Buy-to-let Introducer October 2019

October 2019

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State of play Our experts look at the current state of the buy-to-let market INDUSTRY COMMENT ROBERTBUY-TO-LET SINCLAIR IN-DEPTH THE OUTLAW: GODFATHER PART II

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Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk

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October 2019 www.mortgageintroducer.com

Staying strong together There has been no respite for the buy-to-let industry with more changes introduced to the market in 2019 providing new challenges for landlords.

In June, research by ARLA Propertymark suggested that there had been a 25% increase in the number of landlords selling their property, further proof that regulatory changes and a reduction in tax relief has stopped many landlords seeing the sector as a short-term profit.

Even though continued government intervention is on the horizon, this is a “This is an industry market that keeps on that may face giving and capitalises on the fact that a home is a unguaranteed basic need that everyone yields and heavy has.

This is an industry that regulation but may face unguaranteed continues to grow” yields and heavy regulation but continues to grow despite this.

As more choose to rent over buying a property and the first-time buyer age continues to increase thanks to an inflated house market, demand for the buy-to-let market will not slow any time soon, and those looking to the industry as a long-term investment may reap the benefits.

In this issue we look at how to embrace opportunities in these uncertain times in our feature on page 4, where the industry gives their take on the market.

Our panel of experts discuss all things buy-to-let in the roundtable on page 24 discussing how increasing regulation has affected how the industry is viewed and how schemes such as build-to-rent are providing new opportunities in the marketplace.

There’s no stopping this industry, however it is a case of watch this space as the Brexit saga unfolds and whether this will have an impact on a sector that has already had its fair share of challenges.

OCTOBER 2019

4 The end of buy-to-let?

Jessica Nangle looks at how the market can embrace opportunity

15 Emma Cox

Valuation issues are a major challenge

17 Ian Boden

The time is right for a fresh approach

19 Paul Bret

Buy-to-let still has a key role to play

21 Paul Fryers

Times are changing for the sector

23 Jeff Knight

Back to business for buyto-let

24 Round table

Our experts discuss all things buy-to-let

32 Trust in us

Charles McDowell of Hampshire Trust Bank gives his take on the market

34 Liz Syms

The continued rise of holiday buy-to-let

BUY-TO-LET INTRODUCER

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Embracing opportu in uncertain times

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OCTOBER 2019

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tunities

Despite ongoing uncertainty and a difficult few years, the sector has remained resilient.

Jessica Nangle asks what opportunities exist in the buy-to-let market?

I

t is no secret that the buy-to-let sector has faced challenges over the past few years. Following the financial downturn and strict government intervention which began with George Osborne’s tax changes in 2015, the sector was close to breaking point. Commentators argued that after 20 years of steady growth, the buy-to-let industry had “finally run out of steam” in 2016. The challenges it faced had impacted experienced landlords, put off amateur landlords, and stopped prospective landlords from entering the market. However despite this bleak prediction, fast forward to 2019 and the sector still has life in it yet. 

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More are beginning to view this sector as an investment for the long-term rather than one that provides quick and easy returns and as the property ladder becomes harder to join for many prospective homebuyers, the private rental sector will always have its place. Lower rates in the buy-tolet space are also supporting this long-term outlook, with the costs of buy-to-let mortgages dropping in Q2 2019 and continuing to do.

Recent research by Mortgage Brain shows that the cost of a 60% LTV 2-year fixed buy-to-let mortgage is 1.9% lower than it was three months ago, representing an annual saving of £144 on a £150,000 mortgage. “Overall the message for the buy-to-let market is positive,” says Mark Lofthouse, chief executive of Mortgage Brain.

“The cost of buy-to-let mortgages continue to reach historic lows, with the market remaining competitive given the number of buy-to-let mortgages currently on the market.”

However the future is unclear Lofthouse warns. “Nevertheless, the market remains clouded by the ongoing political uncertainty, the looming Brexit deadline as well as the weakening economic forecast.

The need for specialist advice from a broker is more important than ever, so landlords are confident they are getting a mortgage that best suits their needs.”

Specialist requirements require bespoke solutions David Smith Policy director, RLA Our most recent research found landlord confidence is continuing to fall, with more than a third of landlords planning to sell at least one property in the next year.

Not only that, but the gap between those planning to buy homes and those planning to sell is growing ever wider.

At the start of 2017 there were broadly equal numbers of landlords planning to buy properties and those wanting to sell – with the figure at around 20%.

Fast forward two years and the number planning to buy is down to 14% with those wanting to sell now up to 34%. If this trend continues there could be huge problems up ahead for those people looking to rent a home.

A mass exodus of landlords from the market would be disastrous and could see rents rise further, as increasing numbers of tenants battle it out for an ever-dwindling pool of properties.

The landlords we have spoken to blame rising costs, increasing regulation and tax changes for their decision to reduce their portfolio or leave the sector altogether, with uncertainty about Brexit and the government’s plans to abolish Section 21

“Investors are therefore looking for lenders who show a more flexible approach that keeps up with modern life.” There has also been a rise in diversifying portfolios out of the usual key areas for buy-to-let to seek improved yields. “Landlords are now looking outside of London and the South East. Additionally, many buy-to-let investors are looking at other asset classes within property, such as HMOs and semi-commercial properties,” Barnard continues.

Dale Jannels, managing director of impact Specialist Finance agreed with this point of view.

“Savvy portfolio investors are looking at property opportunities to convert in to Houses of Multiple Occupation (HMO), to maximise

The landlord’s view

The rise of the professional landlord and decline of what has become known as the ‘dinner party’ landlord has become more prominent in recent months. Thanks to increased regulation and government intervention, an increasing number of both prospective and experienced landlords have begun to look at the market as a long-term investment rather than a short-term gain. Thanks to the low rate environment, the buy-tolet sector is becoming increasingly catered for landlords of this type.

“Some landlords and tenants have felt the strain,” says Rob Barnard, sales director at Masthaven.

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repossessions also seeing them reconsider their future.

These factors have already had a direct impact on tenants, with half the landlords who responded to our most recent survey saying they have raised rents to mitigate the impact of these changes.

However, it isn’t all doom and gloom.

While there is no doubt the environment is becoming more challenging for private landlords, demand for rental homes is predicted to remain high, with a quarter of households expected to be living in the PRS by 2021.However positive change is needed, rather than more regulation and red tape.

There are a number of things ministers could do. We believe landlords have the right to repossess their rental homes in legitimate circumstances, so would ask the government to abandon its ill-conceived plan to axe Section 21.

We would like to see the freeze on Local Housing Allowance (LHA) rates lifted, to support benefits tenants struggling to pay their rent - and the landlords who house them - by bringing payments back in line with market rents. The government should also be looking to implement positive, pro-growth taxation policies that would support landlords when it comes to providing the homes to rent that the country so desperately needs.”

OCTOBER 2019

rental yields,” Jannels says. Jannels argues that these alternative property opportunities paired with low rates means that the demand for buy-to-let mortgages will not “decrease any time soon” which is arguably good news for the changing landlord demographic.

These alternative opportunities taken by landlords is a trend observed by others in the marketplace, including Jeff Knight who is director of marketing at specialist lender Foundation Home Loans. Knight believes that landlords are increasingly likely to make their next purchase via a limited company, with there being proof of such. “There is plenty of evidence to show that landlords are increasingly likely to make

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their next purchase via a limited company – 55% said this in our latest research – with an increasing number (currently 19%) saying they would remortgage within a company, with portfolio landlords even more likely to do this.” A strong knowledge by landlords about the limited company sector of the buy-to-let market is seen as key with this increased interest. “In the same sense, it is a more complex marketplace with the likelihood that you’ll see more complex cases. Having the knowledge and expertise here will distinguish you from your peer group,” Knight adds.

Louisa Sedgwick, director of sales – mortgages at fellow specialist lender Vida Homeloans has also seen an increase of an alternative area of the market – specialist buy-to-let portfolio business. “Specialist buy-to-let portfolio business, which does not fit mainstream lenders’ criteria because of a combination of pressure points, is a growing part of the market,” Sedgwick explains.

“We were recently contacted by  an intermediary with a client who

Specialist requirements require bespoke solutions Roger Morris sales director, Precise Mortgages

proving more challenging for brokers to navigate. Suddenly, intermediaries used to dealing with ‘vanilla’ buy to let requests are now being asked more The buy-to-let market technical questions by their customers has gone through during an application process that has enormous upheaval in become more complicated. They are recent times, but there are still plenty of also expected to inform about different opportunities for investors. ownership structures, such as Joint The changes started with the Tenants, Tenants in Common and introduction of the Stamp Duty Limited Companies, whilst ensuring they surcharge in 2016 and were quickly are not giving any form of tax advice. followed by the phased reduction in A growing area of interest that brokers mortgage interest tax relief. These need to know about surrounds planning changes contributed to the birth of a laws and permitted development rights more specialised buy to let sector. This (PDRs). When a customer purchases has led to many landlords looking at a property, what will the property be different ways of maximising their rental classified as when it’s occupied? Is the yield, for example using limited company customer’s intention is to rent it to one status as a way of developing a property family as a C3 dwelling house or are portfolio. they going to rent it to three or more The new landscape is certainly unrelated people as a C4 House in

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Multiple Occupation (HMO)? Are they planning to convert it from a C3 to a C4 using permitted development rights?

If they are, is the property in an area covered by an Article 4 order which will need planning permission?

