommodation.
Rise of staycations
A survey from Lastminute.com showed that 33 per cent of British people intended to remain in the country this summer.
Depending on how long the pandemic continues, there is evidence to suggest this could be part of a far longer trend.
The lack of opportunity for a foreign holiday has led Brits to consider the wealth of vacation opportunities within the UK.
Holiday cottage agency Cornwall Cottages stated it had seen a sharp increase in demand for properties.
Lastminute.com said the hotel booking trends showed a 45 per cent week-on-week increase for the UK and particularly for London, Manchester, Blackpool and Bristol during summer and autumn.
The fact that booking interest extends beyond the summer suggests the staycation trend will not be confined to the warmer months.
Hoseasons reported a significant increase in holiday lodge bookings for the summer with its Norfolk Broads bookings up 28 per cent year-on-year, a trend likely to increase even further as a result of the pandemic.
Indeed, in mid-June it said internet searches for lodges in Norfolk had increased by 21 per cent and in Suffolk by 30 per cent since the government eased certain restrictions.
Holiday lets a safer option?
People who would never have considered foregoing their annual holiday abroad are suddenly realising the multitude of options available on their doorstep.
While investing in the property market may seem daunting considering the current sense of global unpredictability, holiday lets could be in a strong position if the pandemic continues.
Unlike traditional hotels, they can offer minimal, if any, contact between hosts and guests.
They can also provide an alternative residence for longer-term stays, such as over the summer holidays, if tenants are struggling with a lack of space in their primary homes.
And they additionally allow the buyers themselves to take advantage of a secondary location.
Foundation expands BTL and The Nottingham launches limited company deals – round-up
Foundation Home Loans has returned its buy-to-let range to its pre-lockdown offering and reduced rates on a number of products.
The lender has reintroduced its large loan, early remortgage and short-term let products up to 75 per cent loan to value (LTV).
The large loan mortgage is a five-year fixed available up to 65 per cent LTV with a rate of 3.29 per cent and the early remortgage deal is a five-year fixed, up to 75 per cent LTV with a rate of 3.65 per cent.
The short-term let product has a two- and five-year fixed offering with rates of 3.99 per cent and 4.64 per cent respectively. Both are available up to 75 per cent LTV.
These products have seen rate cuts of up to 0.4 per cent from what they were previously and are available to the lender’s F1 borrowers, which is aimed at those who require larger loans.
Jeff Knight (pictured), director of marketing at Foundation Home Loans, said: “It’s fair to say that the buy-to-let market is in a different place to where it was at the start of the year, but with each week we are marking that return to a ‘new normal’ and we are offering our adviser partners access to a wide range of products for their clients.
“We’ve seen a strong demand from intermediaries who say there are many landlords who want to make the most of the opportunity, refinancing in order to fund future purchases, and looking at diversification of their portfolios. These products will allow them to do that.”
The Nottingham launches BTL limited company range
The Nottingham for Intermediaries has released buy-to-let mortgages for clients borrowing through a limited company.
The products are available for purchase and remortgage at 75 per cent LTV.
This includes a two-year fixed at 3.05 per cent with a booking fee of £299 and arrangement fee of £700. The fee-free option has a rate of 3.45 per cent. The five-year fixed option has a rate of 3.75 per cent with no fee, and 3.55 per cent with a one per cent arrangement fee.
Partnerships or LLPs will not be considered and a maximum of four directors will be accepted.
Rental income must cover at least 125 per cent of the monthly interest payment on an interest-only basis and the mortgage payment is calculated at 5.5 per cent.
As Britain prepares to build its way to recovery, what’s next for buy to let? Paul Brett
The medium to long term outlook is likely to be positive for the private rental market. It will undoubtedly get more challenging for people to get on the housing ladder over the next few months and years.
As the furlough scheme unwinds, there will inevitably be more redundancies and people will find it harder to move home; this will clearly increase the demand for homes to rent.
As lockdown lifts we may also see a rise in the divorce rate if the UK follows the pattern of many of the other countries coming out of lockdown.
This will also drive people to move home, not all of whom will either be able to afford one or get the mortgage that accompanies it. This will also drive demand in the buy-to-let space.
