The latest research by Deposit Replacement Scheme, Ome, has found that the impact of the Coronavirus could cost buy to let landlords nearly £14.9bn should tenants be unable to pay rent during the three month support period announced by the government yesterday.
Last night the government announced that they would suspend new evictions and halt new possessions proceedings to the court while the Coronavirus crisis persists. They have also protected landlords as well as tenants with a three-month mortgage payment holiday on buy to let mortgages.
However, if tenants simply can’t pay, this holiday will do little to help landlords who will still have to pay once the three months is up, with or without the rental income from their tenants.
Ome’s research shows that there are 5.2m households currently within the private rental sector alone and without the ability to work and pay their rent, the buy to let sector could see a loss of £4.97bn every month based on the average monthly rent of £955 alone. Over three months this climbs to a huge £14.9bn.
Nationally, this lost income is highest in England with potentially £11.6bn lost in rental income, while London is home to the biggest sum regionally with a potential £4.9bn lost in three months alone.
What does this mean for the average landlord?
There are some 2.6m landlords operating within the UK buy to let sector meaning the average landlord has a portfolio of two rental properties. With an average rent of £955 and a loss of three months’ rental revenue across both properties, they could be facing an individual £5,730 shortfall in rental income.
With a ratio of 2.1 properties per landlord in Scotland, the loss is at its greatest at £6,146 over three months with Northern Ireland also high at £6,083.
Not only does this huge sum have implications on a sector that has already seen its financial return stretched by the government, but it could see tenants out of pocket even further should landlords look to keep their tenancy deposit to account for lost rental income.
Co-founder of Ome, Matthew Hooker, commented:
“It’s great news that the government are providing some financial respite for the nation’s landlords, however, it’s more of a weekend away than a holiday and once expired, UK landlords are still facing the cost of a buy to let mortgage without the rental income to pay it.
It’s by no means the fault of the tenant if they are unable to pay but there is a very real chance that landlords will turn to the rental deposits at the end of a tenancy in order to recoup this lost rent. While this would be unfair on a tenant who has otherwise kept the property in good order, it may well be the case that landlords are simply left with no choice.
The silver lining at least is that hopefully, not all tenants will be unable to pay their rent and so this sum of lost rental income should reduce, but whichever way you look at it, the UK rental sector is in for a tough few months.”
Recent research reveals thousands of landlords have switched from long-term to holiday letting, but will they be better off financially?
Over the past three years, landlords have gradually lost the ability to deduct mortgage interest costs from their turnover before calculating their tax bill.
From April, they will not be able to deduct any finance costs from their property earnings and will instead receive only basic-rate tax relief on these costs.
The tax change, together with a number of regulatory changes in the sector, including the Tenant Fees Act, has led many landlords to consider selling their properties.
Others, however, are instead looking to switch strategy with holiday or short-term letting becoming one of the key areas of interest.
According to a report by letting agent professional body ARLA Propertymark earlier this year, nearly 50,000 properties have been changed from long-term letting to short-term letting.
Its research, which was carried out by Capital Economics, found that a further 10% of landlords were considering offering short-term lets in the future.
What’s the appeal?
There are several reasons landlords may be thinking about holiday lets but a big one is tax.
Subject to meeting certain criteria, properties used as holiday lets are still able to deduct all of their mortgage interest and other finance costs from their turnover before calculating the tax liability, which used to be the case with buy-to-let properties.
Bev Dumbleton, chief operating officer at Sykes Holiday Cottages, says the holiday rental agency is seeing a growing number of landlords move into holiday letting for this reason.
“Stringent tax rules on buy-to-lets, phased in from 2017, have made it increasingly difficult to turn a profit,” says Dumbleton.
“This is only going to get worst for landlords.”
Nick Morrey, product technical manager at broker John Charcol, believes those switching to holiday letting are also motivated by the growing staycation trend.
“Thanks to Brexit, the UK is becoming a more popular holiday destination and demand for holiday lets is likely to increase and already has been since the referendum,” says Morrey.
Another factor driving landlords to change strategy is the Government’s plan to abolish Section 21 evictions.
Many landlords are concerned they will be stuck with difficult tenants for long periods of time once this change comes into force.
