New research* from Precise Mortgages, the UK’s leading specialist lender**, shows landlords with bigger portfolios have swung dramatically to using limited company status for new purchases highlighting the ongoing switch in the buy- to-let market as landlords reshape portfolios.
Nearly two out of three (64%) of landlords with more than four properties who plan to buy this year will use limited company status compared with just 21% who intend to buy as individuals.
Across the market as a whole 44% of landlords planning to buy will use limited company status but that drops to 17% among landlords with one to three properties. Around two out of five (37%) of smaller portfolio landlords will buy as individuals, the research shows.
Research* for Precise Mortgages found more than six out of 10 landlords planning to fund new purchases this year will use BTL mortgages. However, the study found 73% believe lending criteria and portfolio application process changes introduced by the Prudential Regulation Authority are making it more difficult to secure mortgages while 57% say the changes will slow applications down.
Limited company status is growing in popularity as the phased reduction in mortgage interest tax relief does not affect limited company landlords who can continue to offset mortgage interest against profits - which are subject to Corporation Tax of 19% instead of income tax rates.
The interest coverage ratio on limited company applications is also lower than for most individual landlord applications.
Alan Cleary, Managing Director of Precise Mortgages, said: ““The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.
“There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next. Brokers and customers however need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”
Precise Mortgages has a specialist limited company buy to let intermediary support team available at [email protected]. Full details of its range of products designed specifically for applications within limited companies are available at www.precisemortgages.co.uk.
Precise Mortgages, the UK’s leading specialist lender*, has appointed a new Key Account Manager to further strengthen the relationships with its key account and distribution partners.
Jonathan Mann will work closely with the lender’s Head of Key Accounts, Liza Campion, and its networks, clubs and packagers.
As a former Business Development Manager, Jonathan brings more than a decade of experience and knowledge to his new position, including roles at Secure Trust Bank and Cambridge Building Society.
Liza Campion, Head of Key Accounts at Precise Mortgages, said: “We are very excited to welcome someone of Jonathan’s calibre to Precise Mortgages. His appointment reinforces our commitment to our Key Accounts and he will act as a vital link between us and all the networks, clubs and packagers that we’ve been working with for a number of years.”
Jonathan added: “I’m honoured to be joining a lender that offers so much to the broker community. I’m looking forward to further developing Precise Mortgages’ broker proposition and helping to enhance brokers’ knowledge of the specialist lending market.”
Source: *BVA BDRC: Project Mercury Q3 2018
Landlords have had a bumpy ride over the past three years what with the introduction of the stamp duty surcharge and the phased loss of tax relief, but they’ve proved a resilient bunch.
The latest English Housing Survey1 from the government, published in late January, showed that the proportion of households in the private rented sector has not changed for five years. In 2017-18 the private rented sector accounted for 4.5 million - equivalent to 19 per cent - of households in the country. This is double the size of the private rental sector in 2002, but is a proportion that has remained steady since 2013-14, despite the challenges set in front of landlords.
It’s interesting timing as 31st January was the first time landlords had to file their self-assessment tax returns to include a 25 per cent reduction in tax relief on their buy to let mortgages. It’s also the first time that this reduction will have resulted in a bigger tax bill to pay.
In other words, the crunch on landlords is beginning to bite.
While we deal with mainly professional and portfolio landlords, we are aware of there still being a contingent of smaller scale landlords who hadn’t fully accepted that their finances were about to change. Presumably now, reality will have hit home.
This is likely to prove a kick for those landlords who are still to adjust to the new market dynamics. It’s funny how the loss of cool hard cash can focus the mind. This year’s tax return will have included the loss of just 25 per cent of their relief; it’s going to get worse from here on in.
We would expect there to be a further sell-off of properties, largely in areas of the country where capital values remain high and yields are harder to maintain with the loss of relief.
But this is no bad thing. The property market suffered back in 2008 when a flood of buy to lets hit estate agents’ books as amateur landlords sold out, often at a loss, following a boom in buy to let lending and inner city developments built specifically to cater to landlord demand as opposed to tenant demand.
This time around is not like that. For a start, tenant demand is strong across the country, supporting the commercial argument for continuing to be a landlord. Capital values are softening in London and the South East, but house price inflation continues to be positive further north where capital outlays are lower for new investors. Affordability criteria is sensible and builds in more than a sufficient buffer, even should the ongoing Brexit negotiations (or lack thereof) depress economic growth in the UK this year.
