Alan Cleary - Managing Director of Precise Mortgages
Is anyone else fed up with hearing dire warning after dire warning on Brexit? It feels as though not a day goes by without the front pages revealing yet another politician has walked out over the Brexit negotiations, one retailer or another threatening to up sticks to Europe if Mrs May can’t get her government together, air traffic control telling us all flights will be grounded or doctors claiming we’ll run out of medicine.
Brexit has dominated the debate in newspapers, television, Westminster and dinner parties for more than two years now and, deal or no deal, it’s taking its toll on the UK. The reality is that regardless of whether Mrs May gets her soft Brexit or Boris gets his hard divorce, public uncertainty about our future economic resilience has become entrenched. This is showing in the housing market - often a good measure of public sentiment. While house prices have remained pretty flat on annual measurements, we have seen the odd monthly fluctuation across several of the indices. London and the South East particularly have seen some softening in values.
Falling house prices are feared by consumers, but over the past ten years, the fear has been pretty unfounded in most areas (there are notable exceptions to this rule - Northern Ireland being the obvious example). This is largely down to two things: the chronic lack of supply of new homes being built in the majority of England and Wales and people’s unwillingness to move, crystallising a perceived slump in the paper value of their home and incurring an unwanted stamp duty bill on the purchase of their next home.
The net result has been a severe lack of stock for sale. The latest RICS survey showed new sales instructions rose in June, but new buyer enquiries remained flat. The stock of unsold homes per surveyor edged up, from 42.7 homes in May, to 43 in June. But the latest reading is still close to a record low. This shows in the mortgage lending figures too, where growth in residential lending has largely come from remortgaging. Equity release lending meanwhile continues to strengthen, suggesting many older homeowners are choosing to extract capital from homes to make improvements or changes to their existing properties rather than downsizing and being hit with a whopping stamp duty bill.
At Precise Mortgages, we’re always thinking about what customers need and how to provide brokers with the best range of tools to service those needs. We’ve been lending up to 75 per cent loan-to-value on unregulated bridging for a while and we believe that even this is still a sensible and fairly conservative LTV. That’s why this month we decided to up our maximum LTV on regulated short-term deals as well. The purchase side of the housing market is stuck in a limbo that is only being exacerbated by the indecision our politicians have shown throughout these Brexit negotiations. But life goes on regardless and we don’t believe ordinary people should lose out when it comes to something as important as where they live as a result.
I’m still fed up of hearing about what may or may not happen next March if parliament ever manages to agree a deal. But at least we can provide a degree of certainty, however small, for those whose financial plans would otherwise be derailed.
Alan Cleary - Managing Director of Precise Mortgages
It’s been barely five months since the Spring Statement was delivered and landlords across the country breathed a sigh of relief to find there were no further tax shocks in store for them. I hope that relief will not be short-lived. In August rumours emerged that the Chancellor Philip Hammond may be considering another tax hike for landlords in his Autumn Budget; specifically, raising the stamp duty payable on buy-to-let purchases even further than the existing 3 per cent surcharge.
The latest Office for National Statistics numbers showed stamp duty revenues fell in the second quarter of the year, down 11 per cent compared to this time last year1. You could argue that stamp duty is not only dampening appetite for buy-to-let purchases, but in high value areas across the country, including most of London and the South East, the high tax bills that face homeowners looking to move are also putting them off.
I am inclined to think that raising buy-to-let stamp duty again would not accomplish much. Purchases are already significantly down from that final quarter before the changes came in at the start of April 2016. Charging landlords more up front is most likely to push up costs for tenants - and they are the ones saving to enable them to buy. Eating into that saving power is unlikely to prove popular with voters who are also would-be first-time buyers.
Instead, it’s the Bank of England’s affordability measures that have had a bigger effect on buy-to-let. The move to require tougher stress testing and higher interest calculation ratios has already pushed some landlords out of the market. However, this is more likely to be the case for private owners who were highly geared and were taking a punt on property rather than for professional landlords who understand the commercial dynamics of buy-to-let and recognise the risks.
