In recent articles I’ve tried to set the scene for how the buy-to-let marketplace has evolved as a result of numerous regulatory and taxation changes.
The major outcome is the rise in prominence of professional/portfolio landlords and the narrowing of the amateur/accidental landlord bands. A further knock-on effect is the volume of limited company lending and burgeoning lending activity within this portion of the BTL sector.
This trend was the focal point of the latest landlord research from Foundation Home Loans which revealed that the number of landlords planning to buy their next property within a limited company vehicle has seen a marked rise over the past few months. Almost two-thirds of landlord’s now plan to make their next buy-to-let purchase within a limited company vehicle; a significant increase on the 55% who said the same in the Q2 iteration of the research.
The research also showed how limited company purchases have become the preferred option for all landlords, regardless of their portfolio size. Previously, landlords with larger portfolios – 11+ properties – were more likely to say they would purchase in such a manner, but now landlords with smaller portfolios are equally likely to use the strategy. 62% of those with 1-10 properties said they would purchase via a limited company next, while 65% of those with 11+ properties said the same thing.
It’s always interesting to see how our competitors or peers are performing and what they might be doing differently. This also applies to landlords, especially in terms of how they are dealing with tax changes and regulatory reforms, especially when it comes to how and where they are diversifying their portfolios or finding alternative ways to finance new/existing properties.
Focusing on financing, the market has responded with a substantial increase in the type and overall number of buy-to-let mortgages for limited companies. According to Moneyfacts research, at the time of writing, there are over 2,600 buy-to-let mortgage products currently available from UK lenders. Of these, approximately 875 are products that are available for buy-to-let limited companies, special purpose vehicles (SPVs) or offshore limited companies. This represents a significant increase from 2017 when the number stood at 425 of 1,788 total products available (23.8%).
This increased activity and volume of deals from both mainstream and specialist lenders is great news for landlords as this has resulted in highly competitive rates and greatly reduced the premiums attached to these product types of times gone by. However, with so much choice comes additional complexity when it comes to finding the right deals to matching portfolio requirements.
So how do you know which lender is right for you?
This is the big question for many landlords, especially portfolio landlords. So let’s take a brief look at some of the many scenarios currently affecting them.
When adding to portfolios there are some lenders, for example Santander and TSB, who won’t lend to landlords with more than three properties. Other mainstream lenders won’t lend to landlords with over ten. Lenders will also take into account a host of other considerations. For more than three properties, some lenders will check the loan-to-value of the entire portfolio. Some will have a limit on the number of mortgages with that lender; some may have a limit on the mortgage amount with that lender. Some may ask landlords to stress test the entire portfolio, some many only ask to only stress test the new property.
Landlords might assume that regulatory reforms have brought all lending offerings largely in line with each other, but this is not the case. Each lender has individual lending policies, criteria, stress tests and explaining their interest cover ratio is perhaps an article in its own right! The fact is that products, criteria and lending approaches are changing all the time, which is why landlords need to arm themselves with as much information as possible and have access to the right tools, solutions and advice to help ensure they can access the right kind of deals for them.
The new BTL market is a challenging but exciting one and is filled with opportunity for a variety of landlords. However, this additional complexity means that all landlords need more support than ever to maximise yields, minimise cost and understand lender demands. Thankfully, technology is helping to bridge this support gap and the sooner landlords embrace this, the better.