Buy-to-let news to Friday, December 15th, 2017
Report reflects growing confidence among larger buy to let landlords
A new report has indicated that landlords who own 10 or more properties have the most positive outlook for the sector and are the most likely type to expand their property portfolios.
Kent Reliance’s Buy to Let Britain report, surveyed 856 landlords; of those who bought or sold property in the previous three months, it was the larger businesses, comprising of a portfolio of 10 or more properties, that made a net addition of one property.
The largest group, containing landlords owning five or less properties, did not grow their property ventures during the same timeframe.
The data also revealed that over 70% of buy to let applications in the first three quarters of the year came from limited companies, a sharp increase from the 45% in 2016.
Kent Reliance attributed this trend to the diminishing amount of mortgage interest tax relief that landlords can offset in their tax returns and believes that this issue will prompt more landlords to incorporate their property businesses in the future.
The report highlighted a changing culture among the UK’s buy to let landlords, claiming a more professional approach is evolving, partly down to the changes augmented by the Prudential Regulation Authority (PRA).
2018 could accentuate the positive for landlords
There are plenty of reasons for buy-to-let landlords to be cheerful as we head towards the New Year, following the announcement of a number of changes, set to have a positive effect.
That is the view of Upad.co.uk, citing many of the recent changes as beneficial in the long term for landlords.
The online letting agent says that whilst tax changes over the past couple of years have affected landlords financially, buy-to-let continues to deliver attractive rental yields.
Furthermore, the likelihood of 12-month tenancy agreements appears to be moving closer and will help landlords to mitigate the risks of periods when their properties sit empty and do not return an income, in addition to reducing the hassle of maintaining a property between tenancies.
Meanwhile, the Budget announced a U-turn to the Universal Credit protocol, which will see many landlords paid rent directly after all, rather than through their tenants. An improved Universal Credit system will encourage more landlords to take on tenants receiving this benefit and Upad believes that this demographic typically remain in the same property for longer.
Another plus for landlords has seen changes to the way tenants are referenced, adding reassurance for landlords that they are taking on reliable tenants who will pay their rent on time.
At present Government is debating how a tenant’s rental payment history can be included in their credit score, which if it comes to pass, would be a welcome reassurance for landlords.
In the wake of the recent Budget, Upad CEO James Davis, commented:
“Whilst longer tenancies aren’t exactly new, the fact that 12 months will now be standard should be welcomed all round. From the landlord’s perspective, it’s better to have the security of knowing your property is let, albeit without a regular % increase in the rent, than it is to enjoy 5% income rises but with the risk of costly void periods. It’s all about looking at the bigger picture and in this instance that is your profit and loss account.
“I’ve personally agreed many three or even five-year tenancies and have found that they offer me far greater security and peace of mind, compared to regular six monthly turnovers of tenants. Then, of course, there’s the simple ‘hassle factor’ of regular changes in occupants: cleaning, repairs, making time for viewings and the administration that goes with all of that. Personally, I’d rather get on with living life!”
It is important to remember though, that there are pros and cons to longer tenancies. Not least that some buy to let lenders do not allow tenancies over a given length, so from that perspective alone it is important to do your research.
Furthermore, you may want to extend caution when taking on new tenants, as if the relationship goes wrong, it may be far easier to end the tenancy using a ‘Notice to Quit’ at the end of a shorter fixed term period than it is to evict during a longer fixed term.
Tenant vulnerability exposed in new report
The financial vulnerability of millions of tenants has been highlighted by new research, which outlines the gulf between the dream of home ownership and the reality of debt, underlining the ongoing importance of the private rental sector.
The report indicates that a huge proportion of people renting their homes do not have a plan B to cope with extended periods of illness.
Data from Royal London indicates that 48% of tenants with no contingency plan have never thought about how they would cope, should they become too ill to work for three months or longer.
The research also revealed that 39% of working tenants have no savings, while 58% have under £2,000.
By contrast, and perhaps of greater concern, many tenants are in debt, with the average exceeding £4,600, while 32% owe between £2,000 and just under £10,000.
When asked how they would cope with a work absence of three months or more, 48% of working tenants said they would rely on state benefits, while 45% indicated that they would reduce their overall household costs. 36% of tenants said they would fall back onto their savings.
A further 37% would seek help from a partner, friends or family but just 4% suggested they would use an insurance policy like income protection.