We recently commissioned research from BDRC which confirmed our view that landlords are still able to make decent returns by investing in residential rental properties but that the tax changes have encouraged them and their brokers to review how they structure their portfolio finances.
Almost three quarters of the brokers questioned said they’d personally experienced a rise in the number of their landlord customers opting to take five-year fixed rates. August’s rise in the base rate to 0.75 per cent demonstrates the Bank of England’s clear commitment to return the UK economy to a more normal interest rate environment. That makes fixing at today’s lower five-year fixed rates look like a sensible idea.
For landlords who know they wish to stay put for that length of time, great. But we all know that five years can see priorities change dramatically. Brokers tell us there’s still a big demand for shorter-term rates from landlords still considering how to rebalance portfolios geographically - especially because the full force of the reduction in tax relief on mortgage interest will not be felt for another two years at least.
Our BDRC research found that 68 per cent of brokers said more customers who choose five-year fixes would choose shorter fixed rate periods if they could achieve the same loan using top slicing.
In some cases no doubt this is true, many lenders have chosen to offer flat ICRs at the top end of the stress test. But there are now several lenders out there seeking to offer more flexible ways to apply the ICRs to help landlords satisfy the Bank of England’s affordability requirements, including ourselves.
Using additional income sources to top up rental income does not necessarily mean using that additional income to pay the mortgage; it’s there as an affordability safety net over the next five years. There are more answers out there for landlords than there seem.
That said, I very much hope that the Autumn Budget has no more surprises in store for landlords - either in the shape of stamp duty changes or tax relief withdrawal above those already in motion. The market is still adjusting to the considerable change of the past two years. Let’s not make it harder for everyone before we see how the current game plays out.
The specialist lender Precise Mortgages has launched a new 5- year Fixed Rate Buy to Let range with reduced rates and product fees to support brokers and customers.
The new limited-edition products are available at 3.49% with a 1.5% product fee and 3.59% with a 1% product fee on LTVs of up to 75%.
They are available to landlords applying as individuals or through limited companies and on portfolios comprising houses in multiple occupation (HMO) demonstrating Precise Mortgages’ focus on responding to market changes.
Precise Mortgages believes the 5-year fixed rates are ideal for low yield and high value properties above £300,000 helping landlords get the loan size they want with the assessment rate based on the pay rate.
Syndicated research* for the specialist lender shows the highest yields across all types of property are currently available on HMO at 7.1% but that yields vary across the country with landlords in the North West achieving an average 6.7% compared with 4.8% in Central London where property values tend to be higher.
Alan Cleary, Managing Director of Precise Mortgages, said: “There is increasing demand for products targeted to address particular issues faced by brokers and landlords which is a major part of our role as a specialist lender as the new range demonstrates.”
Precise Mortgages offers an extensive range of Buy to Let products and full details are available at www.precisemortgages.co.uk.
New research* for the specialist lender Precise Mortgages reveals shows nearly two out of five (38%) landlords will use limited companies to buy properties over the next year compared to 28% as individuals, highlighting the continuing rise of the professional landlord.
Among landlords with more than four properties the percentage buying new property via a limited company rises to 42% while among those with up to three properties it drops to 31%. Landlords operating in London are the most likely to be planning to purchase through a limited company.
The findings underline the continued growth in popularity of limited companies among landlords. According to recent research** by Precise Mortgages, 89% of brokers expect the number of landlords setting themselves up as a limited company to increase with the ability to continue to claim tax relief on mortgage interest seen as the main motivation.
Around 15% of landlords questioned intend to add to their portfolios over the coming year buying an average of two new properties, the BDRC study found. Around 23% of those planning to buy will add three or more properties to their portfolio.
The specialist lender has a dedicated portfolio team and proposition to ensure the application process for brokers servicing professional landlords is straightforward. The team’s role is to do the heavy lifting for mortgage intermediaries and their customers, so the process is as efficient and smooth as possible. This has been supported by the launch of an online calculator and access to dedicated portfolio teams.
