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Resilient landlords on the lookout for new opportunities

14 February 2019

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
2 https://www.ftadviser.com/mortgages/2019/01/17/mortgage-market-bolstered-by-first-time-buyers/

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Help is out there for customers suffering a credit blip

14 February 2019

Alan Cleary - Managing Director of Precise Mortgages

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

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The crunch on landlords is beginning to bite

08 February 2019

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
2 https://www.ftadviser.com/mortgages/2019/01/17/mortgage-market-bolstered-by-first-time-buyers/

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Three trends set to drive growth for both us and brokers

01 February 2019

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.

The downsizers

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.

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Precise Mortgages appoints new Business Development Manager for London and South East

14 January 2019

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].

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