If you’re not sure about the answers to these questions, the chances are your customers aren’t either. Fortunately our sales team is on-hand to answer any queries you might have. We’ve expanded the team considerably in the last two years which means that wherever you’re based, one of our business development managers is never far away if you need some support. We also hold regular workshops and training sessions in locations around the country to educate brokers about the products and criteria that can help you and your customers to keep pace in a fast-moving marketplace.

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owned around 20 investment properties via an SPV. He was looking to expand his portfolio with HMOs, MUBs and flats above commercial premises. He had a small missed payment to a credit card provider in the previous six months and had been turned down by a couple of high street lenders.” Sedgwick argues that the specialist players in the space offer complex cases such as these a viable option.

Vikki Jefferies, proposition director at PRIMIS Mortgage Network concurs that there is potential in the market for landlords currently and references recent statistics by the ONS. “According to recent statistics from the ONS, the number of UK households in the private rented sector increased by 63% between 2007 and 2017,” Jefferies explains. “This marks a

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growing opportunity for existing landlords to extend their existing portfolios, but also for aspiring would-be landlords who have funds to invest and want to tap into this lucrative market.”

Difficult but not impossible

Many regulatory and tax changes have hit the buy-to-let market in recent years. Changing to lending rules have made it more challenging for portfolio landlords to obtain additional finance, with the recently implemented Letting Fees Ban (which came into force on 1 June) further restricting fees supplied by both landlords and letting agents.

In addition, the PRA’s specialist underwriting requirements have added further complexity to the sector according to Kate Davies, executive director of the Intermediary Mortgage Lenders Association

OCTOBER 2019

(IMLA). “Lenders now use varying stress rates for borrowers with differing circumstances, such as if they take out a fixed or floating rate.” Davies explains. “As a result, lenders have reported that brokers who specialise in supporting portfolio landlords have taken on a more prominent role.”

Despite the effect of regulation on the sector, recent research by Hamptons International shows a promising picture. “The second homes tax changes announced in April 2016 undoubtedly hit the investor market hard, but three years later there are signs that the shock is wearing off,” Aneisha Beveridge, head of research at Hamptons International, says. “Our analysis shows that the proportion of homes sold by landlords in the first eight months of this year fell to 14% - down from 16% during the

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Specialist requirements require bespoke solutions John Goodall, chief executive, Landbay The buy-to-let sector has been on a rollercoaster ride of changes in recent years, with reforms to tax relief on mortgage interest, stamp duty hikes and greater regulation for lenders.

However, while some of these changes have had a negative impact for the BTL sector, it does not mean that the future of BTL is bleak. Buy-to-let has been a popular investment over recent years, with an estimated 1.75 million landlords in the UK and 4.5 million households renting in the private sector; in fact, the PRS has doubled in size over the last 15 years. The traditional UK view that homeownership is the be all and end all is outdated; our recent research revealed that most the UK’s private tenants don’t actually want to buy same period last year. While the proportion of properties bought by landlords increased to 12%, a slight rise from the 11% recorded over the previous two years.” Despite these being small changes, Beverage argues that this represents an increased confidence in the market despite the regulatory challenges it has faced. “Slower house price growth combined with steady rental growth has meant that gross yields are rising too and suggests that property continues to represent a good investment for many, especially in turbulent political and economic times.”

Kate Davies however highlights findings from IMLA which presents a different picture. “IMLA’s research has suggested that the private rental market could be topping out,” Davies says. “Whilst we haven’t seen vast numbers of landlords exiting the market, the growth of new investment has flatlined, following the 80% fall seen between 2015 and 2017, and we don’t see signs of significant growth in the immediate future.” In the next 12 months,

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a home in the near future. As such, demand for the private rental sector is only going to grow, driven by a buoyant jobs market which ensures that rents are rising ahead of inflation. This should provide some reassurance for landlords. However, unpredictable and uncertain political policy remains the cloud hovering over the world of buyto-let. With one unprecedented event after another we are witnessing more and more “interesting” ideas being proposed by Her Majesty’s opposition.

John McDonnell, who proposed some form of compulsory right-to-buy for tenants a few short weeks ago, is now doubling down on his anti-PRS drive by proposing rental caps. It goes without saying that this is an incredulous idea, not least because it will ultimately deter investment into the PRS and fail to bring about high-quality rental housing.

Rent controls do not work. Proponents often point to various German cities

without mentioning that these cities are also seeing population decline and thus rents would not be rising anyway.

Despite these “red clouds” on the horizon and chaos in Westminster, there are silver linings ahead. Interest rates are low, and it looks likely that they will stay that way for the next few years, so the of finance is relatively cheap. As the market continues to professionalise, we’re likely to see even more astute landlords holding their properties in limited companies or adopting more specialist strategies such as HMOs to maximise returns.

This will help to provide the right mix of rental properties that the UK needs.

These alternative options are not a one-size-fits-all approach though, and landlords should always seek independent tax advice before making any decisions, while brokers can look to specialist lenders who focus on this growing professional market.

IMLA will reportedly be calling for a “continued period of consolidation” in what Davies refers to as a “feverish political environment” to allow recent regulatory changes to be adapted to before assessing any further measures.

Despite the difficult regulatory landscape facing buy-to-let currently showing little sign of respite, Vikki Jefferies from PRIMIS concludes with a positive sentiment.

“The new regulations and tax treatments have made buy-to-let a harder game to play but not an impossible one.”

Looking forward

In regards to future movement, an increase in purchase activity is on the cards thanks to a subdued property market according to Doug Hall at 3mc. “In recent years remortgaging has been the dominant force in buy-to-let, as landlords have consolidated their investments during a period of regulation and tax changes,” Hall argues. “However there is real opportunity now for investors to get back on the front foot OCTOBER 2019

and take advantage of a subdued property market, so I think we can expect to see an increase in purchase activity.” Hall goes on to explain that this activity “won’t be confined to traditional buy-tolet properties” and there will be a trend for “alternative investments” that can deliver a higher yield such as HMOs and short-term lets.

In terms of the landlord Pete Mugleston, managing director at Online Mortgage Advisor, argues that attitudes to homeownership may be changing which presents new opportunities. “Property for investment is far less the open goal it once was,” Mugleston says.

“That said, attitudes to homeownership may be changing as a recent survey suggested over half (58%) of renters have no intention of buying. The population isn't getting any smaller, so opportunities will still exist for the more savvy investors." With increasing numbers of build-to-rent schemes popping up across the UK and more choosing to stay within the private rental sector, Steve Griffiths from The Mortgage Lender points  BUY-TO-LET INTRODUCER

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Talk to us about Buy to Lets We offer: • Regulated Buy to Lets • Consumer Buy to Lets • Family Buy to Lets • Portfolio landlords • First time landlords • Holiday Lets • Cases assessed on affordability • Individual approach to underwriting

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Specialist requirements require bespoke solutions Dan Batterton, head of BTR, LGIM Real Assets Despite Brexit and Boris’ best efforts to steal all the limelight, housing remains a top government priority. In fact, there is rare cross-Whitehall agreement that the UK’s housing market is broken and innovation is needed in the supply chain, urgently.

The fault line is focused on the striking supply gap: the mismatch between estimated requirements against homes actually being delivered.

To put a number on it, in the Autumn 2017 Budget, the Chancellor stated his ambition to provide 300,000 new homes per year. Yet, analysis

by MHCLG reveals that over the 12-months to March 2019 there were only 162,000 new housing starts in England - and this figure actually to research that shows increasing landlord interest.

“According to our latest research, eight out of ten landlords are committed to the buy-to-let market and are looking to maintain or increase properties in their portfolios over the next 12 months,” Griffiths explains.

“Furthermore, one in four landlords said they have not experiencing any issues that were keeping them awake at night whilst only one in 50 are reportedly concerned about enhanced underwriting for portfolio landlords.”

Despite political uncertainty shrouding the market, The Mortgage Lender’s research reveals that just one in 20 landlords cite Brexit as a concern, with other issues such as tenant behaviour and care of their property taking higher priority.

In terms of the later-life buy-tolet market Alice Watson, head of marketing and communications at Canada Life Home Finance, provides recommendations for landlords aged-55 and over in

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represents an uptick in activity from recent years.

Build to Rent which is purpose-built is now making up for lost time, doing much of the heavy lifting in terms of the number of new starts whilst maturing into an investable asset class. 32,000 Build to Rent homes have been built in the UK since 2013, with a further 111,000 in planning or construction as of June 2019, a 17% increase on Q2 2018. In contrast, total starts in the wider housing market rose by just 1% in the year to March 2019 compared to the previous year.

Institutional capital has an important role to play in providing solutions to the issues in housing. This has been recognised by the government through 2017’s Housing White Paper, which supports large-scale investment into the sector, whilst explicitly acknowledging the requirement for purpose-built rental product in the UK. Residential rental is one market

where the requirements of different stakeholders are aligned. The demand for rental product has been established, whilst the fundamentals of Build to Rent are compelling to institutional investors. The rationale is underpinned by stable occupancy rates that produce consistent cashflows, rental growth which outstrips inflation and needs-based demand decoupled from economic volatility. This isn’t just rhetoric: the latest RICS Residential Market Survey highlights its inherent stability, with tenant enquiries holding firm against a volatile sales market.

Our aspiration is that the delivery of purpose-built and well-managed Build to Rent homes will enhance the overall quality of housing in the UK, offering people a genuine choice between tenures. Institutional investment has been an important accelerator to help this market mature, but it is not time to take our foot off the pedal just yet.

this time of uncertainty. “In this environment, later life buy-to-let products enable some landlords aged-55 and over to release tax-free cash from their property,” Watson explains. “This gives them the freedom to spend their money as they please, whilst keeping their portfolio intact.”

