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BTL investors seek larger loans as they look to diversify

A majority of buy-to-let landlords are applying for larger loans as market conditions encourage borrowers to buy more expensive properties and diversify their portfolios.

According to buy-to-let lender Keystone Property Finance, three in five of its customers applied for a mortgage in its larger loans range, which offers loan sizes between £250,000 and £1m, since December.

The lender said the popularity of larger loans could be due to landlords being able to afford more expensive properties as a result of the stamp duty holiday.

Elise Coole, managing director of Keystone Property Finance, said: “Our data shows that landlords remain confident about the buy-to-let market, with the majority of customers looking to secure a larger loan to purchase their property.

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“Undoubtedly, the [stamp duty holiday] has played an important part in this and has presented landlords with an excellent opportunity to bolster their portfolios and invest in higher value properties.”

Chris Sykes, associate director and mortgage consultant at Private Finance, said with possible rent arrears during the pandemic, this had partly encouraged landlords to consider diversifying their portfolios, thus requiring larger loans.

A November survey from Citizens Advice found half a million private renters were behind on their rent. MPs have called on the government to support tenants to repay rent arrears caused by the pandemic, including funds for landlords to help them receive income and avoid evictions.

Sykes said: “We have many portfolio landlords who traditionally only did single let family homes for example, who now are looking into houses in multiple occupation, multi-unit freehold blocks, holiday lets, etc.

“Many are even going further afield than that and are looking into commercial or semi-commercial property or development opportunities for higher yields, perhaps more hands-on investments but the profits often are considerably higher and [often require] larger loans to get things done.”

Data from Hamptons shows 15 per cent of all sales agreed in November were to landlords, the highest figure for four years, with investors “rushing to complete” their purchases before the original stamp duty holiday March deadline, according to the estate and letting agent.

Matthew Fleming-Duffy, director at Cherry Mortgage & Finance, said his firm had seen over 60 per cent of its business come from landlords between December and mid-March.

Likewise Aaron Strutt, product and communications director at Trinity Financial, noted demand from borrowers purchasing expensive buy-to-let properties due to cheap rates.

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Strutt said: “We are getting more calls from borrowers who are keen to purchase an investment property.

“There are a lot of landlords with £250,000-plus mortgages keen to remortgage and get the best possible deal. There is also demand from borrowers purchasing expensive buy-to-lets because of the cheap rates.”

The figures from Keystone Property Finance also found that three in five applications (62 per cent) for its larger loan products were from landlords registered as a limited company.

Mark Harris, chief executive at SPF Private Clients, said his firm had seen a marked interest in setting up a buy-to-let limited company.

Harris said: “We have seen significant interest from landlord clients with regard to switching to a limited company and lenders are recognising this with a wider range of products at competitive pricing.”

By Chloe Cheung

Source: FT Adviser

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Most profitable locations for buy-to-let landlords revealed

Brighton, Bangor, Portsmouth and Leeds are the top places for buy-to-let landlords, research from CIA Landlords has revealed.

Ranked at the bottom of the table is St Albans, with the poorest prospects for landlords this year, with some potentially making a loss of more than £700 a month.

Only six locations in London remain profitable, with the majority of boroughs losing money.

The research also reveals that profitability in the Capital has nearly halved since January 2020, amid a major exodus during the pandemic.

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Brighton remains the most profitable place to be a landlord for the second year running, with landlords in the coastal town making a monthly profit of around £570.

The findings, which took into account rental fees charged to tenants and landlord costs placed Bangor in second place (£500.53), Portsmouth in third place (£479.27), Leeds in fourth place (£477.60) and Lancaster in fifth (£474.54).

Bristol, Coventry, Manchester, Nottingham and Salford rounded out the top ten.

Stuart Williams (pictured), director of Thirlmere Deacon, said: “Over the last few months, some landlords have seen their profits dented due to the Chancellors’ tax measures that are only now taking effect.

“Undoubtedly, it is becoming more difficult for amateur investors to make a profit in the buy-to-let market due to legislation changes and financial pressures, there is still a lot of money to be made if landlords and investors make the right investment decisions.

“If investors can purchase cheaper properties with higher yields, they will have the opportunity to protect and boost their profits in the longer term. For example, an average residential property in London is around £500k with rental yields of circa 2%, while a flat in a good area of Manchester could cost half the price and generate 6-7% rental yields on top of 4-5% annual capital appreciation.

