Alan Cleary - Managing Director of Precise Mortgages
The Budget has been and gone, and for the first time in a few years there was relatively little fanfare for the housing market. The usual cries to reform Stamp Duty from across the property market fell on deaf ears, though last year’s Stamp Duty exemption for first-time buyers was extended to shared ownership. That, I think, was more to pay lip-service to housing than contribute to solving the UK’s supply problems.
There were also some changes to lettings relief which will affect accidental landlords, but then the previous raft of changes to buy to let tax relief have already put paid to that end of the market largely. There were some minor changes to planning too.
So the Budget’s done and Brexit’s still to come, but I’m more concerned about the here and now. Instead of focusing on the negatives, I’d like to concentrate on some of the positive things that are happening in the market. Here are four things that, to my mind at least, give cause for optimism in a world that is still very uncertain.
A record proportion of landlords are making a profit from their lettings activity
Recent research conducted by BVA BDRC1 has found that 88 per cent of landlords made a profit from their lettings activity in the 3rd quarter of 2018 – that’s an increase of 2 per cent from Q2.
Perceived tenant demand is increasing
The BVA BDRC research1 found that the proportion of landlords reporting a drop in tenant demand has fallen by 8 per cent from the end of June 2018 – the lowest point since the end of 2016. The situation in Central London continues to improve with a 9 per cent increase in the proportion reporting increasing demand and a 14 per cent fall in the proportion who feel that demand has fallen in the last three months.
More customers are planning to buy rental property within limited company structure
The BVA BDRC research1 also found the number of customers planning to buy rental property within a limited company structure continues to grow and has risen by 12 per cent over the last six months. The proportion of landlords with three or fewer properties planning to buy their next rental property as a limited company has almost doubled since the last quarter, whilst the proportion amongst portfolio landlords (that is customers with four or more mortgaged buy to let properties) remains stable at around one in two. There has been a corresponding 8 per cent fall in the proportion planning to buy a rental property as an individual.
Buy to let mortgage rates have never been lower
Moneyfacts data2 puts the average five-year fixed rate at 3.4 per cent in October compared to 3.55 per cent in April and 3.77 per cent this time in 2016. That’s astonishingly good value given the fact that, since then, the Bank of England has raised the base rate not once, but twice. Add to that the fact that money market rates are also rising with the ever-nearing Brexit deadline and still no firm deal on the table, and it’s unlikely that these rates will be around indefinitely. This is reflected in the figures – August’s remortgage approvals hit nearly 14,000 according to UK Finance, up 4.5 per cent on the same month last year3.
Here and now
So what does this all mean? Despite all of the doom and gloom being reported by the media, I believe the buy to let market is very much alive and kicking, although it looks different to what it did a couple of years.
While smaller landlords are finding it tougher and might be thinking of selling up, those with larger portfolios are shifting their attentions to new areas of the market.
Properties purchased through a limited company structure, for example, are unaffected by the reduction in mortgage interest tax relief and landlords can continue to deduct interest from the rental income to calculate the profit on which tax is calculated. Elsewhere, HMOs and multi-unit lets offer landlords the opportunity to attract higher rental yields and provide a more consistent source of income during void periods compared to single occupancy properties.
Specialist lenders such as Precise Mortgages understand the evolving market and customers’ changing needs and can offer a range of buy to let mortgages designed with this new-breed of customers in mind. When one door closes, another one opens, and there are still plenty of opportunities out there for discerning borrowers.
1BVA BDRC Landlords Panel Syndicated Research Report Q3 2018
2Moneyfacts press release. 16th October 2018. Average five-year fixed BTL rate lowest on record