Watson explains that the flexibility of today’s later life buy-to-let products are helping bring these landlords into mainstream financial planning. “Pensions and other savings are increasingly unlikely to meet many people’s retirement expectations on their own,” Watson says. “Later life buy-to-let products can provide some landlords with extra cash to help support them in later life.”

Both John Goodall at Landbay and Jeremy Duncombe at Accord Mortgages have mentioned scaremongering in the press about the future of buy-to-let.

Despite the challenges, both agreed that it is important to look at the wider picture. “There has been a lot of scaremongering OCTOBER 2019

in the mainstream press about the future of buy-to-let and it is of course a challenging time for landlords,” Duncombe says.

“House prices have slowed to their lowest levels in 10 years and changing regulations (plus the threat of more tax amendments next year) means many landlords will be reviewing their portfolios and making plans for the months ahead.”

Duncombe believes however that uncertainty makes advice more crucial. “Brokers should be using the current climate as a way to engage with clients, old and new, to support and guide them,” Duncombe argues. “This is the ideal opportunity to demonstrate your value and help landlords make the right decisions based on their circumstances.”

Regardless of the issues continuing to face the sector, one factor remains constant.

The need to have a place to live is applicable to all, thus buy-to-let will be both vital and necessary in years to come.  MORTGAGE INTRODUCER

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Helping landlords spot new buy to let opportunities As the UK’s leading specialist lender1, we’re always looking to identify new trends in a constantly evolving market.

Our research helps us to develop new products and criteria to meet the changing needs of landlords, especially if you have customers who want to explore new opportunities, such as Houses in Multiple Occupation (HMOs), holiday lets or are thinking of running their business as a limited company. We find this data invaluable and therefore want to share some of our key findings with you.

Holiday lets

HMOs

Tourism in the UK is booming. According to Visit Britain, 38.9 million overseas tourists will visit the country in 20192, spending £24.5 billion. It’s also predicted that the average British ‘staycationer’ will enjoy three trips in the country over the course of the year3.

HMOs (properties comprising of three or more unrelated tenants who form more than one household and who share facilities) are becoming increasingly popular with landlords keen to diversify their portfolios.

The potential to earn higher rental yields, together with the peace of mind of knowing that rental income is more secure if one tenant leaves a void, has proved attractive to investors in recent years.

38.9 million tourists will spend

£24.5 billion in the UK in 20192

The growth in the number of people choosing to enjoy their holidays in the UK has seen more landlords looking to include holiday lets in their portfolios. Another reason they are proving so popular with investors is because 100% of the mortgage interest is offsettable, even if the property is held in a personal name. Research carried out for Precise Mortgages in 20184 found that nearly one in 10 (9%) landlords with more than 20 properties already own a holiday let.

To help landlords explore these new opportunities, our Buy to Let criteria now allows customers to invest in a holiday let.

Available to experienced landlords (must have held a buy to let property for at least 12 months prior to application) UK houses and flats (providing there are no planning or occupancy restrictions) Available for Limited ownership applications

Company

and

Available in England, Wales and Scotland

Our research5 found that HMOs achieve the highest average rental yields at 6.3% compared with an average overall rental yield of 5.5%. It also found that HMOs are most common in central London, the East Midlands and Yorkshire and Humberside.

Average rental yields

HMOs

6.3%

5.5%

Overall

If your customer is looking for ways to maximise their rental yields, you might be interested to know our range of HMO products include the following features: Up to 8 bedrooms and more than 1 kitchen considered Student/professional lets acceptable Licensed/unlicensed properties considered HMO experience not compulsory

personal Roger Morris Director of Sales 07774 495 810 roger.morris@precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549).

Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

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Limited companies

Typical rental properties

The introduction of a number of regulatory and tax changes to the buy to let market in recent years has led to an increasing number of landlords now running their portfolio as a business within a limited company tax structure.

Terraced houses have been a key feature on UK streets since they were first built back in the 18th century.

Popular with first-time buyers and families, the typical price of an average terraced property has increased by nearly 42% since 2009 - from £133,758 to £189,638 – according to the UK House Price Index6.

55%

24%

Intended to use a limited company to buy properties in the coming year.

Intended to buy properties as an individual in the coming year.

If your customer decides to purchase their next property as a limited company, here’s how we could help: Top slicing now available across our entire Buy to Let range, including limited companies No difference in rates between individual and limited company products HMO, multi-unit, holiday lets and Refurbishment Buy to Let options available Up to four directors/shareholders allowed No limit on the number of director dependant shareholders under the age of 21 Up to 20 buy to let loans per individual with a combined value of £10m (unlimited with other lenders)

£189,638 July 2019 August 2009

£133,758

42% increase in terraced house prices

Terraced houses are a popular buy to let option too due to their versatility and value for money, with 59% of landlords owning one in their portfolio. According to our research5, they remain the most attractive purchase target, with 50% of landlords who said they would be purchasing a property in the next 12 months saying they would purchase a terraced house.

To help landlords maximise their rental yields, we now offer Refurbishment Buy to Let for works being completed under permitted development rights, provided there are no structural alterations or changes to the footprint of the property. This is a really exciting development as landlords can now change the use of a property from a C3 dwelling house to a C4 House in Multiple Occupation (HMO) for up to six bedrooms which could be perfect for your terraced property.

Refurbishment Buy to Let is also suitable for other projects, including: Change of use of a garage to a habitable room Work to meet the minimum EPC ‘E’ rating, such as a boiler replacement Refurbishment or improvement work to bring it up to a habitable standard, for example by decorating or installing a new kitchen or bathroom before renting it out

Sources: 1 BVA BDRC Project Mercury Report Q2 2019, 2 https://www.visitbritain.org/2019-inbound-tourism-forecast, 3 https://www.sykescottages.co.uk/blog/staycation-index-2019/, 4 BVA BDRC Landlords Panel Report Q2 2018, 5 BVA BDRC Landlords Panel Report Q2 2019, 6 http://landregistry.data.gov.uk/app/ukhpi/browse?from=2009-08-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2019-09-01

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When we looked at how many landlords were planning to use a limited company to buy properties in the coming year, 55% said they would5 – more than double the number who said they intended to buy as an individual. Limited companies were the most popular ownership structure among landlords with 11 or more properties, with 71% of landlords in this sector using them for purchases.

03/10/2019 17:22:00

Specialist Buy-to-Let

Flexible solutions for portfolio landlords.

When professional investors and landlords want access to finance, they need a lender who understands the property market and can offer flexible solutions to suit their unique circumstances.

We work in partnership with you to fully understand the customer and make decisions based on experience and common sense, rather than just a formula. This combination of insight, expert problem solving and reliable execution, means we can often assist where other lenders can’t, helping your clients realise their ambitions.

Contact us today

0330 123 4521 salesdesk@shawbrook.co.uk shawbrook.co.uk

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Brokers view valuation issues as a major challenge Shawbrook’s annual Broker Barometer survey has highlighted that valuation issues are the second biggest cause for concern for broker’s businesses and their clients in 2020, unsurprisingly falling just behind Brexit uncertainty. Some 53% of the brokers surveyed saw valuation issues impacting their businesses, whilst 59% saw it having an impact on their client’s opportunities.

This is a 43% increase since the 2018 Broker Barometer, where just 16% saw valuations as a potential issue.

Despite Connell’s Survey & Valuations business reporting a 2% increase in average property prices over Q2 of 2019, brokers are still concerned that downvaluations are on the increase.

The increase in recent downvaluations could well be attributed to market forces, most notably the uncertain economic climate driven by an ever-shifting political landscape (the number one concern for the brokers questioned).

Aside from Brexit, a decrease in purchase activity, the removal of Section 21, and stamp duty have also been flagged as contributing factors causing escalating levels of caution around the UK property market.

With a 3% growth in property prices (compared to 2018) in London, Wales and the South West in Q2 of 2019, brokers with clients looking to purchase or remortgage properties in these areas should feel more positive reflected in surveyors’ reports in the upcoming months.

It is in regions such as the Midlands (6% down from 2018) and Scotland (3% down from 2018) where downvaluations are more likely to occur.

Other causes for concern regarding brokers’ businesses in 2020 were lending restrictions (36%), Stagnating house prices (26%) and Regulatory www.mortgageintroducer.com

Emma Cox head of sales, commercial, Shawbrook Bank

change (19%). Brokers also believe that Mortgage Interest Tax Relief (31%) and the impact of stamp duty changes (25%) will be the biggest issues impacting their clients behind downvaluations and Brexit.

The Mortgage Interest Tax Relief changes, introduced in April 2017, will be fully in place from 6 April 2020 and are a concern for almost a third of brokers with landlord clients.

This will affect the tax relief that landlords of residential properties get for finance costs and will be restricted to the basic rate of income tax.

Finance costs that will be restricted include interest on mortgages, loans and overdrafts.

When combined with the stamp duty changes to buy-to-let and second properties, landlords may be concerned about the immediate future. These areas of uncertainty provide a great opportunity for brokers, as clients and investors will need high quality advice when they are looking to grow their property portfolio and businesses in an ever-

OCTOBER 2019

changing market.

Despite the current political climate and the fear of increasing down-valuations, brokers are generally positive about the near future.

Almost seven in 10 (67%) stated that they feel confident about the lending environment in 2020 and over half (53%) feel confident about their business experiencing growth during this period.