“With longer term lets, it can be riskier taking on tenants if they don’t turn out to be quite what you hoped,” says Dumbleton.
“Landlords may find themselves stuck in a binding contract when things aren’t ideal.”
Although frequently dubbed ‘no-fault’ evictions, landlord groups such as the National Landlords Association (NLA) have warned that landlords are typically using Section 21 to evict tenants who are not paying the rent or causing damage.
There is another process that can be used in these circumstances – a Section 8 eviction – but NLA research has shown landlords do not believe this process works.
How do the numbers stack up?
In many areas, it tends to be more lucrative from a rental income point of view to rent properties out on a short-term basis.
But costs and managing agent fees also tend to be higher for holiday lets, so the overall financial picture in many cases was not different enough to warrant the extra hassle for many landlords.
With the tax disparity added into the mix, this may no longer be true, especially for higher rate taxpayers.
Example one: a holiday hotspot
We crunched the numbers on a two-bedroom holiday let in popular seaside town Whitby to see whether a landlord would end up with more money in their pocket via buy-to-let or holiday let.
Rental income figures for buy-to-let taken from home.co.uk; for holiday let provided by Sykes Cottages.
Mortgage rates provided by John Charcol – 2% for buy-to-let; 3.3% for holiday let, based on a five-year fix at 75% loan-to-value (LTV) on an interest-only basis. Figures based on the average flat value in Whitby of £118,643, taken from home.co.uk.
Commission rate estimated at 12% including VAT for buy-to-let; 24% including VAT for holiday let.
Other running costs estimated at 10% for buy-to-let; 20% for holiday let. Based on a tax rate of 40%.
Example two: a city centre pad
We also crunched the numbers on a city short-let in Fairfield, Liverpool, using data provided by short-term letting agent Portico Host.
In this example, we used Portico’s rental income and average house price data for this area (£126,779), which was based on AirDNA, Rightmove and Land Registry data.
We made the same mortgage, commission, running costs and tax assumptions as in the Whitby example.
The bottom line
As it can be seen in the scenarios, in both cases, a landlord would be better off renting a property on a short-term basis rather than on a long-term one, albeit only slightly in the Whitby example.
But while a city-centre property might be more lucrative, a seaside hotspot might be more appealing for those looking to use the property themselves or retire there in the future.
It’s worth pointing out there are lots of other considerations to take into account if you’re pondering moving from long-term to short-term lets.
In some areas – London, for example – there are rules prohibiting short lets for more than 90 days per year unless you’ve applied for planning permission.
There are also far fewer lenders offering mortgages for holiday lets so obtaining finance is likely to be more difficult than for buy-to-let.
If you own a leasehold property, you’ll also need to seek the permission of your freeholder and this may not be granted.
There’s a lot to consider if you’re thinking about changing strategy, but the numbers suggest it could be a worthwhile move for some landlords.
Private rental prices are climbing, the economy is growing stronger, and demand is increasing. Reports predict that rental prices will see a ten percent increase by 2024, and during that same period, house prices are forecast to increase by a huge 15.3 percent on average.
Despite this bounceback in the market, UK landlords are still confronting numerous changes. Government reforms, perplexing mortgage rules, and cumbersome tax increases combine to pinch profits while creating new headaches for landlords. As a result, many landlords are starting to utilise short-term letting sites such as Airbnb.
With the implications of a rapidly changing buy to let landscape in mind, the UK’s landlords recently shared their concerns in Portico London estate agents’ landlord survey, along with advice for maintaining and maximising profitability moving forward.
Taxes and legislation were top concerns for UK landlords
It’s no surprise that concerns over recent and upcoming legislative changes and tax increases are at the top of the list for most landlords. A full 58 percent of UK landlords placed these two considerations above all other matters.
Several pieces of new legislation take effect in 2020. Landlords and those who are considering entrance into the buy to let marketplace should be aware of:
The Homes (Fitness for Human Habitation) Act of 2018, which outlines certain standards that must be met within all rental properties. This isn’t a concern for landlords who maintain their properties well, however it’s worth a look simply to ensure that your property meets specifications. The Homes Act applies to all tenancies as of 20 March 2020.
