Will Leyland, 25 April 2017
A recent report has suggested that buy-to-let investors are now seeking smaller and more affordable properties as tax changes and new rules begin to bite. Mortgages for Business (MfB), a buy-to-let mortgage provider, published research which showed that the average property value and loan amounts being taken by landlords has dropped significantly in first quarter of 2017.
In the last few years there has been a string of announcements from the Government and the Treasury aimed at slashing tax benefits for landlords and initial indications are that there has been a relative slowdown in terms of market activity. On the other hand, this has meant that those who have remained in the market have been able to make the most of an under-supplied environment.
In times of change the most innovative people find ways of changing their approach to navigate their environment, and these new figures could be the first indication that the best investors are finding new ways of making the most of a still-profitable market. According to MfB: “Purchases saw sharp increase in market share in the first quarter of 2017, most evidently among complex property types. Vanilla purchases were also slightly (circa 3%) above the long term trend, which is likely evidence of an ongoing process of incorporation via purchase transactions. Meanwhile, we have seen a marked drop in the average loan amount and property value across all property types, suggesting that landlords are refocusing this quarter on cheaper and complex properties to make the most of their capital. We have also seen an increase in the average requested loan to value (LTV), with closer examination suggesting a link to increased limited company activity. Limited company borrowers typically receive higher LTVs than those borrowing in personal names, so the ongoing trend towards incorporation is, by extension, also a trend for higher LTVs.”
‘Vanilla’ buy-to-let is another name for standard buy-to-let properties, so the majority of standard purchases by landlords. The innovation and change in focus towards a higher number of properties at a lower value could well see landlords reaping much higher yields as, typically, lower priced properties tend to garner higher returns on rental income.
This has also encouraged landlords to seek the services of professional letting agents on a scale not seen last year. It is still true that the majority of landlords prefer to use letting agents to market, maintain and look after their rental portfolios but with a new concentration on quantity there could well be a notable increase in custom for reputable agents.
Demand has seen no drop-off so far this year with most letting agents reporting strong rates of enquiries for rental properties and, according to statistics published in The Telegraph, this year saw a significant rise in private renting in Britain. The number of private renters is now increasing as such a rate that, if it were to continue at current rates, within 10 years half of all households headed by someone aged under 55 would be renting privately. Within another 10 years, half of all households in total would be. The statistics show that 71% of all households headed by someone in their 20s or late teens were renting privately by 2015-16. A decade earlier that proportion had been 50%.
Clearly, there is no evidence that renting statistics are likely to decrease, and with landlords now diversifying their investments and relying heavily on the support of letting agents the government would do well to take this in to consideration and give both a break.
Will Leyland, 25 April 2017