On an even more positive note, over a half of surveyed brokers have cited a 10% or greater increase in business volumes in 2019 when compared to the previous year, with one in 10 seeing a 50% increase.

Despite the array of challenges, it is clear that brokers continue to show their adaptability to legislative, legal and market change, and there is still much to be positive about in 2020.

At Shawbrook, we are looking forward to a great 2020 too, as we look to continue to improve the support our brokers receive, to make sure they are in the best possible position to help their clients.

BUY-TO-LET INTRODUCER

15

A better way to Buy-to-Let

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Get started with an instant online quote: lendinvest.com/intermediaries

Call us on 020 3846 6838 or visit lendinvest.com/intermediaries. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). ICO number ZA179467. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.

Loan Introducer

Comment

Shifting priorities call for a fresh approach It’s no secret that the swathe of tax and regulatory changes introduced by government over the past few years have meant that many parttime landlords have opted to cash in their chips, replaced by professional landlords who have spotted the opportunity to increase the size of their portfolios.

However, it’s worth noting that the shifting sands of the buy-to-let market have also meant that landlords looking to add to their portfolios are increasingly less likely to look at properties that are already ready to go.

Time to back the fixer upper

The market is now such that it’s far harder for a landlord to pick up a property at below market value in the way that they once could.

As a result, landlords who are keen to buy ‒ and there remains plenty of them ‒ are now looking at those fixer uppers, the properties that need a little work done to them, whether that’s a new kitchen, a new bathroom or simply a redesign.

Landlords are looking to properties where they can swiftly add some value, rather than those which are ready to be listed on day one.

Moving in and out of HMOs

Another area where landlords are adopting a slightly different approach is HMOs. The introduction of HMO licensing last year is undoubtedly a good thing, as it will improve standards across the board in terms of the quality of the properties on offer.

We don’t want a housing market where tenants are renting tiny, barely habitable rooms.

But these regulations have presented a challenge to investors.

Some properties no longer fit as a HMO, so landlords need to revamp the structure of the property so www.mortgageintroducer.com

Ian Boden sales director, LendInvest

that they can continue letting it.

At the other end of the scale, there are some existing HMO properties which need particular improvements in order to meet the HMO requirements, or properties which would make exemplary HMOs but need some form of refurbishments before they can be put onto the market.

Essentially there is a lot of movement with properties either moving into or out of HMO status.

You’ve got to know when to hold ‘em

The property investors who like to flip properties are employing an amended strategy as well. When house price growth was in a healthier state, they may have been able to pick up a property at an auction, spend £10,000 on renovations, and then sell it for a £40,000 profit.

But house price increases are far more pedestrian at the moment ‒ data from the Office for National Statistics shows that annual price growth has slumped to 0.9% in the year to June. That’s quite the contrast from the 8.2% growth seen in June 2016.

As a result developers who in the past may have bought a property, renovated it and then sold it are now more likely to hold it for a period.

For some properties it may be that they need to pick up rental income for a year or two in order to enjoy that same £40,000 profit level. Adding enough value to a property to make a quick flip worthwhile is far more difficult today.

Delivering the flexibility investors need

Our desire to find a product that meets the needs of these varying types of borrower has led to the development of our bridge to let product, which we launched last month.

OCTOBER 2019

It’s a way to offer investors shortterm finance to cover those lighter refurbishment works, whether that’s as a way to add value or to move into ‒ or out of ‒ HMO status, before they exit onto a buy-to-let deal. Crucially it also provides them with some flexibility over when ‒ and where ‒ that exit takes place.

The market can be unpredictable, and the necessary refurb works can take longer than expected. As a result, we didn’t want to pin landlords in with a product that can only make

“The market is now such that it’s far harder for a landlord to pick up a property at below market value in the way they once could” sense if they then transition onto a buy-to-let product within a couple of months ‒ there can be a longer transition period if needed.

Similarly, we didn’t want to lock borrowers into having to move onto one of our buy-to-let deals as they exit the bridge-to-let.

Obviously we’d love them to ‒ LendInvest has been in the buy-tolet market for almost two years now, and have built up a strong reputation for delivering competitive deals. But equally we realise that a broker’s job is to use their expertise to identify the very best product for their client, and there may be times when a different lender is more appropriate The market for property investors has changed, and that means lenders need to take a fresh approach to product design. Bridge to let is just the latest example of how we are listening to brokers and their clients, and will continue to do so.

BUY-TO-LET INTRODUCER

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CM

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CMY

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Loan Introducer

Comment

Buy-to-let is still desperately needed As the demand for private rental accommodation continues to rise sharply across the UK, figures from the latest Belvoir lettings index report have underlined the impact of falling stock levels on the stability and sustainability of the market, as well as rental costs.

An estimated 120,000 landlords and property investors are thought to have abandoned the buy-to-let (BTL) sector over the past 3 years or so, as government legislation continues to undermine incentives and profits. Yet Belvoir has revealed that tenancy applications rose by 32% in the twelve months to July alone, while rents rose by a yearon-year average of 4.5% in the second quarter as suitable properties become more and more scarce.

Moreover, research conducted by the Residential Landlords Association has found that up to a quarter of all landlords are thinking of selling at least one of their properties over the course of the present year, with experts warning that rental costs could rise by at least 3% every year for the next five years as a result- a stark reminder of the negative impact which current legislation is continuing to exert on both landlords and tenants and of the desperate need for a thriving rental sector to accommodate escalating levels of demand.

However, all is not lost. Indeed, recent analysis of sales data by estate agent, Hamptons International, has established that the rental sector is slowly beginning to stabilise and to ‘regroup’ as the number of landlords looking to sell properties starts to fall and the onus on strategic portfolio planning shifts towards more lucrative or cost effective business models. Research has discovered that the number of landlords choosing to reduce their portfolios has fallen by as much as 50% over the past twelve months, while the average size of loans has also risen as an increasingly ‘professionalised’ class of investors, many of whom operating www.mortgageintroducer.com

Paul Brett managing director, intermediaries, Landbay

as limited companies, look to take advantage of record low interest rates in order to borrow more - a truly heartening trend.

One area of investment which has attracted considerable interest from landlords over the past couple of years is the multi-occupancy property sector.

These properties, which are typically converted from original structures in order to fashion additional rental spaces or units, offer investors the chance to achieve significantly higher returns than those associated with single lets, with average rental yields of 6.3% being reported across the sector for the second quarter of this year and a growing customer base of metropolitan students and young professionals, keen to take advantage of cheap rents and communal living opportunities.

Indeed, a recent survey suggested that over 20% (or one in five) of all landlords are planning to add an HMO to their property portfolio in the near future, with more and more investors looking to maximise their yields at a time of general market uncertainty, to benefit from the tax deductible costs

OCTOBER 2019

which these investments offer and to mitigate the potential threat of rental void periods and rental arrears; factors which are invariably offset by the presence of multiple rent paying occupants.

Moreover, with the introduction of council licensing schemes which are designed to drive-up living conditions and standards of safety across the HMO sector, as well as to root out the malign presence of rogue elements, there is a growing appreciation of the sheer viability and desirability of these types of investment, particularly amongst those landlords who had previously been deterred by the poor reputation that multi-occupancy investments can sometimes attract; a sign of the growing professionalism within the sector.

All of this is good news for the rental market at large and a positive boon for prospective tenants who are looking to source reasonably priced accommodation and reap the benefits of an increasingly ‘standardised’ level of service.

Ultimately, the survival of any market is predicated on the confidence of consumers and investors alike.

All of which points to a more positive and more hopeful future for the BTL sector over the coming months, especially given the apparent drop off in landlords choosing to sell their properties and the upturn in investment loans. And, while some investors remain understandably wary of the Shadow Chancellor’s latest ‘brainwave’, which would offer tenants the right to buy their homes at a ‘fair price’, recent opinion polls would suggest that a Corbyn fronted government seems unlikely at the present time. The upshot is that landlords can look to begin reversing the damage caused by the current government’s past legislative onslaught on BTL landlords and replenish the availability of much needed housing stock by exploring new avenues of investment. In short, it’s time for landlords to fight back.

BUY-TO-LET INTRODUCER

19

Compact flat or grand design?

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Loan Introducer

Loan Introducer Comment

Winds of change in the buy-to-let market Following the financial crash of 2007/08, the mortgage market has proved to be resilient and despite the various headwinds that we are all familiar with, we’re now seeing a reasonably healthy funding position with buy-to-let proving to be an attractive focus area for institutional funders. In the noughties, acquiring or setting up a specialist lender was the much favoured approach of institutions such as investment banks, whereas now, investors are happy to provide the funding into both start-up and existing lenders, who’ll then do the work to create the new mortgages through their own infrastructure and distribution capability.

Born out of this exact model, Zephyr Homeloans launched in January this year, exclusively through Intermediaries. Operating in the buy-to-let market, Zephyr is the first brand of its type that Computershare has launched. The proposition is focused on both simple, “vanilla” buy-to-let Mortgages as well as providing more specialist mortgage products catering for Limited Company/SPV investors purchasing or remortgaging in order to restructure and grow their portfolios.

Paul Fryers managing director, Zephyr Homeloans

with a rise of 4.59% and 3.36% respectively in the quarter to 30 June ‘19. Add to this that properties such as Houses in Multiple Occupation (HMO) are providing potential for higher yields; then it’s perhaps no surprise we’ve noted a trend of landlords based in the South/South East purchasing properties in the North in order to diversify geographically and seek higher yielding opportunities than maybe offered elsewhere.

