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Monday, July 18, 2016

A BTL mortgage market update

So, what now for landlords?

Jane Simpson at Property Hawk Mortgages says:

It may be some time before we get a clear vision of what the ‘new normal’ is for landlords in the UK buy-to-let sector. The full impact of government regulatory and tax changes over the next couple of years remains to be seen and landlords will surely be considering the best ways to proceed with their buy-to-let businesses in the changing environment.

It is clear however, that tenant demand remains strong and may be increasing. As issues relating to home ownership continue there is a large proportion of the UK population living in rented properties and landlords play a crucial role in servicing the PRS. It is important therefore that landlords continue to provide good quality rental accommodation and are not forced to sell-up unnecessarily.

Despite the recent tax changes that appear to be an attempt to dampen the buy-to-let market, landlords can still find opportunities to make their property investments work for them. There has been a lot of commentary recently about the potential benefits of using a corporate structure to hold property portfolios in order to avoid new tax levies and this is certainly something that some landlords are considering.

There are also plenty of options for landlords seeking out properties that could provide above average returns. For example, auction properties in need of refurbishment, student lets or semi-commercial properties.

Buying property at auction is potentially a great way to bag a bargain as purchases can sometimes be made from urgent sellers below the current market-value. It is also an opportunity to find cheaper properties that may need some light refurbishment work in order to make them attractive on the rental market. Either option provides the potential to make a profit on the increased post-purchase value of the property.

Most landlords buy auction properties using either cash or a short-term bridging solution and may look to obtain a buy-to-let mortgage immediately afterwards. There are a number of buy-to-let lenders who will consider a ‘day one remortgage’ including Aldermore, Axis Bank, Fleet Mortgages, Foundation Homeloans, Kent Reliance, Mortgage Trust, Paragon Mortgages, Shawbrook Bank and Virgin Money.

Student lets are another possibility, which can often provide higher than average yields as rent can be charged to a number of different tenants for one property. Although some landlords may shy away from students, thinking that they may make unreliable tenants, there really is no evidence to support this and it could be a missed opportunity.

Research for the National Landlord Association (NLA) found that students are least likely to miss rent payments and also provide the highest yields. However, student accommodation tends to endure more wear and tear so may incur higher maintenance costs.

Property Hawk Mortgages currently has fourteen lenders on its panel that will considering student lets, including Aldermore and Godiva with a maximum of 4 students, Precise with up to 8 students, Paragon with up to 20 students and Shawbrook with no maximum.

For landlords concerned by the buy-to-let stamp duty increase, semi-commercial properties can provide an opportunity for property investors to avoid the additional 3 per cent charge. For example, currently a single freehold that includes a commercial property, such as a shop with living accommodation above, is not subject to the levy increase. So potentially, an investor can buy the single freehold property and then create separate leases for the commercial element and the residential element. The flat above the shop could then be considered for a buy-to-let mortgage.

At Property Hawk Mortgages we get enquiries on a wide range of different property types in locations all around the UK and it is no surprise that the valuations and expected rental income varies considerably even for properties that seem very similar. It is certainly advisable for landlords to carefully research the areas they are buying in and to seek out those that can provide the best returns. For landlords who don’t need to provide hands on management of their properties, looking further afield may also provide some excellent possibilities.

Periodically reports are published from various sources hailing the new buy-to-let hotspots and these could be worthy of investigation by landlords. For example, Hull was named best coastal town for buy-to-let investment by LendInvest with returns of up to 10.7%; a recent article in Mortgage Introducer highlighted Glasgow as an attractive buy-to-let proposition, with evidence of flats that come on to the rental market in the city attracting up to ten different applicants. Properties can be more affordable in Glasgow and high tenant demand helps ensure a reasonable rental income.

At one point in time it was quite difficult to arrange finance for properties in Scotland due to the different legal system and most lenders chose to avoid it. However, there is now a wider, albeit still reduced, choice of lenders for properties in Scotland, although some still restrict the areas of the country they will consider.

In summary, it seems likely that the buy-to-let sector will persevere, although the market may be somewhat subdued for the remainder of the year and into 2017 as landlords consider their options and work out the best way forward. However, there are still plenty of opportunities for buy-to-let investors and the most rewarding properties may be found in some unassuming places.

Tel: 029 2069 5446
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Anonymous said...

I am sorry but BTL held as a sole trader is dead in the water.

Anonymous said...

I tend to agree, trying to get a mortgage you need a letter from God, even though we have 2 BTLs already.