Buy to Let Market Forum 2019 open for registrations

Buy to Let Market Forum 2019 open for registrations

 

BDRC director Mark Long will open the first two sessions at Manchester and Birmingham while Keystone Property Finance CEO David Whittaker will do so in Cardiff and Reading.

Long will be utilising the latest research to examine the changes and trends in the private rental sector and try to anticipate what might be coming down the tracks in the next 12 months.

Whittaker will be giving an overview of how he sees the market developing and what this means for lenders and brokers.

 

Beware top-slicing and landlord prisoners

The Buy to Let Market Forum is brought to you by Mortgage Solutions and tailored to keep brokers up to speed with the changing market and help maintain and improve business relationships.

The free-to-attend half-day conference brings together a raft of expert buy-to-let lenders and adviser delegates to discuss the key issues impacting the market.

Last year Whittaker warned about the risks of over-using top-slicing deals and to beware of inadvertently creating mortgage prisoner landlords.

Meanwhile, Paragon regional sales manager Andrew Rudkin highlighted why the limited company route may not be right for all landlord clients.

And BM Solutions regional manager Matt Beecham explained how brokers could improve their business by outlining how to successfully complete applications.

 

The Buy To Let Market Forum will be held at:

AJ Bell Stadium, Manchester – 24th April

Aston Villa FC, Birmingham – 25th April

Cardiff City FC, Cardiff – 1st May

Royal Berkshire Conference Centre, Reading – 2nd May

For more information and to register visit the website.

 

Landlords’ business confidence slumps amid rental sector nerves

Landlords’ business confidence slumps amid rental sector nerves

All other key sectors surveyed across the second quarter of the year saw falls in confidence from landlords. (see table below)

The findings are surprising as profitability and yields both remain high; the vast majority (86%) of landlords make a profit from their lettings business.

Almost a third of landlords (31%) generated a full time living from their rental portfolio and more than half (55%) used the income to supplement their day job earnings.

But confidence in short term prospects for their own business and the wider private rental sector both fell 5% (to +36% and +19% respectively) to the lowest levels recorded since the survey began in 2006.

 

Weak tenant demand

One reason for such pessimism maybe be softening tenant demand with almost one in five landlords (19%) reporting a decline.

BM Solutions head Phil Rickards said: “Landlords are feeling somewhat gloomier in the second quarter and we know some are finding it difficult to adjust to the recent tax changes, which is why those with portfolios of more than 11 are most likely to be looking to decrease the number of properties they own in the next year.

“This quarter the report has also highlighted declining tenant demand and a fall in intentions to raise rents. However, even against this backdrop, along with profitability remaining high, rental yields have edged up from the first quarter to 6%.”

 

BMSols-LL-index-Q2

 

Landlord confidence boost not reflected in portfolio plans

Landlord confidence boost not reflected in portfolio plans

The proportion of landlords looking to expand their portfolio has dropped to an all-time low. It stands at 13% – the lowest it has been since research started in 2006.

This is despite measures of confidence stabilizing following last year’s fluctuations. Aside from landlords’ views of their own businesses, levels have returned to what they were in Q1 2016.

The quarterly BM Solutions / BDRC Continental Landlord Panel said the proportion of landlords feeling optimistic about the UK’s financial markets has more than doubled year on year. All other key confidence measures (capital gains, UK private rental sector (PRS) and rental yields) remain stable.

Landlords in the South East are most optimistic about the prospects of their own letting business, with 47%  feeling ‘good’ or ‘very good’ about its prospects, followed by South West (44%). Landlords in Scotland and Wales are the least optimistic, with just over a quarter feeling positive (26%).

Tenant demand continues to soften during quarter one, with 17% of landlords reporting a decline – driven primarily by central and outer London (and to a lesser extent the North East), where the proportion of landlords reporting falling tenant demand now outnumbers those experiencing growth.

In central London almost twice as many landlords are now reporting a cooling in tenant demand compared to those reporting an increase.

However, the average portfolio has risen slightly to 8.1 properties (up from 7.1 properties in Q4 2016).

Phil Rickards (pictured), head of BM Solutions, said: “Despite signs of landlord confidence stabilising this quarter, fewer landlords are feeling optimistic about the prospects for their own businesses. This has driven down the number of those looking to expand their portfolio further to a new all-time low despite the average portfolio creeping up slightly.