Change is the norm

I recently attended an interesting seminar with our trade body, UK Finance, looking at the dynamics of the intermediary mortgage market. I was particularly struck by the amount of change that has impacted the buy-tolet market in recent years - such as the new rules on taxation, stamp duty and underwriting standards. With more change still to come, such as the outcome of the current consultation on Section 21 notices, then I think credit

Building a long-term BTL business

Aside from what is no doubt a lengthy to do list, the search for yield is always going to be at the forefront of a landlord’s mind. Within CLS and alongside Zephyr, The Deposit Protection Service (DPS) currently provides tenancy deposit protection for 1.6m landlords and letting agents. The DPS reported earlier this year that after a couple of quarters of overall declines in average rents, that in the quarter ending 30 June ‘19 an increase in rents being paid by tenants was observed. Could this be reflective of recent changes arising from the Tenant Fees Act, working their way into rents paid by tenants or other factors at play? Either way, the DPS Rent Index illustrates that the tickup in rents was more pronounced in terraced and semi-detached properties www.mortgageintroducer.com

OCTOBER 2019

is due to all stakeholders who have successfully adapted and continued to thrive in this market.

As a result of the scale of recent changes absorbed by the market, there’s little doubt that buy-to-let investors need to engage with skilled and knowledgeable professional advisers, with demand for this only going to increase. Demystifying the relatively new tax rules for example, is a particular area where expert advisers can add real value and help avoid their landlord customers getting on the wrong side of the tax man!

And there’s still a big job to do to support brokers with understanding the implications of change in order to help them to capitalise on opportunities to grow their businesses. Lenders and distributors (including networks and clubs) have a key role to play here by helping brokers build their knowledge and understanding through organising meetings, events and CPD sessions. Doing so not only helps brokers understand the nuances and pitfalls to avoid in growing their presence with landlords, but also creates an opportunity for lenders and distributors to strengthen relationships with their broker partners. The recent L&G Mortgage Club’s Autumn Conference was a great example of a very well run and attended event that was mutually beneficial for all concerned. We certainly found this highly useful and working in partnership with organisations such as L&G is a core part of our growth plan.

It’s our focus at Zephyr, whether through collaboration with our various intermediary partners or working closely with colleagues across Computershare, such as within the DPS, to continue to provide that expert support, insight and service in the evolving buy-to-let market. Considering the heavy change agenda and the various headwinds – it’s clear that all stakeholders in the sector certainly need to lean on each other!!

BUY-TO-LET INTRODUCER

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Looking for flexibility for your portfolio landlord cases?

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For intermediaries only

Loan Introducer

Comment

Back to business for buy-to-let The summer slowdown – if indeed there ever was one – is now well and truly over, and we’re well into a period of the year which tends to be marked by significant levels of activity, particularly when it comes to buy-to-let.

We are now over three and a half years on from the introduction of the extra 3% stamp duty levy for additional property purchasers, such as buy-to-let landlords, and now four years into the phased reduction in mortgage interest tax relief.

For those not owning their properties within corporate vehicles, by the end of the 2020/21 tax year, this policy will have run its course meaning that landlords will only be able to claim relief at the basic income tax level. It is perhaps not surprising that against this background – and over the past few years – we’ve seen more and more landlords utilising limited companies to both purchase new properties and (where deemed appropriate) to bring their existing portfolio within such a structure.

Over three years might seem like a long time to have ‘bedded in’ these changes but it’s obvious that these have made a seismic difference to the buy-to-let sector, specifically the notion of what is profitable, and what is not. Under this backdrop it is perhaps not surprising that the ‘dinner party’ or ‘amateur’ landlord is now much less likely to be active in this space, or rather if they are, then they have tended not to add to portfolios as they might well have done pre-2016.

And so we have a sector which is increasingly dominated by portfolio and professional landlords – certainly when it comes to mortgage market activity – that is still well aware of the opportunities that exist in the private rental sector (PRS) but is also fully aware that what is required now may not have been the case many years ago. The rise of limited company buy-to-let activity is – as pointed out www.mortgageintroducer.com

Jeff Knight director of marketing, Foundation Home Loans

above – no surprise and, from that perspective, the very nature of buyto-let advice and mortgage lending has effectively had to be reshaped to fit the changing demand. Given that properties within a limited company are still eligible for full mortgage interest tax relief and landlords can flexibly use the corporate structure in terms of paying themselves, etc, it was no surprise that landlords wanted to use limited companies more frequently.

From our perspective, our role has been to make the provision of mortgage finance for landlords purchasing/remortgaging through limited companies that much easier. It’s fair to say that the administrative burden on advisers and their clients for this type of product/lending was significant a few years back. But our process has always been about ensuring that portfolio landlords were not overburdened in such a way and that the documentation and administration we needed and carried out was kept to the absolute minimum.

It’s why we don’t require asset or liability statements, there’s no requirement for business plans from the landlord, the application process is simple, and we do not have a limit on the portfolio size of the specific landlord because we recognise that if you are a professional in this market then the likelihood is you’ll have a significant number of properties which are likely to breach any limit quite easily.

Why would we not lend to those who are highly experienced in this marketplace?

Along with other criteria specifically aimed at portfolio landlords such as our assessment period being valid for six months, a bespoke stress test for the background portfolio, and an ability to lend on properties which are increasingly the preserve of professional landlords such as HMOs, multi-unit blocks and short-term lets, we believe we have an offering which is absoluteOCTOBER 2019

ly tailored for this dominant force in the private rental sector.

We ourselves have already seen a significant uplift in activity from portfolio landlords, particularly over the last 12 months, and much of this could be put down to how this borrower cohort are now much more comfortable with their surroundings, and lenders like ourselves are now increasingly making it easier for advisers to ensure they can get the best deals for their clients. There is also a price point to make here in that we have very competitive rates which match those that landlords would be able to secure in an individual capacity.

“Given that properties within a limited company are still eligible for full mortgage interest tax relief it was no surprise that landlords wanted to use limited companies more” While the political situation remains, shall we say, ‘fluid’ it is the case that the housing market needs the PRS as much as it always has. Professional/portfolio landlords recognise this, and the good news is they have lenders like Foundation who have a strong appetite to lend, are flexible, and have developed systems and processes which make this type of activity and borrowing very accessible.

If you have clients in this space, or are looking to make a bigger splash, then please do contact us to see how we can help you grow your market share and secure business from a borrower group that is only likely to become even more active.

BUY-TO-LET INTRODUCER

23

Round-table

The state of the buy-to-let market Our panel discusses the future of buy-to-let, underserved parts of the market and how the government can support the sector we’ll go into 2020 with a bit more certainty than what we’ve had over the last couple of years. I think we’ll continue to see the trend of smaller investors stepping out. April 2020 gives us the full hit of the mortgage tax relief changes.

A few of them who haven’t restricted their portfolios or received the right tax advice will be in for a shock and we’ll see more of them exit. I think more of the professional landlords would have already restuctured and will see it as an opportunity to pick up some of that stock. I’m hoping by the end of 2019 we should be in a stronger place for the buy-to-let market to kick on.

Ryan Fowler: What does the next year in 2020 look like for buy-to-let? How do we think the sector will perform and change? What opportunities and hazards lie ahead?

Liz Syms: I think it will still very much be business as usual for property investors in the market. I think some will start to feel a bit more of the pinch of the next stage of the interest rate tax relief and start to give more thought to their strategy. The more serious investors will already be doing something about it. I think we’ll see more investors look at different ways of diversifying their portfolios.

We’ve seen quite a lot of investors look at developmental refurbishment products to grow their portfolios in different ways, and high yielding products like HMOs will continue to be popular with serious property investors in the market.

Paul Fryers: Understanding what will happen with Brexit will give some certainty. I think I’d agree with property investors diversifying into different types of property, perhaps HMOs. Also, geographically you’ll see a continued theme of investors in the south potentially looking to higher yield areas in the North.

Alex Searle: I think it’ll be the year we all just crack on. I’d like to think

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BUY-TO-LET INTRODUCER

OCTOBER 2019

Ray Boulger: I can see more landlords moving over to the Airbnb type of investment particularly once the tax implications hit those who haven’t fully recognised it. On the basis we leave the EU on 31 October that’s only the start of the process – there would still be uncertainty. Once we are no longer in the EU, I hope the FCA would get rid of this ridiculous differentiation of consumer buy-to-let which is unhelpful. In terms of risks, it’s difficult to see a Corbyn-led government getting a majority in a General Election.

When looking at small risks having a big impact, I’d say the biggest risk to the landlord would be we have some sort of Labour SNP coalition. I don’t see the SNP getting an overall majority. While I think it’s unlikely, if it were to happen, I think it would have big implications for the landlord sector.

You’d see lots of landlords starting to turn up for fear of things like the Right to Buy and being forced to sell their properties at a discount.

www.mortgageintroducer.com

Round-table

(From L to R) Ray Boulger, John Charcol; Jeff Knight, Foundation Home Loans; Paul Fryers, Zephyr Homeloans; Liz Syms, Connect; Alex Searle, Hampshire Trust Bank; Dale Jannels, Impact Specialist Finance; Sundeep Patel, Together; Ian May, Landbay

Dale Jannels: I think there’s still a huge educational piece for brokers on buy-to-let. We see many brokers still just happy to do residential cases with mainstream lenders and scared to do buy-to-let and bridging cases. They haven’t got the manpower, understanding and resources to do it. I think next year there will be a huge influx of people saying ‘what do I do to help’ especially now there’s a shift to 5-year fixes. They’ll need something else and when they see people with portfolios, they’ll be confused and look for help.

