Alan Cleary – Group Managing Director OneSavings Bank and Precise Mortgages
Happy New Year to you. I hope you had a relaxing break and are looking forward to a new year full of new opportunities.
So what does 2020 hold? I think there are some trends which have emerged in recent times that are likely to become even more prominent over the next 12 months.
The proportion of homes let by accidental landlords fell for the first time in five years towards the end of 20191. The sheer number of reforms which have been introduced in recent years are undoubtedly a factor and with more changes affecting capital gains tax and lettings relief due to come into force in 2020, the number of accidental landlords exiting the market is likely to continue.
But as one door closes another one opens and landlords who are focussed on growing and diversifying a property portfolio by looking at other ways of maximising their rental yields, such as HMO properties and holiday and student lets, are well placed to take advantage of the new opportunities.
This group of landlords are also considering operating their buy to let business as a limited company. This is reflected in our own research2 which found that 62% of landlords with 10 properties or fewer intend to purchase their next buy to let property within a limited company structure (up from 51% in the previous quarter). This figure rises to 65% of landlords with 11 or more properties.
Click here to read Ryan from our Underwriting team’s blog about why more landlords are making the move to limited companies.
The Bridging Finance market finished 2019 strongly, with a recent article in Financial Reporter showing that loan applications in the third quarter saw an annual rise of nearly 17%, reaching £6.1 billion3.
We also experienced a strong year for Bridging here at Precise Mortgages. Much of the turnover was driven by landlords re-engineering their buy to let portfolios and looking to add value by purchasing and refurbishing new properties or converting single let homes to HMOs.
Our Refurbishment Buy to Let offering provides the flexibility of Bridging Finance with the surety of an exit on to a Buy to Let Mortgage once any improvement work is completed, provided there are no changes and the property meets the expected valuation following refurbishment. It also allows works being completed under permitted development rights, potentially enabling landlords to change the use of a property from a C3 dwelling house to a C4 House in Multiple Occupation with up to six bedrooms.
In his recent blog, our Senior Product Manager Tim included a case study showing how Refurbishment Buy to Let works. Click here to take a look.
And with permitted development rights due to be extended to purpose-built blocks of flats from this January, and eventually rolled out to detached houses which would allow homeowners to add an extra two storeys without having to seek planning permission, it’s likely this will support solid lending volumes in the sector in 2020.
The latest survey from Royal Institute of Chartered Surveyors4 (RICS) predicts an improvement in the residential market, which has been relatively quiet in recent months. RICS predicts that momentum will pick up over the coming months with the sales expectations net balance edging up to 11% (up from 5 % in October 2019). Looking further ahead over the next 12 months, a net balance of 35% of respondents said they expect sales to increase in a year’s time.
Looking at regions individually, there should be an increase in transactions in virtually all areas of the country in 2020. Prices are also expected to pick up, with 33% more respondents in the November survey anticipating house prices will rise rather than fall over the next 12 months. Significantly, prices are expected to return to growth across all areas of the UK, with Wales and Northern Ireland leading the way.
If you’d like to find out how much your customer could borrow, our Residential Mortgages Affordability Calculator could help. Click here to read Business Development Manager Gareth’s blog where he explains how, in just a few seconds, you can get an indication of how much your customer could borrow without having to complete a DIP first.
Despite all of the uncertainty that’s around at the moment, I think there are still plenty of reasons to look forward to 2020. If you’d like to find out more about how we could help you make the most of the new opportunities, please contact a member of our Sales Team or call our dedicated support service on 0800 116 4385.