Cat Armstrong

How can landlords reduce costs?

Cat Armstrong

mortgage club director, Dynamo for Intermediaries

The issues surrounding the rising cost of living and monthly outgoings are of growing relevance to homeowners, tenants, sharers, and landlords across the UK. In recent years, taxation and regulatory shifts have also lain increasingly heavily on the shoulders of landlords, and it’s hardly surprising to see an increasing number of landlords investigating a range of options for how to reduce both tax burdens and other related costs.

It will come as no surprise to anyone that the key focal point for landlords in reducing these tax burdens in recent times has been the increased prominence of limited-company lending. This is a trend that is showing no sign of slowing down any time soon, as highlighted in recent data from Paragon Bank.

LIMITED-COMPANY LENDING

The data revealed that the proportion of landlords who plan to purchase their next buy-to-let property through a limited company structure has risen by 12 per cent – from 50 per cent in the first quarter of the year to 62 per cent in Q2 2022 – representing a three-year high. The research also highlighted that the propensity to incorporate tends to increase with portfolio size. For example, 47 per cent of landlords who own between one and five properties expect their next purchase to be through a limited company; this rises to 78 per cent amongst those with portfolios consisting of six or more buy-to-let homes. Of those who intend to expand their portfolios, 66 per cent said that they plan to finance their next property investment through a buy-tolet mortgage, up four percentage points since the previous quarter. There has also been an increase in the proportion of landlords who plan to fund purchases by releasing equity from existing properties, up from 17 per cent in Q1 2022 to 28 per cent in Q2 2022.

This represents a clear indication of the type of business we are seeing, and this is certainly an area on which lenders, especially those operating at the more specialist end of the market, are really focusing their propositions. Despite vast swathes of repricing and criteria tweaks, this continues to be a highly competitive lending arena, and it’s those larger portfolio landlords who are likely to continue driving activity in H2 2022, from both a purchase and a remortgage perspective.

FLAT/HOUSE SHARERS AND HMOS

Such landlords have also been active in diversifying their portfolios to maximise yields, where possible, and to negate rising costs. With an increasing number of properties being built or converted into good-quality, cost-effective solutions for tenants of all ages, houses in multiple occupation (HMOs) are certainly proving to be attractive options.

The popularity of flat/house-sharing and the lack of available rental stock continue to drive up demand and prices. This was demonstrated in the latest data from SpareRoom, which showed that average room rents in London have passed the £800 barrier for the first time, reaching £815 in Q2 2022, a 15 per cent rise from £708 in Q2 2021.

However, it’s not just the capital where rents have skyrocketed; Northern Ireland was up 17 per cent, followed by the North East and Wales (both up 13 per cent YOY). The UK’s 50 largest towns and cities were all reported to have experienced an increase in room rents, with Sunderland (up 21 per cent), Belfast (up 20 per cent) and Cardiff (up 18 per cent) seeing the highest YOY increases. Forty out of the 50 largest towns and cities saw their highest room rents on record in Q2 2022, including Manchester (£543) and Liverpool (£428).

Out of these cities, London saw the highest increase in demand vs supply (up 154 per cent), followed by Slough (up 122 per cent) and Aberdeen (up 116 per cent). This was driven by an increase in demand and a decrease in supply. The only top town to see a decrease in demand vs supply was Blackpool (down four per cent YOY). These record-high rents are suggested to be stoking unaffordability, with almost four in five renters (79 per cent) either having to move to a new area or currently looking at cheaper areas because they feel priced out.

The heightened demand across the board is likely to continue stimulating activity across the BTL marketplace in the coming months, and this is likely to come in the form of additional remortgage business and in more specialist areas such as limitedcompany lending, HMOs, and holiday lets. Inevitably, the latter areas come with extra levels of complexity. This places additional value on the advice process – and on working closely with specialists in the sector who can successfully guide even the most multifaceted cases from application to completion.

At Shawbrook we combine creative tech-led solutions with a personal service to unlock opportunities for your clients, every single day. • Buy-to-Let • Bridging • Commercial Investment • Development Finance • Second Charge F low through finance Get in touch 0330 123 4521 cm.broker@shawbrook.co.uk property.shawbrook.co.uk

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