BDRC’s research found landlords with larger portfolios are significantly more aware of the Prudential Regulation Authority (PRA)’s lending criteria and portfolio application process changes. Less than half (45%) of all landlords are aware of PRA changes but that rises to 67% among landlords with four or more Buy-to-Let Mortgages. However, 74% of those with larger portfolios say the changes have made it more difficult to secure BTL finance, underlining the growing demand for specialist lenders.
Alan Cleary, Managing Director of Precise Mortgages, said: “Buying property within a limited company structure has become increasingly popular, particularly among larger professional landlords. Given the predicted rise in landlords switching to limited company status this year, we can expect this trend to continue.”
“The contrasting levels of awareness of the PRA’s recent changes to lending criteria and the application process between small and larger portfolio landlords points to the growing professionalisation of the latter group who stand to be the most affected.”
“Precise Mortgages is currently one of the most recommended specialist mortgage lenders***, helping landlords to find solutions and supporting them through the process.”
Precise Mortgages offers an extensive range of Buy to Let products designed specifically for applications within limited companies. Full details are available at www.precisemortgages.co.uk.
*BDRC Q1 2018 Landlords Panel syndicated research report prepared for Precise Mortgages. Fieldwork was conducted online between 9th and 20th March among a sample of 1,043 National Landlords Association members
**Research conducted by Pure Profile among 104 mortgage brokers specialising in buy-to-let conducted between February 13th and 21st 2018
***Research conducted by BDRC Mercury, Q1 2018
- Yields on houses in multiple occupation are 1.3% higher than Q1 market average
- Precise Mortgages offers HMO tracker rates from 2.75% and fixed rates from 3.09%
New syndicated research* for the specialist lender Precise Mortgages reveals landlords running portfolios comprising houses in multiple occupation (HMO) and multi-unit freehold blocks (MUFB) are achieving the highest rental yields despite market averages dipping slightly in the first quarter of the year.
Average rental yields for HMO are the highest across all types of property at 7.1%, 1.3% above the market average. Yields for multi-unit freehold blocks are the second highest at 6% highlighting the opportunities for landlords to refocus portfolios, the study by BDRC Continental found.
Across all property types average yields dipped slightly in Q1 2018 to 5.8% from 5.9% in the last quarter of 2017 and are now at the same level as Q1 2017. The highest average yields of 6.7% were achieved on portfolios of between 11 and 19 properties, underlining the continued rise of the professional landlord. By contrast those with just one property achieved yields of 4.8%. Precise Mortgages’ dedicated portfolio team and online proposition ensures that the application process for brokers servicing professional landlords has been made as straightforward as possible.
On a regional basis, landlords with portfolios in the North West reported the highest rental yields at 6.7%. Central London portfolios produced the lowest average yields at 4.8%.
Precise Mortgages, which launched its HMO range more than two years ago, is focused as a specialist lender on responding to market changes and is enhancing its range to specifically address the needs of landlords looking to expand portfolios or invest in the North.
Alan Cleary, Managing Director of Precise Mortgages, said: “As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets and rental income is more secure even if one tenant leaves a void.”
“Experienced landlords are looking to rebalance their portfolios and there is a real opportunity for brokers to support them to work with specialist lenders who are prepared to be flexible and have expertise across the widest product set.”
Precise Mortgages’ HMO product range includes two-year tracker rates from 2.75% and two-year fixed rates from 3.09% as well as lifetime trackers from 3.50% and five-year fixed rates assessed on pay rate from 3.69%. The portfolio lending limit has been increased to £10 million with a maximum of 20 properties with Precise Mortgages and unlimited with other lenders.
Full details regarding the Precise Mortgages buy to let range are available at www.precisemortgages.co.uk
*BDRC Continental Q1 2018 Landlords Panel syndicated research report prepared for Precise Mortgages. Fieldwork was conducted online between 9th and 20th March among a sample of 1,043 National Landlords Association members