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Industry must keep its eye on the proliferation of new short-term lenders

29 November 2018

Alan Cleary - Managing Director of Precise Mortgages

It’s been interesting to watch how the specialist and short-term lending markets have evolved over the past few years. Increasingly, providers have moved away from trying to be all things to all people and focused instead on serving niches. How different providers approach this though is telling.

It’s not the first time I’ve raised this, but it’s worth raising again. Brokers and lenders both have to be careful about who they work with, and that’s especially true in the specialist end of the market where not everyone is regulated to the same degree. That’s not to say that unregulated always means bad and regulated good. But where you’re dealing with smaller players, it pays to do your research.

As a lender, we want a good and healthy level of competition in the market. It makes everything work better from funding to product to service and ultimately competition helps the borrower get the best deal.

Healthy is the critical thing in there though. It’s in no-one’s interests to see the specialist market become dogged with the problems that inevitably result from lending too much to the wrong sort of borrower or deal with too little or lax underwriting. I’m increasingly nervous that, in the pursuit of so-called niches, this is where some in this market are heading.

Short-term finance is a far tougher business to make money in than it was 10 years ago. Then, there was one product, a bridging loan, and one price which fit all policy. Today, there is regulated bridging, unregulated bridging, light refurb, heavy refurb, auction finance, development finance, VAT bridging, bridge-to-let and a range of rates to match.

Diversifying and seeking out these niches has worked to the market’s advantage. Figures compiled by the ASTL for Q2 2018 showed annually, completions rose by 27.2 per cent, hitting £3.87 billion1. A growing market is good where it means that we are supporting sustainable developments and bringing quality housing stock back onto both the owner-occupied and lettings markets. Where growth is fuelling projects where arrears become a problem, where developments cannot be completed or where loans are not repaid in full as a result of profits being wiped out, the market has a problem.

As it stands, we’re not in this position, yet. But the proliferation of new short-term lenders claiming to have launched in response to an un-met demand for finance should be something the industry keeps its eye on. Similarly, raising funds through peer-to-peer investment has proven a hugely popular approach for many in the market, and for many, clearly it works. However, alarm bells should also start to ring faintly when every lender that cannot raise funds elsewhere repositions itself as a hipster P2P platform.

So I’d reiterate, it pays to know who you’re dealing with – particularly at a time when making a profit in the property market requires skill, judgement and experience. The old adage remains true: anyone can lend money, it’s much harder to get it back.

Source: 1

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Why the holiday let market makes a lot of sense

22 November 2018

Alan Cleary - Managing Director of Precise Mortgages

It seems unusual to be talking about holidays in November – unless of course you’re lucky enough to be jetting off in search of some sunshine or taking to the slopes in the depths of British winter.

But I want to talk about holidays, the sort that Brits take at home. The past 18 months have brought more uncertainty to both the housing market and UK economy than we’ve seen for many years.

Since Britons voted in favour of leaving the European Union back in 2016, the value of the pound has sunk and the latest assurances on Theresa May’s government securing a good deal ahead of our exit in March 2019 (or later as it now appears could be a possibility) have done little to shore up confidence.

The government has also, simultaneously, stuck to its guns on the phasing out of tax relief on mortgage interest for buy-to-let landlords letting to tenants on assured shorthold tenancies. By all accounts, the strain is starting to show with the Ministry of Housing figures revealing landlords offloaded 3,800 properties a month in 20171.

Like the rest of the market, at Precise Mortgages we’ve seen more purchases through limited company structures as a result and increased appetite for investment outside the capital and in HMOs and multi-lets. There’s also been another, smaller scale shift in the buy-to-let market with landlords increasingly considering holiday lets as a logical move.

The most obvious driver of this is holiday lets’ exemption from the changes to tax relief; while landlords letting on ASTs must now pay tax on their revenues and then claim back a tax credit, holiday let landlords are still eligible for full tax relief on buy-to-let mortgage interest. The cost of furnishing holiday lets can also be written off for tax purposes against the remaining profit.

For landlords considering this route, there’s been at least some consolation in the pound’s poor performance and the ongoing uncertainty around the terms of Britain’s exit from the EU. More Brits are choosing to stay at home for their holidays.

Research conducted earlier this year by Travelodge2 suggested the average spend on this year’s stay at home holidays will be £823 – up 37 per cent from last year. According to Travelodge, 85 per cent of us now take three ‘staycation’ breaks a year on average and 38 per cent of Britons want to holiday in the UK rather than Europe in order to support our economy.