Minimum Energy Efficiency Standards of E or above will apply to all non-exempt rental properties as of April, 2020. Landlords who need to arrange for an EPC assessment or have necessary maintenance work completed should prioritise compliance to avoid complications.
New Capital Gains Tax rules take effect on 6 April 2020. Changes to lettings relief and final exemption periods apply and from April, landlords will be granted only 30 days to tell HMRC and pay Capital Gains tax. This is a major change; previously, landlords were allowed to delay payment of Capital Gains Tax to the next tax year.
Client Money Protection Scheme changes take effect in April 2020 as well. Lettings agents in England were previously allowed a 12-month grace period to join an approved client money protection scheme. This has expired. All UK lettings agents must now protect landlord and tenant money by belonging to a client money protection scheme.
An Extension of the Tenant Fees Act will cover all existing tenancies beginning in June 2020. In short, this legislation bans many tenant fees for new tenancies. It prevents landlords and letting agents from charging fees other than deposits, holding deposits, rent, and charges for defaulting on contracts. Breaking this law means fines up to £5,000 for the first offence and fines up to £30,000 for subsequent offences.
Section 21 changes, electrical safety checks, and other rules without specific dates.
Property maintenance and tenant behaviour worry landlords
More than a third (31 percent) of landlords surveyed stated that property maintenance was a top concern. Tenant behaviour and property damage were listed as leading issues for a full 27 percent of landlords. These two concerns often go hand in hand, yet a full fourteen percent of landlords stated that they don’t carry landlord insurance to offset potential costs associated with damages. Another fourteen percent weren’t sure whether their portfolios included landlord insurance.
With concerns over property maintenance and damages caused by tenants and their guests at the fore, Portico recommends taking security deposits, screening tenants through a tenant credit check, securing detailed tenancy agreements, and building healthy relationships with tenants. Portico states property management is designed to ease these concerns for landlords via rent guarantee and other protective measures.
Budgeting for maintenance and renovations should be a major consideration. Portico’s survey showed that a full 54% of landlords found themselves dealing with up to three maintenance issues in 2019 alone, while another 25 percent of landlords had to handle four or even five maintenance-related issues that same year. A smaller percentage of landlords were faced with even more problems: About five percent had between 5-9 issues to deal with, while another five percent had to handle ten or more problems.
Just how much money should landlords set aside for general maintenance costs annually? Research from LV suggests that it’s wise to set aside £3,134 per property, per year. Portico’s survey respondents typically budgeted less; only 44 percent said that they actually budgeted for maintenance, and those landlords set aside an average of £1,000 to £2,000 per property per year.
As for renovations, a full 63 percent of landlords surveyed renovated at least one property after purchasing it. 33 percent of those said that the purpose of the renovations was to reduce void periods and make the property easier to rent, while 38 percent said that they improved their properties to keep current tenants happily housed.
Brexit takes fourth place; market conditions come in fifth
A mere 19 percent of landlords continue to place worries over Brexit’s impact ahead of other concerns. As the market continues to stabilise following the general election results and the so-called “Boris bounce,” only 18 percent of landlords put market conditions at the top of their list.
Portico states that “As stability returns to the property market after Brexit, we predict that homebuyers and sellers will have the confidence to return to the housing market. Sellers in particular have the incentive required to move forward now that there is a good likelihood that they’ll receive better offers.”
Short-term rentals make void periods less of a concern
Not too long ago, void periods were a chief concern for landlords across the UK. These days, worries over empty rental properties have subsided, taking sixth place. While London places limits on the number of days a rental may be offered via Airbnb, it’s still easy for landlords to utilise short-term rentals as a simple, effective method for maximising revenue between long-term tenants.
There’s another reason why more landlords are turning to Airbnb as a solution: Airbnb management services eliminate the legwork associated with offering rental properties to holidaymakers, so landlords enjoy a more profitable return on investment without worries over mundane tasks such as laundering linens, hiring cleaners, and handling other essential yet time-consuming chores.