Ian May: Diversification will be massive next year. It really is a more specialised marketplace. We’re finding some solicitors are not specialists with limited companies and arenot giving the best service to the lender or borrower so there are some gaps there.

There are some areas where specialism needs to come to the fore and educating brokers is the first part of that.

www.mortgageintroducer.com

Sundeep Patel: I think there’s a good opportunity next year mainly down to education. We have lots of brokers coming to us with cases outside their norm. Clients are becoming more sophisticated on what their demands and needs are and if brokers are not prepared to upskill there are other solutions like packagers we use and we make the introduction. If the skillset is not there, we help them find solutions for them and their clients. I think the specialist market will grow next year. I think when the tax relief market comes into full effect people will start to realise the specialist market will grow especially specialist buy-to-let. We’re finding these guys are using bridging much more now as part of their skillset and product set when looking to buy and do properties up.

Alasdair McDonald: Following 2015 tax reforms in April we will see the tax relief completely removed for landlords and this will further impact their tax bills. Therefore the OCTOBER 2019

market for landlords will probably be subdued but should remain stable. The majority of buy-to-let purchases are likely to be via a limited company. As a lender, we are also seeing an increase in holiday let purchases as their tax treatment is different to buy-to-lets.

There is still a lot of uncertainty in the market around Brexit and future interest rates, so 5-year fixed rates are providing some comfort and surety.

RF: Would you say bridging is quite essential to the buy-to-let market currently?

LS: At the Female Property Alliance, a group of 30 or 40 ladies that get together for a network event, I did a presentation on bridging and it received the best response from the room than any other presentation I’ve done. The more property investors realise bridging can help them grow their portfolio I think it will become more popular.  BUY-TO-LET INTRODUCER

25

Round-table

Jeff Knight: If and when Brexit does happen, that uncertainty will not disappear. There are still many things we don’t know about. There will be winners and losers next year.

There will be some who will be hesitant about expanding their portfolio while some will think it’s an opportunity to expand. It depends on people’s outlook. It’ll be a state of flux which will present opportunity for the bigger, more professional landlords to diversify, looking at HMOs and snapping up properties.

DJ: Also, whilst there’s no good resolution to get first-time buyers onto the ladder, they’ll still be paying the rent and therefore the buy-to-let ladder will still be increasing next year and especially up north. We’re seeing a lot of landlords who used to buy in the South go up North because the rental yields are much better there.

for example for older borrowers, but there are lenders catering for these pieces of criteria. It’s an education piece. And there are many more lenders since the credit crunch which is much better for intermediaries.

AM: Bridging and short-term lending products can be very helpful in aiding investors to purchase property that needs to be refurbished to a higher spec for renting.

AS: Competition is good, and we relish it. It keeps you going and pushes you forward. For the customer it can only be a good thing. But more lenders entering the market competing on rate alone isn’t a business model that will work. You must find an underserved part of the market and service a niche because just chasing rate won’t work. We look at it as the more buy-to-let lenders, the more competition and the better customer outcomes.

RB: I think it’s interesting in what people think of as specialist. For example, what the one, two-man brokers consider specialist such as portfolio buy-to-let is what the mainstream brokers like us do. It’s bread and butter for us.

RF: We’ve heard from some people saying there are too many buy-to-let lenders in the market at the moment. Do you think there are too many, are we underserved or overserved?

LS: The more lenders with niche criteria the more customers we can help. The only challenge is for the brokers having to navigate through all these pieces of criteria and to reach the right recommendation.

You can’t keep that information of 100-plus lenders in your head, you

JK: A lot of landlords are saying there are not enough lenders out there servicing their requirements

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OCTOBER 2019

need the systems you can work with, so brokers should push for more lenders to get involved with that. That will help them to use more lenders. It’s great having all these lenders but if brokers don’t know about them then they won’t be used.

RB: There’s also the counter argument of the more lenders there are, the more choice and criteria there is, and the more clients need brokers.

PF: From the lender point of view having scale is important which means you’re creating more revenue and return to reinvest in your market. Having that ability to invest in new systems comes up as scaling business. Having that significant infrastructure behind you is important as well.

RF: What areas of the market do you think is significantly underserved?

AM: The holiday let and short-term letting market is still an underserved

www.mortgageintroducer.com

Round-table

area which has been serviced by a small number of building societies and as mentioned previously offers a different kind of opportunity for property investors.

DJ: I think mainstream lenders trying to come into the specialist area are coming in with a criterion of a maximum six, eight-bedroom HMOs but we’re now looking at 10, 12, 15, 22 bed HMOs. It all depends on the demand, where it is and what it will be.

Some underserved areas are Airbnb, service accommodation, holiday lets in restricted areas only being sold as holiday lets. There are lots of niches and criteria in the market.

LS: I think we could have more choice of lenders offering semicommercial. Not many of the mainstream buy-to-lets are semi-commercial. There are commercial lenders which may not be as attractive. It’s that semi-commercial piece in between. More property investors are realising that if they buy a semi-commercial property they have some stamp duty benefits and partial tax benefits if they hold it in their individual name and if it’s a commercial investment, it’s what they are used to with buy-to-let so it’s a good stepping stone towards the commercial side of things. There’s a risk in the market that you have the tenants now getting older and older and all these mortgages are being sorted out to older people but what about when the tenant gets older and moves onto a pension, can they still afford the rent and what risk does that pose to the actual landlord?

There are some areas in the marketplace that need to be thought about for the future.

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JK: Do you get many clients buying properties as part of inheritance tax planning? How would they pass them down?

landlord’s and investor’s way to exit that bridge rather than waiting six months to find out there was a problem?

LS: They have to use limited companies and there are products that allow children to go onto that product. It’s a good niche.

JK: We’re seeing a lot of enquiries from expats.

DJ: Also, with development finance doing building and converting, some lenders will not allow buy-to-let after to pay it back.

It’s a cracking product, it’s all been refurbished and will rent out straight away in most areas why wouldn’t a lender refinance in that basis?

LS: I think there’s only one other gap that comes to mind. A couple of providers do it, the guaranteed exits of bridges. There is still quite a lot of risk because bridges are becoming more popular and if something goes wrong along the way, depending on what the exit plans were, so are there some more products that can come into the market that secure that

DJ: Its panic buying back into the UK. RB: We’ve seen quite an increase in enquiries from expats over the last few months and the weaker pound is a factor in that, I think. To what extent is regulation a problem in offering semi-commercial products because with buy-to-let being non-regulated and residential being regulated, you have a mortgage that’s partly regulated? Is that a reason not many lenders offer it?

LS: I was thinking a shop and a flat with a buy-to-let above. There is a gap for the residential and buy-tolet mixing.

JK: A lot of it is funding. If they’re non-retail funded, you must consider their requirements.

RB: With a flat above a shop we see if there’s enough equity in the flat and just do the mortgage on the fault and then maybe split the title.

Some lenders might take a view on that.

LS: There are a couple of lenders that do the product, but it comes down to what percentage is commercial in terms of regulation.

RB: It’s how lenders interpret that.

The 40% rule is interpreted differently by different lenders.

AS: For us the 40% rule is all about  risk weighting. From our point of

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of talk about longer-term fixes.

Time will tell.

view as soon as it goes over 40% commercial, we have to hold 100% capital to that property which we don’t have to do if it’s under 40%.

With 35% you’re in a different cost bracket. If I ruled 100% capital against a deal, we have to charge to make sure that we can make that work. Up to 40% you’re seeing the standard 35% risk weighting.

So, if lenders are not offering it it’s because of the way they’re funded, or they think they don’t have the commercial expertise. It comes down to risk weighting. We have the 40% rule, if it does tip over, we’ll do it, but it changes the pricing.

DJ: I think it’s down to the landlord and what their plans are. If they want to take money out of the property every three years, they’re really hesitant to take a 5-year fix when it has 5-year redemptions but when they’re taking a 5-year fix for the rental yield and best calculations, they’re being forced into it. A lot of brokers still haven’t got their head around rental calculations. If for whatever reason these calculations change the landlord has to go onto the SVR of that lender in five years’ time. If it’s high, will we be looking at landlord prisoners?

RF: We’ve seen some low rates in the buy-to-let sector. Do we think prices are as low as they will go?

offering fixed rates longer than five years. We’ve seen more in the resi market for 10, 15 years. Whilst not every landlord will want to lock in for 10 years, I think there’s scope for a bit of innovation on longer-term pricing and doing something along the lines of what Newcastle and Coventry do, have a 10-year fix but with five years with ERCs. That’s the sort of innovation that would tempt landlords to go into a longer-term fix. If you lock them into a 10-year deal with all the uncertainty in the market, most wouldn’t want to do that but giving them long-term certainty with some flexibility will be interesting.

AS: I think they can go lower. With economic forecasts a large number are factoring in a reasonable probability of a base rate drop. If that happens, cheaper funding means you can offer cheaper prices and competition drives prices down. I think there’s scope, but I don’t think it’s right. If I see lenders pull down that price lever, I see it as they can’t innovate their products or improve their service. You could achieve sales targets through other ways than rate. It’s an easy way to get new business but is it right for the market as a whole?

RB: The yield curve has incredibly flattened. There’s only about 0.10% spare on swap rates and buy-to-let rates have been slower to come down to reflect the drop-in cost in long-term rates than in residential.