“Our research shows the average renter owes nearly as much in debt as they hold in savings, this highlights that the dream of owning their own home is a long way off,” said Jennifer Gilchrist, insurance specialist at Royal London.
“Only three in 10 renters would receive full pay if they were ill and less than one in 10 have an insurance policy such as income protection that could provide a monthly income if they were ill. Just over a third of renters said they could afford to live for fewer than three months if they couldn’t work, so they really need to think about what their financial plan B would be.
“The results show just how financially vulnerable renters would be if they were not able to work,” she added.
Andrew Turner, chief executive at Commercial Trust Limited, commented:
“The findings of this survey might on the surface appear concerning for many landlords, but the reality is that this is not a new issue.
“What this data does expose is that home-buying affordability will remain out of reach for many tenants for a long time to come and that consequently the private rental sector is going to need to support millions of people who cannot afford to take that first step on the property ladder.
“The issue of tenant long term sickness is a risk for all landlords, but on the other hand, we have seen a number of positive steps recently, which should prove helpful to those letting out property, including reforms to Universal Credit and the likelihood of more accurate credit reports on prospective tenants, which include their rental payment history.”
Huge increase in buy to let remortgage activity in October
The trend towards increased remortgage activity in the buy to let market continued on a steep trajectory in October, reaching £2.4 billion of business, according to latest data.
The volume represented a leap of 20% month-on-month and year-on-year, the UK Finance figures revealed.
The organisation surmised that the increase was most likely the result of speculation that the Bank of England base rate was set to rise imminently, something that finally happened in November.
June Deasy, UK Finance’s head of mortgage policy, commented:
“Over the last year, the number of loans for remortgaging have been at record levels; this trend looks set to continue further as we head towards the end of 2017 and borrowers seek to take advantage of low interest rates.
“Mortgage repayments as a proportion of income still remain at or close to their historic low point, and despite the recent base rate rise we can expect monthly mortgage payments to remain affordable for the vast majority of borrowers.”
Commenting on the data, Andrew Turner, chief executive at Commercial Trust Limited, stated:
“It comes as no surprise that the volume of remortgage business ramped up sharply in October, given the historically low buy to let interest rates that prevailed, and the rumours that suggested a base rate rise was coming.
“Many shrewd landlords took the opportunity to review their existing finances and made the decision to remortgage to more competitive products.
“Of course rates have on the whole risen since November (when the Bank of England’s Monetary Policy Committee did increase the base rate by 0.25%), but relatively speaking, buy to let rates remain low, offering further opportunity for landlords to consider their options.”
Landlord confidence in rental income bounces back in Q3
Average gross rental income for landlords made a recovery in the third quarter, according to new data released by The Mortgage Works.
Over the 12 months to the end of Q3 of 2017, average gross rental income reached £59,000, an increase of £3,000 on the preceding period, but still £6,000 less than at the end of Q1.
Of the 12 regions, 9 recorded above average gross rental income, with Central London reflecting the highest total at £81,000, followed by Outer London (£76,000).
The disparity in gross average rental levels across the British Isles was reflected in the data, with Wales recording an average of just £47,000, closely followed by Scotland (£48,000) and the East of England (£56,000).
Whilst there has been speculation that rental increases might be reaching a ceiling in some areas, the TMW Gross Rental Income Analysis Report for Q3, conducted by BDRC Continental Landlord Panel research, reflected growing confidence among a resounding number of buy to let landlords that they will not have to reduce rent in order to meet tenant affordability.
29% of landlords said that they plan to increase rent in the next 6 months, while a further 57% anticipate making no changes.
The growing perception among landlords was that their region was experiencing rental increases, with 45% believing this to be the case, an increase of 6% on the previous quarter.
The glaring exception to this was in Central London, where one in three landlords reported that rents are falling locally and 19% said they have reduced rents in the past year.
The figures also suggested that much of the rental increase is driven by the ongoing costs of maintaining a mortgage, with those landlords still paying off a mortgage, receiving an average gross annual rental income of £70,000, a whopping 56% more than landlords with unencumbered properties.
The highest average rental yields, at 6.7%, were derived from Houses of Multiple Occupancy (HMOs), with Multi-Unit Block Flats next best at 6.5%.
The lowest rental yields came from Single Unit Flats.