Letting agents gaining popularity
Not surprisingly, landlords find tax and legislative changes worrisome – and the many day-to-day demands associated with managing rental properties can be cumbersome particularly when landlords have other professional demands. Only about 54 percent of landlords are managing their own buy to let properties; meanwhile, 43 percent take advantage of letting agents and another 3 percent use online management services.
The buy to let industry is becoming more complicated, but there is still money in buy-to-let and landlords are remaining optimistic. Landlords who work with lettings agents and other property experts can enjoy access to greater insight and assistance with issues including taxes, compliance with legislation, and more. Handyman services, rent guarantees, and maintenance between tenancies are in higher demand than ever before. While industry experts can’t completely erase landlords’ concerns, it’s clear that a team approach eases the way forward in an increasingly complex buy to let landscape.
A majority of landlords (70%) expect further government intervention in the private rental and buy-to-let sectors during 2020 according to the latest research by Foundation Home Loans.
Of those who anticipate further government action, 73% believe it is either quite, or very likely that this will mean the introduction of minimum tenancy terms.
The same number believe action is likely in the HMO and multi-unit block sector.
In addition, 72% of landlords believe individual licencing for all landlords and their properties is likely whilst 38% can envisage a rental cap for private rental properties being introduced.
The research was undertaken by BVA BDRC and carried out in January 2020, with results based on 791 online interviews.
A further 77% of landlords were not in favour of a rental cap, 12% said they may be in favour, 2% definitely supported such a measure and 9% were unsure.
When asked what action they would take should any cap on rents be introduced in the PRS, 35% said they would immediately increase all rents to the maximum rent allowable, 33% said they would consider selling some of their portfolio, 20% didn’t know, while 19% would either look at leaving the PRS or at other assets for their investment.
A tenth (10%) said they would do nothing.
Overall respondents were neutral on whether December’s general election result would be either positive or negative for them.
Over a quarter (26%) thought positive, 28% thought negative, whilst 38% thought neither.
Landlords who held more properties within their portfolios were more likely to be positive about the impact.
The issue of abolishing S21 evictions was a major concern for over half (53%) of landlords, who stated they would feel much less confident about their portfolios if this was introduced, while 30% said it would make them feel slightly less confident.
Overall, there is however a greater degree of landlord optimism than in previous iterations of the research, with the metric used to show this is up for the first time in over a year.
Jeff Knight, director of marketing at Foundation Home Loans, said: “While many landlords look like they’re taking a ‘wait and see’ approach to this government and any anticipated intervention in the PRS and/or buy-to-let market, it’s also noticeable that many believe the status quo is unlikely to hold and there will be action of some kind.
“Interestingly, landlords appear resigned to the introduction of minimum tenancy terms, further action with regards to HMOs and MUBs and individual licensing.
And while 38% think a rental cap might be likely, there is very little support for such a measure being introduced, and it will result in landlords having to take action around the rents they charge and whether they can hold onto all their properties.
“There is definitely a degree of uncertainty around what might be coming next, and I suspect many landlords are waiting for this month’s Budget before they make up their minds more fully on whether this is a government which will be more ‘friendly’ to landlords.
“Of those who think there will be intervention, 32% think stamp duty for landlords is just as likely to go up from its 3% extra charge level, as opposed to the 7% who think a cut is likely.
“In that sense, landlords appear to be bracing themselves for a Budget which may not be in their favour, rather than one which seeks to roll-back on the measures which have undoubtedly impacted on their profitability over the last few years.
“Clearly landlords do not want to see S21 evictions removed as an option for them, but at the same time there appears to be a growing level of confidence in their own businesses, especially for those who own larger numbers of properties.
“This perhaps taps into the move towards portfolio operators in the sector who can certainly benefit from strong lending options and a highly competitive mortgage market to help them meet their aims and ambitions for their businesses.”
Nearly half of all landlords in the UK Buy to Let (BTL) sector are ‘Pension Pot’ landlords, latest research from Your Move, one of the UK’s largest estate agency networks, has today revealed. Your Move’s annual Landlord Survey defines ‘Pension Pot’ landlords as those who are over the age of 45 and view their portfolio as a long-term retirement investment. Over four in ten property owners in the BTL sector class themselves as ‘Pension Pot’ landlords, with nearly a quarter (23%) of this group, having been a landlord for 15 years or more.