Short term consequences
But it will be a mixed view for landlords in the short term. Students will not go to university in September in the volumes that they did before, with many postponing their places for a year and some courses going online, this may well lead to a dip in demand for rentals in student towns.
On the other hand, professional working people who can no longer afford to get a single flat or house to rent, may well look to houses in multiple occupation as a more affordable housing option over the next year.
Other differences we could well see is a change in use of city centre premises. It seems unlikely that all the companies that have operated from city centre offices will continue to do so. As home working has become a way of life some firms, such as Twitter,which has announced that it will allow employees to work from home forever.
With the PM’s ‘build, build, build’ speech also revealing that commercial premises can now be converted to residential without planning permission, property investors will seek to take advantage of this. Premium city centre sites could well become desirable new living accommodation.
The fact that this government is recognising the housing shortages, that we have all been talking about for decades, has to be good news if it is followed up with the promised relaxation of the planning laws.
This should help not only those wanting their own home but also landlords and investors while providing far more accommodation in the private rental market.
‘Incredible margins’ for holiday let business could tempt lenders to return
However, it is also one with significant risk attached to it which means many lenders are likely to hold off their re-entry until a potential second Covid-19 wave has passed.
In the space of a 15-minute announcement from prime minister Boris Johnson last week, the English holiday let market went from stone dead to red hot, with reports coming through of campsites, bed and breakfast and other accommodations booked up for months within hours as people seek a post-lockdown escape.
Lenders have reciprocated to a certain extent by re-entering or launching into the market, but there is still some uncertainty abound.
Brilliant Solutions managing director Matthew Arena said prior to the announcement demand for these mortgages was low, but enquiry levels have risen notably since.
“Whether it is your Airbnb-style or a more traditional holiday let, demand is incredibly high following the recent announcements,” he told Specialist Lending Solutions.
“With so many people furloughed and clouds over future employment prospects, staycations are surely going to see a big increase in popularity.
“All the signals are positive in this space, everything that is apart from the world’s great unknown, the infamous second wave.”
Many holiday lets are booked through sites that permit short notice cancellations and while demand is high now, in such a volatile environment it could all so easily be turned off immediately.
Lenders who can understand and accommodate that situation could do well, but it needs that expertise.
“Asking lenders to make a risk assessment in that environment is incredibly difficult, that said, the fundamentals all look really strong at the moment,” Arena continued.
“That takes us to a place where those that can apply underwriting assessments that factor in the borrower’s ability to manage short term issues should be able to build a strong mortgage book of performing loans at some incredible margins.
“The flip side is, why would you take on the extra risk unless you had to? This level of risk versus reward lending is where you are seeing the experienced lenders return to the sector with tighter criteria to reflect the new conditions and increased pricing too.”
He noted this included Swansea Building Society, Principality Building Society and Furness Building Society.
“We have also seen the entry in the market from Roma, a lender that specialises in higher risk loans and is prepared to take a view on pricing for risk in a market that has understandably seen so many withdraw.
“While the sector should continue to defrost, only those experienced in the sector and hungry for margin will return in the foreseeable, if you are not in those camps then it is simply not worth considering. Expect a significant return when the risk of the second wave abates,” Arena added.
Being able to identify and understand the business sustainability of prospective holiday let borrowers will be vital for lenders to understand the risk they are taking on.
Running properties correctly
Connect Mortgages CEO Liz Syms is well positioned to understand this and how the market has been affected as she owns holiday let properties herself.
“Bookings have been cancelled and either rescheduled till next year, or payments refunded,” she said.
“Mortgage holidays have been of assistance, however, while the properties have stood empty, there have still been ongoing costs such as bills for utilities to continue to pay.
“That said, those that have been running their holiday let properties correctly as an official holiday let business as per HMRC requirements will have benefitted from government support.
“This includes the waiving of the business rates, and also the government grant of £10,000 per property,” she added.
Time for lenders to return
Syms too said she has seen bookings starting to fly in again for dates from July onwards when the restrictions will be lifted, and believes this gives an overall positive air to the market and demand for lending.
“I expect the UK holiday let market to now get very busy again while there are still problems and caution around going abroad,” she continued.
“Therefore, now would be a good time for lenders to come back to lending in this market.”