Head of Distribution, Matthew Tooth, looks at how the landlord market is changing, and what that means for bridging lenders. This article was originally published on Specialist Lending Solutions.
From the moment the Chancellor announced there would be an additional 3% Stamp Duty surcharge on second homes back in the Autumn Statement, it was inevitable that landlords would be pushed into action.
Everybody knew that it would be a busy few months. But the sheer scale of the demand was extraordinary. Last week, the Council of Mortgage Lenders confirmed that there were 45,000 buy-to-let loans handed out to landlords in March, up by 142% year-on-year. The value of buy-to-let loans was up by even more, 163% year-on-year.
Buy-to-let loans weren’t the only mortgages in high demand in March. Bridging lenders – who tend to work with landlords who need to act quickly – also saw an inevitable surge in interest. We had our own record month in March, writing £50m of bridging loans, and many other bridging lenders fared well, providing loans at a speed that traditional lenders couldn’t match.
But now the dust is settling from the Stamp Duty stampede, and critics are warning of a slowdown in the buy-to-let market. That may well be true if rookie landlords continue to have a tough time building that dream portfolio.
However, the early signs are encouraging that demand from professional landlords will continue. There are still plenty of opportunities for professional landlords to expand their portfolios, as amateur and accidental landlords exit the market, and demand for rental properties is not going to go away.
Bridging loans will continue to be a useful way of financing those purchases. As the market becomes ever more competitive, brokers and their clients will have a wide range of lenders from which to choose.
Landlords will have another big choice to consider, besides their finance – exactly where to buy. Traditionally London and the South East have been dominant, but our research suggests that increasingly landlords will look to take a ‘cross country’ approach, as they realise they will get so much more for their money when they look outside of the capital.
Last month’s LendInvest Buy-to-Let Index looked at what landlords can buy for a range of budgets across the country, and the difference between London and other areas, which still have a strong rental market, was stark. For example, a one-bedroom property in West London would cost an average of £475,000, plus £28,000 in Stamp Duty, and secure a rental yield of 2.8%. But a property investor could buy not one but two three-bedroom properties in Bath for the same budget, saving £10,000 on the Stamp Duty bill and bagging a much healthier rental yield of 4.3% in the process.
Recently Nationwide, the second biggest buy-to-let lender, announced it will require landlords to receive far more rental income relative to the costs of their mortgage than is currently the case. In certain high price, low rental yield areas of the UK a deposit of 40 to 50% for a buy-to-let loan will become the reality.
The government, and our financial regulator, has made a number of changes that make life more difficult for landlords. But rumours of the demise of property investing have been greatly exaggerated. The market isn’t dying, just changing and the centre of gravity is moving away from the South East. It will be those lenders, brokers and borrowers that change with it who will continue to succeed.