Your Move surveyed 1071 buy-to-let landlords to learn more about their portfolios, behaviours and attitudes towards tenants, letting agents and the lettings market. ‘Accidental’ landlords – those who were not expecting to be landlords – were the second most common type of landlord (29%), followed closely by ‘Professional’ landlords (20%).The survey also revealed that ‘Accidental’ landlords are most likely to be female and under the age of 45, often thrust into the market through inheritance or other changes in their personal circumstances. ‘Professional’ landlords, however, tend to be male, over 45 years old, and consider being a landlord as a job or career.
The findings also showed that ‘Pension Pot’ landlords are more likely to live close to their rental properties than either ‘Accidental’ or ‘Professional’ landlords, with 41% living within 1-5 miles of the property.
Further, nearly three in 10 (29%) ‘Pension Pot’ landlords see their properties as a business, with over half (53%) investing in more than one property. However, even though these landlords may be more ‘investment minded’, Your Move’s survey found that ‘Pension Pot’ landlords are also more likely than the other groups to build a personal rapport with tenants and want tenants who will protect their investment. In fact, 18% said they like to meet or talk to new tenants before signing a contract, which was the highest proportion of any group. Over half (53%) felt it was important that tenants view the property as their own home.
The percentage of landlords opting for two-year fixed rate buy-to-let mortgages in the final quarter of 2019 was 26% – a 12-month high – and up from 8% the previous year.
These figures are from Mortgages for Business, which says the growing number of landlords opting for shorter-term rates has been fuelled by the shorter Early Repayment Charge (ERC) periods, which are typically attached to these types of products.
Shorter ERC periods allow landlords to refinance sooner without occurring a penalty – an option which became more popular in the uncertain political climate at the back end of last year.
Five-year fixed rates still most popular
However, despite the majority of landlords (95%) choosing fixed rates over a variable product (down slightly from 97% in the previous quarter) five-year fixed rate products remain the most popular term chosen by 68% of landlords (down from 70% in Q3 and 72% in Q2 2019).
This is mainly because lenders are still applying less rigorous stress tests to five-year products than to shorter-term products which, in effect, means landlords can borrow more using them than with their two or three-year counterparts.
More interest in variable rates
There has been an increase in the popularity of the tracker and discounted rate products, up from 2% in Q3 to 4% in Q4 2019 as landlords respond to increased speculation that the Bank Rate could be cut in the near future.
Steve Olejnik, managing director of Mortgages for Business, said: “Recent political uncertainty has led more landlords to opt for two-year fixed rates over longer-term fixed rate products.
“Landlords are drawn to the shorter Early Repayment Charge periods associated with these types of products, which provide greater flexibility.
“Given we now have more certainty in the political system, we forecast that landlords may start to look at longer term fixes again in the future.”
Limited company rates
There are 49 buy-to-let lenders in the UK and 31 of them offer limited company mortgages.
Rates available to landlords borrowing via a limited company on average were 0.7% points higher than those available to landlords borrowing personally – up from 0.6% points in the previous quarter.
The number of products available to limited companies for both two-year (288) and five-year fixed rates (322) grew in Q4 2019.
Olejnik said: “More landlords are expanding their portfolios through a limited company which has proven to be a more effective borrowing vehicle both from a tax perspective and financially. Lenders have responded to that and demand has fuelled an increase in the number of products available.
Buy-to-let mortgage products numbers rise
The number of buy-to-let mortgage products available increased by 72 to 1,981 in Q4 2019 up from 1,909 in the previous quarter. In addition, the number of buy-to-let products available to limited companies increased by 51 to 738 up from 687 in Q3 2019.
Olejnik added: “The increase in the number of products available to limited companies gives landlords more choice. Since Brexit was assured by the clear General Election result in December, British house prices have risen at their fastest rate since 2002, according to Rightmove.
“Houses in Multiple Occupation (HMOs) continued to produce the most substantial yields for landlords handling more complex portfolios, in at 9.2% Q4 2019.”