There is scope for rates to drop further even without the bank rate fall. There’s scope for the longerterm fixes. We have very few lenders in the buy-to-let market

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AS: We do that with a 5-year fix and 2-year ERCs. It’s the same principle.

PF: We brought out a 7-year fix a few months back and take up has been limited. I think the market is generally in that 5-year state for buy-to-let. I was at a conference yesterday and there was quite a lot

OCTOBER 2019

RB: Most lenders probably offer a product transfer so they wouldn’t go onto the SVR. DJ: That’s if the PRA decides to really come down on 5-year calculations.

RB: A lot of lenders are offering either pay rate or something between pay rate and 5 and a half on 5-year fixes. If you do 10-year fix lenders ought to be more comfortable to offer pay rate. I can see benefits for lenders as well as borrowers in offering longer-term deals to give them certainty to help the rental calculation providing you give the borrower flexibility. That’s key.

LS: I think there’s still quite a lot of pressure on rates because your high street type of lender like TMW are still streets ahead in terms of lowest rates so brokers will see if it fits them first and then only move to the specialist market if it doesn’t.

They take a lot of the market so they’re still top five lenders for us even though we do so much

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Round-table

specialist. So that puts pressure on the specialist lenders who have a much smaller market share to drive prices down to try and compete on a rate basis.

SP: Speaking personally I’ve remortgaged two buy-to-lets this year and they’re cheaper than my residential. In 20 years, I never would have thought that would happen, but it does now. Our BDMs probably at least five times a week get calls from brokers with five years’ plus experience, who still can’t do rental calculations properly.

If they’re not skilled to do it we try and help them as lenders as much as we can, otherwise we put them in touch with people who can. It’s quite scary that they don’t seem to understand it.

RF: How do you push the education message home as lenders?

SP: I used to work for Precise where we did a massive educational piece where we went out and used to present non-stop on the taxation changes. I started working with KPMG and bigger firms to get them on board. It’s more pushing the market changes. It’s trying to get that across. I think it’s down to attitude. If someone’s split of business is 80% resi and 20% buy-to-let are they really going to be focussed on it and listening, however when they get that portfolio landlord and there are more deals to be had with them, that’s when they want to be listening. But landlords are more educated. These guys are reading what’s going on in the media and expect brokers to have that skillset.

When I was at Precise, we would get the same deal from different people. The client is going out there

seeing who can do it for them properly.

LS: I think there is a lot of complexity to the rental calculations so for brokers not doing a lot of buy-to-let I can understand why in some ways. I think it’s good several lenders have calculators on their websites. At least there are tools there that help brokers do the calculations but more education to give them the background on how that calculation is done, can only be a benefit. It’s something our academy probably spend a good hour and a half on, teaching people about the calculations.

AS: When you go to these events it’s the same people, the people that want to learn. There are those sitting in their shed that have never gone to these events and no one is monitoring them, that’s a scary place. They don’t understand rental calculations and haven’t gone to events or had any training in the last few years, there’s some worrying factors out there.

DJ: But there is opportunity as well.

LS: More of those brokers are being reached with things like webinars now.

AM: It is important that lenders engage fully with brokers via network and mortgage club forums to train the trainers (i.e. brokers), to help keep them up to speed with the market and any changes occurring.

RF: One in eight landlords consult specialist tax advisers to help on their investments.

There’s been lots of tax changes and that suggests the landlords aren’t as aware or engaged with it as they should be. Is it the brokers’ job to help them on that journey?

RB: We always make the point to clients that we’re not tax advisers. If you are talking to clients about buy-to-let you need some basic knowledge of tax implications because you probably have to talk 



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Round-table

many mortgage products available, so I had to put that straight.

about whether one should be buying as a limited company or personal name. You need to have some basic knowledge but stop short on advising the clients on all the tax implications. Having a relationship with a tax adviser you’re confident about is important because there’s nothing worse than recommending a client to another firm for something you can’t do and getting a negative review back. Most brokers will have relationships with solicitors and get to know who’s good and who’s not.

PF: I guess the recent changes have brought that into sharper focus. On a transaction you need the right specialists. The buy-to-let market whether standard or specialist has gone through a lot of change and that’s still unwinding.

AM: It is down to industry professionals both lenders and brokers to educate landlords about the benefits of taking specialist tax advice for their buy-to-let investments. There has never been a more important time for consumers to seek specialist intermediary advice when transacting in this market.

LS: Don’t you agree that’s always been the case? It’s in everybody’s thought process more now because of the mortgage tax relief changes.

RF: There have been lots of government changes but what should the government do now to support the market?

RB: There are pros and cons of buying in a personal name in buy-to-let, but the tax adviser often won’t know what the different interest rates are. There will probably be some tax benefits buying in a limited company name, but you must set that against the fact that you’ll probably be paying a higher interest rate and that’s where it can get difficult.

RB: Be realistic. I am concerned the fact on buy-to-let you can now only offset payments on 20%.

What’s to stop a future Chancellor bringing it down further? I think we need to make the government aware of how big the negative implication would be if they go further down that road. I think there’s a bigger risk of a new left-wing government. I thought when McDonnell was on the Andrew Marr

LS: I agree. I once spoke to a client who said their accountant told them not to go into a limited company because there aren’t

programme he seemed to row back a bit on the amount of confiscation there would be for landlords but inevitably if you have that policy there would be some confiscation element. I think a Labour government need to answer how they would address the homelessness that would be created by all the landlords that sold their properties and then tenants couldn’t find anywhere to rent.

SP: In London and the South East, PRS is essential and average multiples for buying a residential property is plus 10 times. Unless the Bank of Mum and Dad steps in quite heavily where would everyone live? There are no rental properties to rent from. I don’t think it’s thought through at all. It’s more political I’d say.

JK: The best thing any government could do is to leave it alone. From focus groups, I’ve found landlords can’t keep up with all the changes, many have day jobs then go home and look after their property.

LS: I think it would be properly recognising professional landlords as a business as opposed to anything else. They are running a business, employing people and giving a service so they should be treated as a business. SMEs in other sectors are supported so why would you not support this type of SME. I think with the proposal about forcing landlords to sell their properties to tenants, I don’t think they should force them, but it’d be interesting if they sold them at a discount. A landlord wanting to sell being able to give a benefit to an existing tenant who then can use that benefit towards their deposit. I think that’s a market to explore.

JK: But do tenants want to buy these properties? Generally, investment properties are different to what people want to live in.

AS: I think we need a lot more detail on that. If the landlord takes the brunt of that discount that’s

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OCTOBER 2019

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Round-table

deeply unfair and can’t be done. Is the government going to step in and support that discount and then you have a Help to Buy from rented properties?

DJ: We’ve talked about this for years. Where people are paying £1250 rent a month and have done for a few years, why can’t they have a mortgage that is cheaper or similar to what they’ve been paying for years? The sad fact is that works out as seven, eight, 10 times income despite the fact they’ve proved for a few years they have paid it on time. That’s probably the biggest conundrum right now along with rent-to-rent. This is where the landlord rents out to someone for a few years and then they rent on to someone else. That’s being promoted substantially at the moment.

IM: I think stability is key from that point of view. They need to realise that rather than hammering the landlords, they’re providing a vital service. Where would people live? A rapidly expanding population needs housing and housing isn’t being built quick enough. It’s headline grabbing. They should leave it alone and focus on running the country.

RF: What if any impact, does the current political uncertainty have on the buy-to-let market?

LS: According to the UK Finance data, in July buy-to-let purchases were up by 5% and buy-to-let remortgages by 2%, compared to July 2018.

That’s saying it’s not really had much of an impact right now.

Buy-to-let is as busy as ever for us and our numbers are up this year.

There could be other factors with how we’ve developed our business.

It’s not having an impact so much on the buy-to-let market, but I think it’s having more of an impact on the residential market where home movers are more sitting and waiting to see.

SP: Our month-on-month figures have been growing. We’re pleased

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something then you can be saying that for some time.

JK: There’s a key difference between what people say they’ll do and what they do.

PF: UK Finance figures show a skew towards remortgage. There are some evidence and conversations of landlords not taking decisions to purchase yet. There’s general resilience, whether with the clarity 31 October will bring, things will continue.

JK: It may deter first-time landlords to enter the market but not those with big portfolios.

with and have seen that impact. A lot of landlords have taken the view it’s their professional occupation and they’re not going to stop but continue what they’re doing. A lot have equity as well, so they can refinance and restructure for long-term profitability. They’re using other tools now like short-term finance and second charge lending to really treat it like a professional business and utilise all the options available.

AM: Uncertainty is never good for the market and it has resulted in some consumers putting investment plans on hold.

RB: I think it’s easy to overestimate the impact of Brexit because we’ve known for three years’ we’ll be leaving the EU, so I think most of the impact has been factored into the market now. I think Trump’s trade war is probably having a bigger impact on things like interest rates than Brexit.

UK bond yields tend to go up and down in line with the US and European bond yields. It’s very clear Brexit is more of a subsidiary factor now. Should we leave on October 31 there will be several years of detailed negotiations so there will be uncertainty for some time. So, if you want an excuse to not to do OCTOBER 2019

PF: I think the general view is that amateur landlords with one or two properties are more likely to exit leaving the opportunity for professional landlords to grow their portfolios.

AS: And foreign investors with the appreciation of Sterling. One in three London homes are being picked up by foreign investors.

