October 2019 | Buy-to-Let

Jeff Knight: Learning from the changes

Jeff Knight is director of marketing of Foundation Home Loans

In order to look forward, it’s also prudent to sometimes look back.

Understanding how the buy-to-let sector has been reshaped and re-engineered over the past two to three years will help advisers in their targeting of landlord clients, because while the amateur landlord remains, there are many more professional and portfolio landlords with both purchase and refinance needs, often within a limited company vehicle.

In the times prior to stamp duty and mortgage interest relief tax changes, limited company lending only made up a small part of the overall buy-to-let market, but times have changed, and the advice process also needs to adapt to mirror these market shifts.

Looking forward, what can we learn from the past few years and what can we expect from the buy-to-let sector over the next 12 to 18 months?

There is no getting away from the fact that landlord confidence is currently at a relatively low ebb.

The latest BVA BDRC Landlords Panel for the second quarter of this year showed that only 29% of landlords had positive expectations for their letting business over the next three months, down from 44% at the same time last year.

However, the proportion of landlords making a profit fell by just 1% in Q2 from Q1 2019, with only 4% of landlords saying they are making a loss.

And being a landlord remained a strong proposition with a third of landlords able to make a full-time living off their lettings, and 53% able to supplement their day job.

Despite understandable uncertainly within some landlord’s minds – which I believe can largely be put down to economic and political turmoil rather than any huge confidence breach in the private rented sector – current activity levels remain strong and indicators around future demand are high.

So 2020 will inevitably prove to be a tricky year for the buy-to-let sector, and let’s be honest who knows what implications Brexit may or may not have, but what we do know is that opportunities will continue to emerge for intermediaries who are fully tuned in to the finer points of Buy-to-let, especially at the more specialist end of this lending spectrum.

What will these opportunities look like and where will they come from; I hear you cry?

Let’s take a brief look.

Remortgages

The most obvious, and possibly simplest, route is via the remortgage market.

With far fewer landlords leaving the market than many of the more negative industry commentators predicted, it stands to reason that there are still huge numbers of landlords out there who will need to refinance.

With this process taking place in a far more complex market than when many first dipped their toe in the buy-to-let waters, it stands to reason that the need for advice will be greater than ever.

Which means that, just like in the residential market, advisers need to be fully aware of when any buy-to-let deal on their books runs out and the requirements of their landlord clients moving forward. Some may need to upgrade their properties in a bid to secure better quality longer-term tenants, others may need to raise capital to expand their portfolio or use it for other purposes.

Limited company lending

This is without doubt the largest growth area within buy-to-let over the past few years and particularly in 2019. This is not a panacea for all, but it does have the ability to benefit many landlord clients in a variety of ways.

And a wealth of recent data suggests that a growing number of landlords are likely to buy their next property or remortgage an existing investment into a limited company structure.

Portfolio landlords

As the definition of a portfolio landlord starts at four properties or more, we should see more buy-to-let clients becoming portfolio landlords in the future.

Given that underwriting requirements are different from lender to lender, it’s also fair to say that a greater proportion of clients will seek your advice to help them through these extra processes.

Many portfolio landlords are seeing the current market as an opportunity to expand their portfolios, especially if house prices remain stable or decline further. Some will look towards alternative property types; others will seek geographic diversification to spread portfolio risks. All factors which equal opportunity for the intermediary market

Property and expats

HMOs are becoming increasingly appealing for landlords, and short-term lets are also expected to grow in popularity.There are obvious currency considerations to consider as the pound continues to fluctuate, but a robust housing market is generating strong enquiry levels from expats and this will offer good value and great potential for overseas investors in the year ahead.

Referrals and partnerships

The need for tax advice is essential for portfolio/professional landlords, and if you forge a strong relationship with a tax adviser, not only can you introduce clients to them, but you could also benefit from a reciprocal arrangement.

So, get to know your landlord clients better, as this may pave the way to stronger relationships and ancillary revenue streams.