Alan Cleary - Managing Director of Precise Mortgages
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
Alan Cleary - Managing Director of Precise Mortgages
It’s been an interesting start to 2019 – Brexit notwithstanding. Closer to home for those of us in the mortgage industry, people are feeling rather down in the dumps about things in the first half of the year.
However, this is mainly because there is still so much political uncertainty for both individuals and businesses at the moment. In fact, the reality is that the underlying fundamentals in the housing market are still pretty resilient.
House price inflation is relatively stable and rising almost everywhere except in London and the South East. Lenders have not shown a decline in their appetite to lend, either in the residential or buy-to-let markets. Price competition on mortgage rates in both markets remains fierce.
Weaker consumer confidence aside, we’re quietly confident about the coming year. Partly, that’s based on three demographic trends that have little or nothing to do with Brexit or consumer confidence.
The rise of the self-employed
Homeowners with more complex income sources and those running their own businesses are still seeking out specialist lenders on the advice of their broker. There remains a need for lenders that will take a common sense approach to underwriting their remortgage and purchase applications.
There are now around five million self-employed people in the UK, a contingent of our workforce that continues to rise with the growth of the gig economy and a move towards more flexible working. We’re expecting to see that demographic trend continue, this year and well into the future, deal or no deal.
Professionalising the private rented sector
The shape of the buy-to-let market is also undoubtedly shifting, with most now accepting that the so-called ‘amateur landlord’ with one or two buy-to-lets has either exited the market or is preparing to.
This has impacted our business positively as we have always focused on niches and the professional landlords with larger portfolios, complex multi-lets and HMOs have been our bread and butter.
We’re expecting this to ramp up over the course of 2019 and suspect that preparing for January’s self-assessment tax deadline focussed the minds of those remaining landlords who had not perhaps fully anticipated the effect of reducing tax relief on their buy-to-let mortgage interest.
That brings me onto the bridging sector, which has had a decade-long run of growth. The majority of lending we do at Precise Mortgages in the short-term sector is regulated and, increasingly, it has served homeowners looking to downsize.
In a perfect world (or housing market) there would be sufficient stock of the right type and in the right location for everyone to move freely and buy and sell simultaneously. But the world is far from perfect, and one of the practical results of lower homeowner confidence has been a drop in stock levels on estate agents’ books.
This has driven an uptick in the number of households looking to bridging to fund the gap between buying the perfect smaller home, often nearer children, and selling the larger family home, often further out of town and requiring a little longer on the market to shift.
We think this type of lending is critical to keeping the wider housing market moving and it provides a lifeline for those families who want to be closer together as their lives change and move on.
No matter what else 2019 has in store for us, these three trends are set to continue and drive growth both for us and for brokers who are perfectly placed to advise worried borrowers through any imminent choppy waters.
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].
A property investor has achieved net equity growth of nearly £40,000 in just two months using Precise Mortgages’ groundbreaking new Refurbishment Buy to Let proposition.
Both elements of the case were packaged by 3mc. After the Decision in Principle (DIP) was received, Precise Mortgages completed on the bridging finance element of the case in just nine working days which enabled the customer to purchase the property at auction. Once refurbishment work had been carried out, the property was revalued at more than £300,000. The time taken from initial DIP to completion of the buy to let loan was just eight weeks, including the Christmas and New Year period.
Refurbishment Buy to Let offers customers the best of both worlds when financing a refurbishment project – quick access to flexible short-term finance which enables a property to be purchased at auction and refurbished before the peace of mind and security of an exit onto a long-term mortgage once the work has been completed. Landlords can borrow up to 75% LTV on the bridge and 80% of the post-works valuation on the buy to let mortgage.
Brokers benefit from a streamlined application process which includes a range of great features, including one application form which produces two offers and two procuration fees (one for the bridge and one for the buy to let). They also receive support from a dedicated team of expert underwriters who provide help every step of the way. Bridging rates start from just 0.49% and no mortgage repayments are required whilst the refurbishment works are being completed.
With landlords looking for different ways of boosting their profits and increasing rental yields and capital values, it is suitable for a range of landlord types, including personal ownership, limited company and HMO applicants. Interest Coverage Ratio options are available to ensure brokers can tailor affordability assessments to customers’ personal circumstances.
Alan Cleary, Managing Director at Precise Mortgages, said: “Landlords have traditionally faced difficulty in securing finance to refurbish a property before letting it out: this product enables them to do so. It allows them to purchase an under value property without having to be a cash buyer and to use the equity growth to invest in future projects should they wish to do so.”
Doug Hall, Managing Director at 3mc, added: “This was great service from Precise Mortgages, assisting 3mc to complete both parts of their new Refurbishment Buy to Let range.
“You don’t often see products coming together in the specialist lending market, so I love the fact that Precise Mortgages has been bold enough to bring Bridging Finance and Buy to Let Mortgages together.”
Alan Cleary - Managing Director of Precise Mortgages
If 2018 was characterised by one word, it was Brexit. 2019 looks set to be dominated by Britain’s exit (or not) from the European Union too.
But I think we should reclaim the B-word and start focusing on what comes next. So on that basis, my B-word for this year is broker.
At Precise Mortgages, we’ve always supported intermediaries – it’s our view that brokers are fundamental to the success of our business. In large part this boils down to distribution, but it’s not just about that. We strongly believe that advice is key to good lending.
There are a number of reasons for this but paramount is the fact that advice means good borrowing, and if a loan is affordable for the borrower, it stacks up for the lender.
While the Mortgage Market Review made affordability intrinsic in the assessment of a mortgage application, it also provided for the role of advice in that application. And never has this been more important in our view.
Brexit has created a huge amount of uncertainty for government, regulators, businesses and individuals alike. And planning for that uncertainty is nigh on impossible – as everyone keeps saying. But life goes on regardless and it’s here that advisers are so valuable to businesses and individuals.
Good financial advice has always accounted for uncertainty because, let’s face it, no-one can predict the future. It’s why lenders stress-test affordability and why anyone investing their money in property or any other asset is constantly reminded that values can go down as well as up.
The key is that the advice makes reasonable sense given the information available. And for those buying property or remortgaging an existing home or buy-to-let that means being able to afford the repayments for the foreseeable future.
Whatever happens, there’s already been a huge uptick in the number of borrowers choosing to lock in their mortgage rate now. Data from Experian shows that 89% of mortgage shoppers looked at fixed-term deals in December, up from 85% in November and 83% in October. By stark contrast, interest in tracker mortgages accounted for just 6% of searches in the last three months of 2018.
Fixed rates have always been a popular choice for first-time buyers, unused to uncertainty about their financial outgoings. Clearly, the ongoing political drama, together with repeated warnings of a rising base rate, has prompted advisers to recommend that those further up the ladder also create a bit of financial certainty for themselves at a time when so much else is up in the air. This is sensible advice, especially when mortgage rates are so low.
Last year saw margins on residential lending squeezed at all loan-to-values and it’s unlikely that such pressure will continue throughout the next 12 months.
So while 2019 is likely to have some ups and downs, we are expecting it to be one full of opportunity for brokers. They have always thrived in uncertain times because good advice is good advice, no matter what happens politically.