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“Landlords should review their existing portfolio to see if they can boost rental income and protect profits, by attracting a different market. Landlords will often find the best returns in urban areas, with a concentration of students and young professionals.

“It is also worth landlords considering setting up a limited company and using this structure to hold their properties.

“This will enable them to continue deducting mortgage interest when they are calculating profits. Landlords can also benefit from just 20% corporation tax, instead of income tax of up to 45%.

“Landlords need to do a serious portfolio review and work out how the tax changes affect them and what options there are to save, or make more money. For example, remortgaging to get a better deal or renovating some old stock – these costs will be tax-deductible.

“Alternatively, landlords could consider selling some properties or increasing the rent.”

By Ryan Fowler

Source: Mortgage Introducer

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Number of UK buy-to-let landlords has increased by 49% in five years

The number of UK buy-to-let landlords has risen 49% in the last five years to an all-time high of 2.7 million, research from ludlowthompson estate agents found.

The residential market has stayed relatively strong during the coronavirus pandemic, though the commercial property market has fared poorly, as 54% of tenants have held discussions with their landlords about taking a rent holiday.

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Stephen Ludlow, chairman of ludlowthompson, said: “The buy-to-let market has continued to provide a reliable return on investment for landlords, even during the worst of the pandemic when other forms of investments went through a period of intense volatility.”

“The historic resilience of residential property means many private investors are still looking to add to their holdings, particularly before March 2021 when the stamp duty holiday ends.”

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“We would advise existing and prospective landlords to consider re-purposing their properties to meet the changing needs of tenants.

“With people spending more time at home, having extra space both in and outdoors has become more important than ever. Outdoor areas and home offices are both in very high in demand, as is accessibility to high-speed WiFi.”

BY RYAN BEMBRIDGE

Source: Property Wire

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Expat Landlords Get Buy To Let Mortgage Aid

The financial pain of coronavirus uncertainty for buy to let landlords has been eased by the housing minister.

Secretary for Housing Robert Jenrick is extending a mortgage lifeline to landlords who pass on the help to tenants who cannot pay the rent due to illness or the loss of income due to the deadly virus.

Expats who cannot travel back to the UK or who are in lock down overseas will pick up the same help as landlords in the UK.

Jenrick has persuaded buy to let mortgage lenders to offer a 90 day repayment holiday to financially-stricken landlords.

But they must also offer a rent holiday to tenants.

Emergency legislation

Then, when the threat of coronavirus has passed and the country returns to normal, he expects the tenants and landlords to come to an agreement about repaying lost rent and missed mortgage payments.

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He is also passing emergency legislation to make sure landlords do not go to court with no-fault Section 21 evictions for at least three months.

“The government is clear – no renter who has lost income due to coronavirus will be forced out of their home, nor will any landlord face unmanageable debts,” said Jenrick.

“These are extraordinary times and renters and landlords alike are of course worried about paying their rent and mortgage. Which is why we are urgently introducing emergency legislation to protect tenants in social and private accommodation from an eviction process being started.

Landlords must reach out to tenants

“These changes will protect all renters and private landlords ensuring everyone gets the support they need at this very difficult time.”

Jenrick urged landlords to show compassion to the plight of their tenants and not to consider eviction.

“This important step on buy to let mortgages ensures parity of support, further to the announcement that the government made for private mortgage holders,” he added.

“To support this announcement the government has worked with the Master of the Rolls to widen the ‘pre-action protocol’ on possession proceedings, to include private renters and to strengthen its remit. This will support the necessary engagement between landlords and tenants to resolve disputes and landlords will have to reach out to tenants to understand the financial position they are in.”

By Rob Dawson

Source: Money International

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Should buy-to-let landlords switch to holiday letting?

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.

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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.

 Buy-to-letHoliday let
Rental income£7,872£13,000
Mortgage interest£1,780£2,936
Commission£945£3,120
Running costs£787£2,600
Tax£2,100£1,738
Profit£2,260£2,606

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.  

 Buy-to-letHoliday let
Rental income£16,716£32,883
Mortgage interest£1,902£3,138
Commission£2,006£7,892
Running costs£1,672£6,577
Tax£4,835£6,110
Profit£6,301£9,166

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.

By Joanne Christie

Source: Love Money