Buy to let mortgage rates are lower now than in autumn 2019, with the downward trend in rates for fixed-rate deals set to continue into 2020. This is increasingly likely, given the strong possibility of a further base interest rate cut by the Bank of England.
Those looking to take out their first buy-to-let mortgage and existing landlords looking to remortgage will find themselves in an auspicious environment this year, as lenders compete for business for a reduced number of applicants. The very best rates for buy-to-let mortgages are currently to be had within the two-year and five-year fixed rate deals with at least a 50-per-cent LTV (loan-to-value) ratio, but rates are falling across the board.
The absolute best buy-to-let mortgage deal is available from The Mortgage Works who are offering an incredibly low rate of just 1.74 per cent on 75 LTV purchases, as well as £250 cashback. Landlords looking to make improvements to their buy-to-let properties in order to make the new mandatory energy efficiency standards will no doubt welcome this extra cash. Under new EPC rules, a property has to have an energy efficiency rating of at least an ‘E’ to be considered suitable for renting.
So, is taking out a buy-to-let mortgage still a good idea in 2020? Absolutely, and as the number of people renting is only going to increase, buy-to-let is always going to be a worthwhile investment. And while the old tax relief rules are being phased out this year, the changes will have a significant effect only on those in higher tax brackets (40–45 per cent), with those letting out one or two properties unlikely to see any significant changes to their outgoings. The new rules have been introduced to try and curb the amount of tax relief claimed by the highest-earning landlords (think people with huge property portfolios). Any changes in the amount of tax paid by regular landlords should be offset by remortgaging to a lower fixed rate.
Landlord clients are tackling the tax and regulatory changes hitting their pockets by taking advantage of low mortgage rates, using limited company structures, opting for higher yielding properties and branching further afield, brokers have said.
The buy-to-let market grew rapidly after the financial crisis but has since taken a beating as a number of tax and regulatory changes have made the private rental sector a less lucrative option.
In fact more than a third of landlords are planning to sell at least part of their portfolio in 2020 as the changes continue to bite in a system “weighted against them”.
Accumulate Capital polled 750 investors in December and found 37 per cent of landlords were planning to sell one or more of their properties, with 61 per cent of them blaming increasing regulations and taxes.
How the rules changed:
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.
Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.
The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.
Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.
Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.
On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.
The changes led many to predict the buy-to-let market would shrink in size leaving only ‘professional landlords’ able to make viable returns.
Of those keen to sell, 72 per cent thought the current tax and regulation measures were unfairly weight against them while 69 per cent said the costs of managing their portfolio had risen “considerably” over the past five years.
But brokers have said many of their landlord clients were sticking with the private rental sector and diversifying their portfolio or shaking up their own system to deal with changes.
David Hollingworth, associate director of communications at L&C Mortgages, said: “[The changes] will no doubt lead some to hold their position rather than add more properties, particularly the more amateur landlord whilst they review their approach.
“However, many are taking action in controlling their costs by taking advantage of low mortgage rates and the use of limited company lending to grow investments.”
Due to the tax shake up, limited company status is more attractive to landlords as changes would not affect them and they can offset mortgage interest against profits which are subject to corporation tax instead of income tax rates, which is cheaper.
Average mortgage rates have also been slashed over the past few years as lenders battle in a “race to the bottom” which has seen two-year fixed rates for buy-to-let properties fall below 1.3 per cent.
Mr Hollingworth added: “While some will be considering whether it might be the right time to sell certain properties in light of the tougher conditions, there’s little to suggest that landlords are offloading property in significant numbers.”
Rachel Lummis, mortgage and protection adviser at Xpress Mortgages, said although buy-to-let enquiries from new and smaller landlords had plummeted, the larger portfolios were still transacting.
She said: “Larger portfolio landlords are still transacting, just differently from a few years ago.
“Clients are remortgaging existing properties to not only secure decent long-term fixed rates but to also raise capital for further investment.”
Ms Lummis said the properties being added to portfolios had moved from standard flats and houses to more high-yielding houses of multiple occupancy or multi-unit blocks, as well as in locations around the country not previously considered.
Meanwhile Ruth Whitehead, director at Ruth Whitehead Associates, warned against the “relative flatlining” of property values over the next few years and urged anyone considering selling property to “think very carefully”.