We are seeing a redeployment of capital in the private rented sector; not the end of buy to let.
Professional landlords are reshaping their portfolios, spreading capital more evenly to bring down portfolio loan-to-values and minimise mortgage costs. Use of other income is increasingly incorporated into affordability calculations to allow landlords more flexibility on how and where they use their capital.
They are seeking out more profitable properties to replace those that have been or are being sold. Semi-commercial, multi-lets and houses in multiple occupation have seen a big uptick in popularity over the past couple of years.
Limited company buy to let has dominated the purchase market for obvious reasons, something we expect will continue this year and next.
It may sound contrary to the lending figures coming out of UK Finance2, which show a drop in the number of new purchase buy to let approvals in November, but the buy to let market in this country is growing. Perhaps not in size, but in maturity, its development is undeniable.
With headlines claiming the imminent demise of buy to let, it can be easy to worry that the market is dying a slow and painful death.
Nothing could be further from reality. Markets go through phases, just like people. Buy to let was born only 20 years ago. Quite rightly, it’s learning to be more grown up. That is not only good for landlords, it’s also good for lenders, brokers and stability in the wider market.
Source: 1 https://www.gov.uk/government/collections/english-housing-survey
If there has been one thing that has dominated the news over the past couple of months other than Brexit, it’s been the high street.
Nearly every day brings yet another admission from the boss of a ubiquitous high street name that sales have slumped and jobs will be lost.
Debenhams, John Lewis, House of Fraser, Coast, Patisserie Valerie… the list goes on. Research from the Centre for Retail Research1 suggests that job losses on the high street are expected to rise by 20 per cent this year, leaving more than 160,000 people out of a job.
For those who are facing redundancy, it’s a far bigger worry than simply the closure of shops and increasingly ghostly high streets.
Forgive the gloom, but this raises a really important consideration for both lenders and brokers.
The three Ds - death, divorce and debt - are a reality that all of us have to deal with at some point in our lives, whether directly or through someone we know.
Each of these circumstances can throw off even the best laid financial plans. The most stringent affordability assessment in the world cannot foresee the breakdown of a marriage in five years’ time or the loss of a job held for the past 20.
How lenders deal with the changes in circumstances for borrowers who must deal with these challenges is fundamental to our responsibility to treat all of our customers fairly. The Financial Conduct Authority has been assiduous in its encouragement of forbearance and repossessions have been extremely low for more than a decade as a result.
In the majority of cases where customers lose their jobs, they will find another one and avoid arrears or manage to get their finances back on track after a few months. But this leaves them in a really disadvantaged position, especially when it comes to getting approved for a mortgage – or, more often, a remortgage.
It requires careful and sensitive underwriting to assess these borrowers’ affordability and it never makes sense to give a borrower a loan they cannot afford to service (at Precise Mortgages we require a customer to have been in their job for at least 3 months and be able to demonstrate a 12 month continuous employment record), but there are tens of thousands of people in the UK whose credit is inadvertently damaged temporarily who are nevertheless financially responsible.
A blip in credit is just that, a blip. Customers must be aware that there is help out there and brokers are ideally placed to advise as to how they can access that help.
Source: 1 https://www.thisismoney.co.uk/money/news/article-6538509/164-000-jobs-face-axe-disaster-high-street-Store-closures-hit-22-100.html
Precise Mortgages, the specialist lender, has further strengthened its Sales Team after appointing a new dedicated Business Development Manager (BDM) for the London area.
The specialist lender has appointed Nick O’Leary to support brokers in the North West London, Harrow, Hemel Hempstead, Luton, Slough, St Albans, Stevenage and Watford postcodes.
A former mortgage broker himself with years of experience at Meridian, Nick will support brokers with all of their Buy to Let and Residential Mortgage, Bridging Finance and Second Charge Loan enquiries.
Jamie Pritchard, Head of Sales for Precise Mortgages, said: “Nick’s arrival will enable us to further strengthen our proposition in the London and South East regions.
“As a former mortgage broker, Nick brings an understanding of the difficulties and challenges brokers face on a daily basis and this experience will help him to support their specialist borrowing needs.”
To arrange an appointment with Nick, call 07867 461556 or email [email protected].