Manchester and Hull emerge as leading lights for buy to let landlords
The results of a new survey have pinpointed the appeal of Manchester and Hull for those looking to invest in buy to let.
With a yield of 5.5%, Manchester’s properties came out top, as the best city in which to be a buy-to-let landlord, based on factors such as capital gains, transaction volumes, rental yield and rental price growth.
The data, revealed by LendInvest, also highlighted significant changes in Hull, now labelled the most improved city for landlords, where investment has resulted in higher yields of 4.20%, over the past three months. Birmingham and Leicester were also mentioned for improved landlord profits.
The LendInvest research took into account 105 postcode areas around England and Wales.
Ian Boden, sales director at LendInvest, commented:
“This month we see good news for the North and the Midlands as Manchester finally secures its spot in first place in our index after a closely watched climb to the top.
“Our biggest climber for the year was Hull.
“Since becoming ‘City of Culture’ back in January, Hull has received a new wave of confidence in the form of increased investment in the area, driven by higher rental yields.
“The location of these high climbers, ranging from Cornwall to East Yorkshire, shows how dynamic and ever-changing UK property investment can be across the country.”
Data shows the caring side of the PRS
A new report has highlighted the caring side of landlords when it comes to their relationships with tenants.
Whilst the last couple of years have put a strain on landlords, thanks to buy to let changes, landlords still regard maintaining cordial relationships with their tenants as crucial and will support them in times of difficulty.
In a survey conducted by Simple Landlords Insurance, 43% of landlords said that they already have – or would support vulnerable tenants, if they failed to report damage to their property.
Universal Credit has caused plenty of consternation, often cited as a primary reason for rental arrears. Despite its reputation, just 16% of landlords surveyed indicated that Universal Credit would influence their investment strategy, suggesting that many are content to house tenants on benefits.
According to data from the Residential Landlords Association, almost two thirds of landlords have successfully worked with tenants who fell into rental arrears, implementing Alternative Payment Plans.
Alex Huntley, head of operations at Simple Landlords Insurance, stated:
“It’s refreshing how many landlords actively want to support tenants when they get into difficulties, and how many want to help plug the social housing gap so many local authorities face.
“We hear a lot about rogue landlords, but this research presents a rather more humanitarian view. Landlords are people. The problem is, that they are not charities. They are people who are running businesses and they can’t run at a loss.”
Below are the top 3 buy to let mortgage deals, by lowest initial rate, for fixed, tracker and variable products.
This table updates twice daily with the latest deals from a diverse range of specialist and high street lenders. Call our team to discuss any deal or click through for the full range.
|Rate||Product||Monthly cost||LTV||Lender fee||APR|
|1.39% then 5.00% Fixed for 26 months||Fixed for 26 months||£115||60%||£2,178||4.70%||Enquire|
|1.50% then 5.19% Variable for 24 months||Variable for 24 months||£125||75%||£295||4.78%||Enquire|
|1.49% then 5.00% Tracker for 24 months||Tracker for 24 months||£124||60%||£2,178||4.76%||Enquire|
|1.73% then 4.99% Fixed for 26 months||Fixed for 26 months||£144||70%||£2,239||4.75%||Enquire|
|1.50% then 5.19% Variable for 24 months||Variable for 24 months||£125||75%||£295||4.78%||Enquire|
|1.89% then 5.00% Tracker for 24 months||Tracker for 24 months||£157||70%||£2,178||4.82%||Enquire|
|2.94% then 4.99% Fixed for 24 months||Fixed for 24 months||£245||80%||£1,825||4.94%||Enquire|
|2.89% then 5.19% Variable for 24 months||Variable for 24 months||£240||80%||£295||4.98%||Enquire|
|3.90% then 5.50% Tracker for 24 months||Tracker for 24 months||£325||80%||£500||5.43%||Enquire|
|4.59% then 6.58% Fixed for 24 months||Fixed for 24 months||£382||85%||£3,110||6.73%||Enquire|
|4.64% then 6.58% Variable for 24 months||Variable for 24 months||£386||85%||£3,110||6.74%||Enquire|
Important: Lender fee is calculated based on a loan amount of £100,000.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE.
*Some lenders offer mortgages with no fees; however, our broker fee of up to £1,198 for Buy to Let first mortgages and up to £2,198 for Buy to Let secured loans will apply.
This table includes both Purchase and Remortgage rates. Speak to our advisors for a personalised recommendation.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.