Part of our ethos is to help challenge the status quo in the market, within clear regulatory and risk parameters. The holiday market is one which has historically been underserved by lenders, but we think it makes a lot of sense for both landlords and for ourselves.

It’s a small chink of light in the buy-to-let sector, which has been fighting hard to deal with raft upon raft of regulatory change over the past few years, but, if done right, there’s money to be made and signs that it’s a market with increasing domestic demand.


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Experienced HMO landlords prepared for the new licensing rules

08 November 2018

Alan Cleary - Managing Director of Precise Mortgages

As if landlords haven't enough to think about with the usual day-to-day of running their portfolios, tax-planning and managing their financials, this month brings yet more change for landlords with the extension of licensing rules on HMOs, which came in on Monday 1st October.

According to recent research*, the changes are set bring more than 160,000 properties into the HMO licensing regime.

For clarity, the new scope of the rules mean that any property let to five or more tenants from two or more households will, regardless of the number of floors, now have to have a valid HMO licence. This is a big shift from the previous licensing rules which applied only to properties with five or more tenants from two or more different households where the property was three or more storeys.

If landlords fail to get their licence, local authorities will be able to fine them up to £30,000 and, in extreme circumstances, bring criminal charges against them. It sounds extreme, but the government justifies the licensing extension because of ongoing poor conditions in the private rental sector.

While I have no doubt there are plenty of examples of landlords stuffing properties full of tenants in dreadful conditions, it's far from the norm. I've seen relatively little from lenders on the subject of how they plan to deal with the licensing changes.

I can't answer for other lenders, but for Precise Mortgages all mortgage applications where the security is captured under the new licensing rules will require a valid licence to gain approval. It's the law.

Landlords are businessman, and it's their responsibility to ensure that they operate in ways which are compliant with the law. At Precise Mortgages, we are careful about who we lend to and that the security is what the application claims.

This becomes even more important when lending to professional landlords with multiple properties. The more complex the financial position of the borrower and the nature of the security, the more careful our underwriters are.

Our doors are open for landlords with HMOs - we think, generally, that this type of landlord tends to be experienced and commercially driven. That continues to be our view, licensing change or not.

Affected landlords who will need to remortgage onto a specialist HMO product after the changes are expected to comply with the law by government. We will also expect them to comply with the law.

But that doesn't mean we won't be lending to them. The same very basic rules apply. If the maths adds up, then we're on board.


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Maximise rental yield and increase capital value with Precise Mortgages

07 November 2018

Precise Mortgages has launched a brand new Refurb Buy to Let proposition designed to help landlords maximise rental yields by refurbishing a target property before renting it out, as well as enabling them to take value from the property to reinvest elsewhere.

The specialist lender’s exciting new product gives customers access to great bridging finance rates together with the peace of mind of knowing they have an exit onto a long-term buy to let mortgage already in place once the work has been completed.

The proposition, which is only available through mortgage intermediaries, is suitable for a wide range of landlords, including personal, limited company and HMO applicants, and offers ICR options to help with affordability. Customers must be confident they can complete any refurbishment work within the buy to let offer validity period.

It is supported by a streamlined process designed to make placing a case with the lender as easy as possible.

  • One application form will produce two offers – one for the bridge and one for the buy to let
  • Dedicated team of expert underwriters to provide help every step of the way
  • The same valuer for both the initial valuation and the re-inspection (where possible)
  • One conveyancer and discounted legal fees
  • Two procuration fees – one for the bridge and one for the buy to let
  • Landlords get peace of mind they have an exit already in place and the price of the buy to let loan at offer will be the price they get on completion, very useful in a rising rate environment (providing there is no change in circumstances and the property meets the expected valuation following refurbishment)
  • Landlords can borrow up to 75% LTV on the bridge and 80% of the post works valuation on the exit buy to let to help optimise cash flow

Bridging rates start from 0.49% per month and customers can choose from a range of competitive products. No mortgage repayments are required whilst the refurbishment works are being completed.

Alan Cleary, Managing Director of Precise Mortgages, said: “With landlords looking at different ways of boosting their profits, this product gives them a new way of increasing rental yields and capital values. Landlords have traditionally faced difficulty in securing finance to refurbish a property before letting it out. This product enables them to do so, and it is backed up with a host of features which are designed to make applying for it as easy as possible.”

Joe Breeden, Managing Director of Crystal Specialist Finance, who were one of the firms on the pilot, added: “We completed a Refurb Buy to Let case in 17 days from start to finish. We have a very happy client, a positive outcome and a good experience. We have plenty more of these cases to send to Precise Mortgages.”

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When one door closes, another one opens...

05 November 2018

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

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