Buy-to-let review

It’s all about supply

Cat Armstrong

mortgage club director, Dynamo for Intermediaries

Supply continues to be a pressing issue across all factions of the housing market. From a new-build delivery standpoint, targets have been missed year on year, and this continued in 2021. This fact is evident in data analysed by Unlatch, which centred around the number of new home completions seen across the UK and how they stack up when compared to the government’s own targets. In particular, the figures from the past few years make for some interesting reading.

THE HOUSING SUPPLY GAP

Despite the pandemic, a respectable 210,719 new homes were completed across the UK in 2019–20, the second-highest level seen since 2007–08 – but still 30 per cent off the pace, missing the 300,000 target by almost 90,000 homes. The latest data shows that the government’s failure to reach its targets hit a new 14-year high in 2021, as only 181,810 new homes were completed across the UK, 40 per cent below their target of 300,000 new homes and a shortfall of 118,190 – the highest number since 2007.

When it comes to the private rented sector, legislative change has fuelled a decline in the number of available properties to rent, a trend that sparked a recent report from PropertyMark entitled A Shrinking Private Rented Sector. Within this, it was outlined that the UK average number of properties available to rent per branch decreased from 30.4 to just 15.6 between March 2019 and March 2022, clearly revealing the loss of available places for renters to live.

It added that from 2019 to 2021, the average number of buy-to-let properties bought and the number sold per estate agent branch were fairly similar. March of this year (2022), however, saw a marked difference for the first time. Survey results revealed that the average number of buyto-let properties sold in March was 9.6, while the number purchased by investors was only 4.5. These figures suggest that less than half of PRS properties sold are currently returning to the sector. The rest are transferring to owner-occupier dwelling.

RISING RENTS

The lack of supply in the rental market is one of the primary reasons why rents continue to increase. There are also rising costs for landlords to take into consideration due to the legislative changes mentioned above, and these outgoings/profit margins could come under further pressure from the anticipated Renters’ Reform Bill and upcoming energy-efficiency targets.

This demonstrates how important it is for the government to act appropriately in achieving the right balance when it comes to protecting landlords’ needs as well as those of their tenants. And with landlords long undervalued, this is more apparent than ever, especially when it comes to helping improve the quality of rental accommodation in an economic climate that continues to develop additional affordability burdens from both a residential and rental perspective.

Average rents in the UK were reported to have hit a new high of £1,103 per calendar month in May, up 10.6 per cent on the same time last year, and an increase of 1.1 per cent when compared to April. This is according to the latest data from HomeLet, which indicated that every region in the UK has seen annual growth, whilst every region excluding the North East (-0.7 per cent) has seen monthly growth, with Northern Ireland seeing the largest monthly variance as rents climbed 1.7 per cent higher there than the previous month.

HIGH TENANT DEMAND

Despite this growth in average rents, further data from Propertymark pointed to sustained levels of high demand from prospective tenants, some of which are even said to be creating CVs for their children and pets as well as offering over asking price to secure properties. An average of 95 new applicants were registered per member branch in April, compared to 78 per branch recorded in February. In addition, terminated lease lengths extended to 24 months on average across the UK in April, up from the long-term average of 19 months. Seventy-five per cent of member agents reported month-onmonth rent prices increasing in April compared to the pre-pandemic figure of just 31 per cent on average.

This raft of data and reports outlines just how important a role the private rented sector continues to play in the overall UK housing market. But it also raises more questions than answers when it comes to solving the supply puzzle. That puzzle is, sadly, unlikely to be cracked anytime soon. M I

Busting the MUB myths

Grant Hendry

director of sales, Foundation Home Loans

Landlords’ quest to maximise yield continues to drive interest across many areas of the buyto-let marketplace, particularly when it comes to houses in multiple occupancy (HMOs) and multi-unit blocks (MUBs). For context, the Q1 2022 Landlord Panel research from BVA BDRC outlined that average rental yields for HMOs were 6.8 per cent and 6.3 per cent for MUBs compared to an overall average yield of 5.5 per cent for all property types. In Q4 2021, 21 per cent of landlords reported owning at least one HMO.

There has been plenty of commentary and many educational pieces in recent times around HMOs, but MUBs still tend to fly a little under the radar. And, from speaking with intermediaries on a regular basis, I can say that there remain a few misconceptions around lenders’ requirements for a mortgage on such property types.

SO WHAT IS AN MUB?

An MUB is a freehold property that has been split into self-contained flats that are not subject to individual leases. This could include a block of flats or a house that has been converted into flats.

BUSTING THE MYTHS

This is an important distinction to make, as a relatively common misconception remains that an MUB can be multiple houses or bungalows that are held under one freehold title. This is not the case. If this were the case, from a Foundation Home Loans standpoint, we would require the titles to be split on, or before, completion to enable us to mortgage each individual property.

Another area that can sometimes be misinterpreted occurs when a borrower intends to reside in one of the properties; this is a common reason why these types of cases can sometimes be declined during the application process.

MUBs can also easily be confused with HMOs. For example, a MUB does not have rooms that are let out individually to tenants who share basic amenities, such as kitchens and bathrooms. This would be classed as an HMO. If a landlord owns a MUB in which one or some of the units are not self-contained, we class this as a hybrid HMO MUB.

It’s also important to reiterate that a multi-unit block is not a block of flats with separate leasehold titles. If a client owns a block of flats – all with separate leasehold titles – and a client or party connected to a client owns the freehold title, these would still be classed as leasehold flats rather than a MUB.

THE VALUE OF A STRONG LENDING SUPPORT NETWORK

These differentials signify how important it is for advisers to establish relationships with lenders who have the underwriting capabilities to assess such cases on an individual basis. It also demonstrates the value of having access to a good BDM, regional account manager, or a broker help desk to ensure that advisors fully understand the type of product their landlord clients actually need and whether and how they fit lending requirements, and to ensure that they have the correct occupancy status prior to the decision-in-principle submission.

The quality and accessibility of this support network will become increasingly vital as this and other, more complex BTL product types become an increasingly appealing option for portfolio landlords, who are currently dominating purchase activity across the BTL market.

MEETING SHIFTING LANDLORD DYNAMICS

To satisfy shifting landlord dynamics, lenders are constantly evolving their product offerings when it comes to rates, criteria, and fees. Changes within these product offerings – which are commonplace in the current economic environment – also highlight the benefits gained from landlords working closely with advisers who have strong knowledge of and experience in the BTL sector.

For example, we have recently expanded our green mortgage range to include HMOs (up to eight bedrooms) and MUBs (up to 10 units), supporting those landlords to maintain the highest standards of quality for that sector.

The MUB and HMO sectors are likely to see further activity and bespoke offerings emerge over the course of 2022 and beyond as more portfolio landlords tap into the opportunities that remain on offer throughout the BTL sector. This also signifies good news for the intermediary market, as these types of cases tend to require more of specialist advice because of their level of complexity and legislation. We look forward to supporting you. M I