“The impact of the tax changes has a natural link to landlord confidence, as the market landscape continues to be reshaped by changes in regulation.”

Perceived and planned rental increases are also down. Just under half (48%) of landlords are seeing rents rise in their area compared to 53% in Q4 2016. Just over four in 10 (42%) have increased rents across their own portfolio in the last year (down by 3% from Q4), with 32% intending to do so in the next six months (down 5% from Q4).

Rickards said the average rental yield remains stable – at 5.8% for the fourth consecutive quarter. “Overall, the market remains robust despite the changes in its environment, with rental yields remaining stable.”

image003 (1)

Landlord confidence hits lowest point since 2006 – research

Landlord confidence hits lowest point since 2006 – research

The lender’s quarterly index with BDRC Continental found that the number of landlords looking to expand their portfolio was at its lowest since research began in 2006.

Positivity was down across all dimensions measured: capital gains, rental yields, UK financial market, UK private rental sector (PRS) and own letting business.

The UK private rental sector recorded the biggest decline in sentiment, down 12% to just 25% who said they feel ‘good’ or ‘very good’ about its prospects.

Tenant demand has also softened, with 14% of landlords reporting a decline in the fourth quarter – the highest level for over five years. However, this is driven primarily by central and outer London, where the proportion of landlords reporting falling tenant demand now outnumbers those who say it is increasing.

Phil Rickards (pictured), head of BM Solutions, said: “Continued economic uncertainty, together with budgetary announcements that may impact on landlords’ profitability have resulted in a general weakening of confidence in the buy-to-let market in the last quarter of 2016.  As a result, the proportion of landlords looking to expand their portfolio has fallen to an all-time low.”

Yet, despite this, Rickards said profitability remains strong and rental yields are stable. “Just over half of landlords are also still reporting a trend in increasing rents in the areas they let.”

Landlord confidence in prospects for capital gains is down year-on-year, but the other four key indicators remain more stable compared to quarter four 2015. Landlords in London and the East of England are the most confident, with those in the North East and Wales the least.

Optimism for own lettings business has also fallen by 10 points to a net +44 from +54 (Q3), with the proportion of landlords looking to expand their portfolio falling to an all-time low of 16%. The average portfolio currently has dipped slightly to 7.1 properties (down from 7.7 properties in Q3).

Regionally, tenant demand is strongest in the East Midlands and South West, with 43% and 40% of landlords respectively reporting a net increase in the last three months. Demand continues to cool most significantly in central London, where 43% report a decrease.

Just over half of landlords are seeing rents rise in their area. Over two fifths (45%) have increased rents across their own portfolio in the last year, with 37% intending to do so in the next six months (up 4% from Q3).

The average rental yield achieved remains stable for the third consecutive quarter at 5.8%.

Tenant demand

Property location

Tenant demand in Q3 2016 (Net increase)

Tenant demand in Q4 2016 (Net increase)

Quarterly change
(% point change)

East Midlands

37%

43%

6%

South West

38%

40%

2%

South East

40%

36%

-4%

Wales

37%

36%

-1%

Yorks & Humber

23%

36%

13%

North West

30%

35%

5%

Scotland

28%

35%

7%

East of England

38%

33%

-5%

West Midlands

36%

27%

-9%

London (Outer)

26%

23%

-3%

London Central3

17%

21%

4%

North East

16%

20%

4%

Source: BDRC Continental

Average rental yields per region

Property location

%

East Midlands

6.7

Wales

6.4

Yorkshire & the Humber

6.1

North West

6.1

West Midlands

6

East of England

5.9

South East (excl. London)

5.7

South West

5.6

Scotland

5.4

London (central)

5.2

London (outer)

5.1

North East

5

 

Source: BDRC Continental

What’s the price tipping point between tracker and fixed-rate mortgages? BDRC Continental

What’s the price tipping point between tracker and fixed-rate mortgages? BDRC Continental

Since 2008, BDRC Continental has monitored whether would-be movers or remortgagors would prefer a fixed-rate, tracker-rate or variable-rate deal for their next mortgage.

Every year, fixed rates have won out over floating rates, a combination of tracker or variable rates. But over time, the strength of preference has increased. Before 2012, about twice as many potential borrowers chose fixed rates over floating rates, a preference that by November 2015 had widened to six times.

In our 2015 study, we asked borrowers’ reasons for their likely product choice:

We also dug a little deeper, asking what their likely product choice would be under different rate scenarios. We compared the same rate for fixed and tracker mortgages versus a fixed rate at 0.25%, 0.5% or 1% above the tracker rate.