DJ: The equity and property is great, but the downside is some of the lenders’ valuers. When refurbishing a buy-to-let to an HMO some are valuing it on the current value, not the future value it’ll be with the HMO. RB: For portfolio landlords they’d like to see a lot less paperwork and have a simple tick box which makes it a lot easier for the borrower. I think in 15, 20 years’ time the buy-to-let market will look significantly different. We’re seeing more institutional investors come up and they tend to buy blocks because it’s much easier to acknowledge.

In the same way that student accommodation has changed massively over the last few years I can see the residential market going that way and there being less choice for people renting individual houses and more choice if you want to rent somewhere in a big block.  BUY-TO-LET INTRODUCER

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Interview

Trust in us Buy-to-let Introducer caught up with Charles McDowell, managing director of specialist mortgages at Hampshire Trust Bank, to get his take on the market There have been a number of changes to the market. How have these changes affected HTB?

There has been an increase in demand from overseas residents.

Are you are seeing this at HTB and what is driving this surge?

The only certainty in the buy-to-let market is that there will always be a buy-to-let market. There have been changes and challenges to the private rental sector over the last few years on all sides – operational, commercial, funding – however we should never underestimate the resilience of landlords. I’ve lost count of the number of times doomsayers have warned of car crashes, log jams and train wrecks but landlords, on the whole, have navigated a successful course.

Now more than ever, landlords and property investors need partners (lenders and brokers) who understand their situations and aspirations. At HTB, quite simply, we get professional landlords. We are able to create bespoke solutions to help them do what they want to do – from short-term loans, to 5-year fixes with reduced (or no) break costs, to committed facilities which allow them to make snap purchases.

No two landlords are the same and no two properties are the same, so our ability to be creative in our offering is invaluable.

The UK property market has been, still is and always will be an attractive location to overseas buyers. It may sound like I’ve been drinking the Kool-Aid, but there are many positives that we within the UK often fail to see.

The stability, security and diversity of the UK property market due to its strong legal framework and regional offerings make it a long-term value proposition.This is not something that many countries can offer to overseas investors.

As it stands over one in three homes across London are now bought by foreign investors.

Numbers are on the rise outside of the capital too, as investors take advantage of the rich variety in the UK property market.

Different property types and regions offer varied return profiles, meaning there is something to suit every investors portfolio, offering security, as well as excellent value and rental yields.

Another key driver in demand from foreign investors is the weakening pound. We have experienced sterling depreciation since the Brexit referendum, with the value of the pound falling approximately 13%. This has meant that sterling valued property is cheaper for overseas buyers.

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Do you think there could soon be further intervention by government or regulators to curb lending in the buy-to-let mortgage market?

To be honest, I’ve stopped OCTOBER 2019

worrying about ifs buts and maybes. We waste so much energy talking about things that could definitely maybe possibly happen. As I said above, the one thing that is certain is that no matter what obstacles are put up, private landlords will come through the other side. As Dr Ian Malcolm said, “landlords find a way”. Once we know what the changes are then we, as an industry, can work our way through.

Also, I suspect that the government are probably too busy on other things at the moment so I can’t imagine too many changes coming out of Westminster for a while.

There are rumours that the regulator may look at the use of 5-year fixes within the BTL market. The changes from a few years ago have meant that 5-year fixes can result in an improved affordability position for BTL mortgages which means the use of 5-year fixes has increased significantly since then. However, I see no issue with this, a 5-year fix provides certainty to the landlord over the medium term which gives them a stable platform for their business. That’s got to be a good thing from a prudential point of view.

Where in the UK would you suggest people currently consider investing in property?

The first area that a landlord should consider investing in is the

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Interview

area that they know best.

Moving into new locations is a great way to add an extra string to their bow but it needs to be with due consideration and caution. It’s a real worry when you hear a potential borrower saying that they are looking into a new town a few hundred miles away that they know nothing about but it’s got great yields.

Landlords should think about how they are going to manage these distant properties, and do they really understand the market? the rental demand? the capacity for rental growth? type of tenant etc?

Investment in the student housing market is growing. Is this a sector more people should consider?

I love student accommodation.

It’s a fantastic asset class offering great rental returns which tend to be resilient to changes that impact the regular residential property market meaning they provide great diversification within a portfolio.

That being said, they have their own set of risks. The government have made it clear that they are willing to let universities fail (and rightly so) so before investing in a particular town or city, it is worth doing some research on the financial standing and quality of the university along with student numbers and supply of student accommodation.

Why should brokers use HTB? What makes you different from other lenders?

Don’t tell anyone, but nothing we do is unique. We have no magic formula. There is no secret ingredient. But what we do have, are experts that understand lending and understand complexity.

There are lenders that do large loans. Some do commercial. A few do HMOs and MUFBs. Several lend to Expats and foreign nationals. But how many could

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Charles McDowell, Hampshire Trust Bank

lend £10m on a single block with a mix of commercial units, residential apartments and HMOs while using top slicing from the wider portfolio to a BVI company owned by an Indian national living in Dubai. Well, HTB can and have.

What would you say is your ‘sweet spot’ as a lender?

As a specialist bank, we are constantly searching for those areas of the market that are underserved and where we can make a difference… to be honest that’s “lender-speak” for “areas of the market where we can charge a suitable rate”.

Let’s face it, we want to be here for the long-term, here to lend through the cycle. We are not going to engage in a rate race to the bottom, we are not going to lend money at lower rates than our source of funds.

I hold my head in despair at each “rate cut” announcement that flashes across my screen on what seems like a daily basis these days. Have we as an industry become so commoditised that price is the only differentiator? At HTB that’s OCTOBER 2019

certainly not the case. Our sweet spot is complexity. We take the time and have the experts to understand the pros and cons of any case. We revel in complexity, layers upon layers of complexity.

What are the plans moving forward for HTB? We want to be the go to lender of choice for the broker market when it comes to complex lending. And we want to be here for the long term, not just the good times - when interest rates are low and the economic background is relatively benign.

When the market turns, when the global economy slows or even retreats, we will be here, looking to support property investors and our brokers.

How do you see the wider market UK property market performing over the next 12 months?

Who knows? There are several scenarios all of which are greatly divergent and all of which are equally probably (more or less).

One thing is sure however, the private rental sector will still be there and so will HTB. BUY-TO-LET INTRODUCER

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Comment

Holiday lets are on the rise and lenders are taking heed There is a rise in the popularity of Airbnb and holiday lettings, commonly known collectively as ‘shortterm lettings’.

Seeing it as an opportunity to receive greater returns than they would receive through a normal buy-to-let property investors are moving into the market.

There are benefits to an investor if the property meets the criteria of ‘furnished holiday accommodation’ as this provides some potential tax advantages.

These advantages include the offsetting of mortgage interest costs against the letting income before the tax owed is calculated.

This still applies even when the property is held in the investor’s own name which, as we know, is now restricted on the traditional buy-to-let property for higher rate taxpayers.

Other possible tax advantages for landlords of furnished holiday accommodation are that capital allowances can be claimed, so fitting the property with integral fixtures can be deducted for income tax purposes.

These tax advantages are because the property letting is being run as a recognised business rather than as a buy-to-let.

There is guidance online from HMRC called ‘HS253 Furnished holiday lettings’ that stipulates the rules for a property to qualify. The property must be ‘available’ for letting, on a fully furnished basis, for at least 210 days of the year, intending to make a profit.

You must actually let the property for at least 105 days of the year.

There is also a limit on the total number of lets each year that can exceed 31 days in one letting.

In addition to these requirements, the landlord may require planning permission to be able to rent out a property for short-term holiday lets.

Your client should check with their local authority with regards to this point.

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Liz Syms founder and director, Connect for Intermediaries

OCTOBER 2019

In the past, there were very few lenders available, particularly for Airbnb style lettings. Lenders like Castle Trust and Metro led the market initially, but many more lenders now have some form of offering.

Several of the smaller building societies, for example, have seen this as a way to increase volumes of business without the need to make too many changes to systems and processes.

How these types of lenders generally assess the rental affordability is to assume the property is let out on a normal buy-to-let basis to a family.

They will then use this assumed rental income to make the affordability calculations as if it was a buy-to-let but giving the client the permission to let it on a holiday let or Airbnb basis.

One of the main reasons for letting a property on a short-term basis is the increased rental yield. Lenders that can consider the actual profits made from the short-term lettings business for affordability instead are often able to lender a higher amount.

Calculations based on the business profit have mainly been offered just by commercial lenders, who are used to calculating affordability based on a business’s performance.

However, there are a couple of buy-to-let lenders who will also lend on this basis, such as Leeds Building Society and Lendco.

They will look at the affordability based on the company’s accounts for

existing short-term let businesses and a projection of the expected average holiday let income for new acquisitions.

In the past, when there were fewer lenders available in this market, a client may well have taken a standard buy-to-let mortgage product and effectively breached the mortgage by letting it on a short-term basis. Nevertheless, it is not worth a borrower taking the risk of not getting the right mortgage.

Nowadays it is much easier for lenders to find out if the property is advertised as a holiday let by visiting the same sites as the client advertises on to attract their customers.

The risks of keeping quiet about short-term letting to a lender are not worth it, as the recourse for a lender is to request the loan to be repaid.

They could also name the landlord on the fraud systems, which would affect future credit and create other issues for the landlord in the future.

The good news is that there is a larger number of lenders now that will look at both the holiday let and the Airbnb markets favourably and with competitive buy-to-let level rates.

As more property investors look at opportunities to diversify their portfolios to combat some of the challenges in the buy-to-let market, the number of lenders and products, I am sure, will continue to grow to meet investor demand.

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