There seems to be a misconception in the buy-to-let space at present that no new ‘landlords’ are entering the sector and that it’s purely the preserve now of the established, professional landlord with at least half a dozen properties to their name.
Of course, we have seen a growing ‘professionalisation’ of buy-to-let and this will continue but this doesn’t mean that new landlords are not eyeing up the opportunities that exist, particularly in what can now be described as a ‘soft’ housing market.
What we have seen however – and this is clearly down to the PRA lending changes, the tax changes and the increase in stamp duty for the purchase of additional property – is that the ‘get rich quick landlord’ has been put off because this is a market which cannot deliver that type of short-term reward anymore. Indeed, while it hasn’t for some time, the recent regulatory and taxation changes make this impossible.
Creating such barriers for those who might ordinarily think property was the route to a quick return is no bad thing of course. It also means that the ‘next generation’ of landlord is much more likely to be in this for the long-term, and to expect to have to wait a considerable amount of years to, for example, see capital values grow and to benefit from rising rents.
Again, no bad thing, and what we’ve found at Fleet Mortgages is that new entrants are better informed than they have perhaps ever been – they have conducted their research about the property, the area, the demand, the likely tenant, and they’ve also having to make a considerable financial commitment in order to purchase the property.
A 25% deposit plus stamp duty and all the other fees that come with purchasing is never going to be ‘chump change’ and therefore this is a real commitment from serious investors, with a long-term horizon and already a good idea of how they might want to add to their investments/portfolios, and also how they might want to eventually exit them.
That’s a hugely encouraging sight to see, and the fact that many of these new landlords are utilising limited company vehicles in order to make those purchases, also tells us they are well-advised and taking advantage of what (in all likelihood) will be a better tax position. Again, this clearly comes with the caveat that they should not have received any sort of tax advice from you, the adviser – unless you’re qualified to give it – and they should have sought that expertise before making the decision to purchase through a limited company.
In that sense, any mis-perceptions about what new landlords are about should be truly cast aside. As perhaps should traditional ideas about the way they might want to finance their purchase(s) and what sort of position they want to be in with the regards to their loans and debts. It’s far too easy to fall into the trap that believes all landlords want to be highly leveraged in this market – most of them do not at all and therefore you might well have to challenge your thinking in this area, and others.
For instance, what about mortgage finance? Well, rate is clearly important (and will be to the client) but it might not trump all other considerations when making that lender/product choice. What about the start-up costs that come with it? What about completion fees? What about cashbacks? What about the service on offer and the expertise/specialist nature of the lender? What about the ability to understand what could be a complex case and get the job done on time? What about the lenders’ view on retention products or capital raising or any additional underwriting that might be required when it comes to your client portfolios?
All this has to be taken into account and once done, you as the adviser also want to have that certainty upfront from the lender that they’ll be able to secure the amount they need. The last thing you want to get into is a lengthy review process with the lender(s) that goes nowhere, because this ups the chance that the client might feel you’re unable to do your job and they go elsewhere. Knowing the true position is clearly important, and certainly for first-time landlords they’ll want to know you’re capable of delivering them to the right lender, first time.
So, let’s not hold onto antiquated ideas of what a landlord might be, or what they might be seeking to achieve and how they might wish to finance their aims. Each one is different but each one also requires quality advice. Make sure you’re the ones delivering it.
Bob Young is Chief Executive Officer of Fleet Mortgages