Product choice emerged as very rate sensitive. With both products at the same rate, over five times as many borrowers would choose the fixed rate over the tracker. Even with a 0.25% fixed-rate premium, most would still choose this over the tracker, although at a reduced margin of around two to one. Around one in three would choose a fixed rate at 0.5% over the tracker. It was only at the 1% fixed-rate premium that most borrowers’ product preference firmly flipped over to the tracker.

So, the key reason for the appeal of fixed rates is greater control, mortgage payments are more predictable and therefore easier to budget for with a fixed rate deal.

For many borrowers, it is worth paying a bit extra – many would pay a rate premium of up to 0.5% – to get this greater control. It is only when tracker rates are a clear 1% lower than fixed rates that most mortgage seekers would choose a tracker mortgage.

In recent years, the market has been the opposite of this, with fixed rates at or below tracker rates, explaining why the preference for fixed-rate products has firmed so much since 2013. It has been a ‘cake and eat it’ environment in which the control benefits of fixed-rate products have been available at no rate penalty or even a rate reduction.

Landlords set to move investments to limited companies

Landlords set to move investments to limited companies

The report, by BDRC Continental on behalf of Paragon Mortgages, found that as landlords prepare for increased Stamp Duty on buy-to-let purchases and cuts to landlord relief, 41% of landlords are considering moving their portfolio into a limited company.

A further 5% have already established limited companies. For larger landlords with 20 or more properties, 14% are already operating as limited companies, with 63% considering it.

A total of 43% of landlords surveyed believed that the Stamp Duty increase will affect their buy-to-let purchasing plans in the next couple of years. This rises to 63% for landlords with 20 or more properties.

However, demand for rental property remains high as 40% of landlords in the South West reported demand to be rising in Q4 2015. Landlords in the North East experienced the weakest demand, with just under a quarter reporting increased demand in that period.

John Heron (pictured), director of mortgages at Paragon, said: “Recent government interventions into the buy-to-let market are now beginning to impact landlord sentiment and plans. The fundamental drivers of the market, tenant demand and yields, remain strong so there are competing dynamics at play.

“It is interesting to see that concern about the impact of changes to Stamp Duty and tax relief is greatest among larger landlords. This concern is likely to grow now that the government have confirmed that landlords with larger portfolios will have to pay the increased rate of Stamp Duty on buy-to-let purchases.”

However, Rob Jupp, chief executive of Brightstar, said the results were unsurprising and, if anything, this figure may climb even higher.

Landlords adding investments to limited companies

Landlords adding investments to limited companies

The report by BDRC Continental on behalf of Paragon Mortgages found that as landlords prepare for cuts to mortgage interest relief which will be phased in from next year, 41% of landlords are considering moving portfolios into a limited company. A further 5% have already established limited companies. For larger landlords with 20 or more properties, 14% are already operating as limited companies, with 63% considering it.

The government recently confirmed that larger portfolio landlords and limited companies will not be exempt from the 3% Stamp Duty premium, which comes into effect today. BDRC’s research showed that 43% of landlords surveyed anticipate that the surcharge will affect their buy-to-let purchasing plans in the next couple of years. This rises to 63% for landlords with 20 or more properties.

However, demand for rental property remains high – 40% of landlords in the South West reported demanding to be rising in Q4 2015. Landlords in the North East experienced the weakest demand, with just under a quarter reporting increased demand in that period.

John Heron, director of mortgages at Paragon, said: “Recent government interventions into the buy-to-let market are now beginning to impact landlord sentiment and plans. The fundamental drivers of the market however – tenant demand and yields – remain strong so there are competing dynamics at play.

“It is interesting to see that concern about the impact of changes to Stamp Duty and tax relief is greatest among larger landlords. This concern is likely to grow now that the government has confirmed that landlords with larger portfolios will have to pay the increased rate of Stamp Duty on buy-to-let purchases.”

However, Rob Jupp, chief executive of Brightstar, said: “I find the results unsurprising and if anything, this figure might be even higher,” he said.

Advisers: Your market share best is yet to come – BDRC

Advisers: Your market share best is yet to come – BDRC

“Most of our people have never had it so good”, Harold Macmillan, 20 July 1957.