She added: “In short, it’s something that needs more careful consideration than ever before and clients should only stay in this market for the long haul.”
The increase in portfolio and complex buy-to-let business seen over the past two years is set to continue in 2020, according to Paragon’s Director of Sales, Moray Hulme.
Recent tax changes have forced landlords to look for more efficient ways to structure their business, driving an increase in demand for mortgage products for incorporated and limited liability partnerships.
Research from BVA BDRC for Q3 2019 reveals landlords expecting to purchase property in a limited company structure has almost doubled in under two years. This, alongside the Prudential Regulation Authority’s (PRA) more detailed underwriting approach for portfolio landlords, has resulted in specialist lenders like Paragon tailoring products to match more complex requirements.
Paragon also predicts intermediaries will refocus on purchase business in the buy-to-let market, following a significant increase in the popularity of longer-term fixes since 2015 reducing remortgage opportunities.
It’s forecast those who do purchase are more likely to be larger-scale portfolio landlords, with non-portfolio landlords owning fewer than four properties far less likely to expand since the introduction of the Stamp Duty surcharge in April 2016 and subsequent tax changes. Recent research by Paragon found larger scale landlords are three times (11%) more likely to consider buying than smaller scale landlords (4%), within an overall much smaller buy-to-let market.
Despite this constrained buy-to-let market, the Private Rented Sector (PRS) continues to provide a home for one in five households, according to the 2017/18 English Housing Survey, and the demand for PRS property will continue to grow.
Following the ban on letting fees to the proposed abolition of ‘no-fault’ eviction, Paragon believes 2020 will see the introduction of more tenant-friendly regulation, as PRS landlords play an increasingly vital role in meeting the UK’s housing need.
Moray Hulme, Director of Mortgage Sales at Paragon, said:
“In recent years, landlords have had to be more strategic in their approach than ever before and the buy-to-let market has seen a significant increase in portfolio and complex business. Whilst mainstream lenders have limited their involvement to smaller-scale landlords, Paragon and other specialist lenders have been able to adapt and offer the right products to enable landlords to remain efficient – and this is a trend that we expect to continue in the long-term.”
“We also expect to see more tenant-friendly regulation in 2020, as the PRS continues to support a housing crisis caused by multiple factors, including population growth, limited investment in social housing, and tighter mortgage affordability. All of this increased complexity and growing professionalism is good news for Paragon, as we head into the new year as one of the few specialist lenders with the capability to support complex buy-to-let mortgage requirements.”
Northern cities may dominate the tables for house price growth but a different picture is emerging for the rental market.
New analysis claims to have uncovered the best UK cities for a landlord’s buy-to-let investment.
The research by Aldermore assesses and provides a score for the average rent per room per month, short-term yield for a new buy-to-let purchase, average property price rises over the past 10 years, proportion of vacant properties in a city and size of the private rental market across the UK.
Seven of the top 10 cities for landlords were in southern England while only three northern cities – Manchester, Liverpool and Newcastle – make the top 25.
Yorkshire has three cities in the bottom six while Nottingham was the only city from the Midlands in the top 10.
Despite having among the lowest short-term yields, Oxford comes out on top with the highest overall score in the index of 74.
Manchester and Edinburgh are just behind with 72, and London has 71.
The research shows London ranks first for total rents, while Liverpool has the best short-term rental yields.
Cambridge got the highest score for price growth while Cardiff and Oxford were the best areas for low vacant stock.
Damian Thompson, director of mortgages at Aldermore, said: “Aldermore’s Buy to Let City Tracker shows there are still great short- and long-term investment opportunities for landlords.
“The number of people renting in the UK has been rapidly growing, up 1.7m in ten years, so private landlords are an increasingly central part of the housing market as supporting a robust and strong private rented sector becomes more essential.
“The UK housing market has never been a singular thing, instead made up of multiple smaller markets with their own unique conditions and challenges.
“There have been numerous regulatory changes recently and persistent economic uncertainty but this affects every region differently. Going forward, landlords will need continual backing and advice from lenders and the wider industry so they can provide choice, diversity of tenure and quality properties for renters.”