Alan Cleary - Managing Director of Precise Mortgages
A plethora of regulatory and tax changes over recent years has seen the buy-to-let landscape shift dramatically.
Stamp duty land tax surcharge, phased reduction of mortgage interest tax relief and stricter underwriting standards, to name just a few. The list seems endless and landlords would be forgiven for thinking they’d drawn the short straw.
But landlords are an entrepreneurial bunch. While we’ve no doubt seen a number of landlords opt to exit the market, many of the more professional outfits have risen to the challenge presented to them, choosing to spread capital more evenly to bring down portfolio LTVs and minimise mortgage costs as well as considering where to find and how to create value in today’s buy-to-let market.
They’re seeking out more profitable properties to replace those that have been or are being sold. Semi-commercial, multi-lets and HMOs have seen a big uptick in popularity over the past couple of years.
Another area that continues to see increasing activity is landlords opting to purchase sub-standard properties at a lower market value and then adding capital value by completing refurbishment works, ultimately improving yields by attracting quality tenants to help maximise the rental income possible.
There are various ways to finance this approach, but bridging finance has proved very popular with landlords looking to expand their portfolios.
We spotted this trend around a year ago and, as a result, launched our own refurbishment buy-to-let proposition.
It works by combining a short-term bridging loan that rolls up interest while the refurbishment is undertaken. When the property is ready to let and meets the expected value, the customer exits on to a standard buy-to-let term mortgage — but the beauty of it from the borrower’s perspective (and the broker’s) is that there is no need to resubmit an application for the buy-to-let loan. The whole deal is underwritten at the outset. And given that it is two separate loans, the broker has the added bonus of a double procuration fee, too.
And with clever use of other earned disposable income to supplement affordability calculations, landlords now have even more flexibility on how and where they use their capital. We’ve recently extended our top slicing offering to cover our entire buy-to-let range, including our refurbishment buy-to-let proposition.
As a specialist lender, we have long understood the value of discovering and opening up niches. Supporting landlords and helping them as they reshape their portfolios is our ethos. If your customer is a landlord looking for a new way to maximise their rental yield and increase capital value, our refurbishment buy-to-let proposition could enable them to do so.
This was always a resilient sector, and it is likely to remain as such, and I firmly believe that the outlook for the buy-to-let market looks set to remain positive throughout 2019.