Fifty years after our then Prime Minister’s famous sound bite, the same was true for UK mortgage intermediaries. Following over 20 years of long-term growth in their share of new mortgage business, the peak was reached in 2006-7, when intermediaries placed 57-58% of all new UK mortgages.

Then the sky fell in. The years from 2009 were extremely difficult, with intermediaries’ share of new business falling as low as 45%. Many went out of business; others soldiered on, making little or no profit. Since 2011, the intermediary channel has risen phoenix-like: by 2015, a record 59% of new mortgage takers reported using the intermediary channel, helped by the impact of the Mortgage Market Review.

Our monitoring of consumers’ future intentions suggests that there is further growth to come: between 2014 and 2015 there was a 10 percentage point rise in the share of future mortgage seekers intending to use an intermediary. The key drivers for consumers choosing the intermediary channel are ‘better deals’ and ‘better/independent advice’. The main perceived advantage of going direct is ‘no/lower fees’. Not offering advice can hit direct lenders hard: only 11% of mortgage holders like the idea of arranging a mortgage purely online versus 46% who dislike that idea (the rest don’t mind either way or have no clear views).

Intermediaries themselves have confirmed a sea change to us in their fortunes over recent years. Comparing our 2015 and 2011 studies:

While the average intermediary’s annual case load remains 15% below the 2007 peak, things have hardly ever been so good. As one said: “People need professional advice from a mortgage adviser. The banks are getting out and people are seeking advice from mortgage brokers.”

A taxing time for landlords? BDRC Continental

A taxing time for landlords? BDRC Continental

In Q1 2015 BDRC Continental’s Landlords Panel research indicated that the Tories could count on electoral support from the majority of private landlords (57%). The Labour party’s pre-election policy announcements had reduced their backing to just 9%.

However, in the July Budget, Chancellor Osborne made a series of policy announcements which may well have levelled the playing field considerably.

In addition to adjustments to ‘wear and tear’ allowances on furnished rental properties, the Chancellor capped the amount that landlords can claim in buy-to-let mortgage interest tax relief. Not all landlords borrow, but the vast majority (77%) do. One third are higher rate tax-payers, the group most affected by the new rules being phased in from 2017. To say that reaction is negative would be a huge understatement.

Our latest findings show that:

For lenders and tenants alike, the consequences of the 2015 budget are likely to be felt more acutely over the coming months and years. Our Q3 Landlords Panel survey took place some eight weeks after the budget, time enough for the policies to have been absorbed and well understood. Combined, they have acted to drag landlord confidence from a record high in Q2, pre-election, to levels not seen since the dark days of 2008. Not what George intended I’m sure.

The future of the UK’s private rental sector – BDRC

The future of the UK’s private rental sector – BDRC

The Tory housing promise

The Conservative manifesto pledged to build 200,000 starter homes and 275,000 affordable units during the next parliament. It also promised that everyone who wants to own their own home should have the ability to access home-ownership. Champions of the Right to Buy scheme, the Conservatives plan to extend their policy of topping up deposits with government funds and to support savers’ efforts with the first-time buyer ISA.

Some 10,000 homes are also to be made available at sub-market rents to speed up first-time buyers’ saving potential. Add to this the intention to build starter homes specifically for first-time buyers and to sell them at a 20% discount, and it seems government support for getting on the ladder has never been so good.

Nothing for the Private Rental Sector?

For those in areas where both rents and capital values are rising quickly, these measures cannot come soon enough. Such policies will no doubt help thousands of first-time buyers to achieve their aim of being home owners during this parliament. With all the emphasis placed on home ownership, however, the conservative manifesto offered nothing for those who choose to rent or are unable to benefit from the first-time buyer options.

There will remain a large and growing section of society who will still not earn enough to meet lenders’ expectations of mortgage security. With capital values rising way ahead of wages, these people will not be able to save a deposit quickly enough to benefit in the next five years.

The Verdict?

Assistance for first-time buyers should not be seen as the tap being turned off in the rental market. Quite simply, building at the levels the Conservatives aspire to and the prioritisation of first-time buyers for new houses will not eradicate the supply/demand imbalance. Indeed, if anything, the focus on new builds ignores the growing importance of the private rental sector (PRS).

Delivering additional new-build units, although needed, will not directly extend the supply to the PRS. Our latest Rent Check report found that only 8% of all private landlords looking to expand their portfolios would consider purchasing a new build property for the purpose of renting.

Mark Long is director of BDRC Continental