Four years ago this month we embarked upon a new chapter, starting up Fleet Mortgages in a serviced office with a management team, a funding line, a small number of employees but a strong vision about the type of lender we wanted to develop.
48 months on, a lot has changed not just at our business, but specifically in the buy-to-let market, however that vision has not changed one iota. We still only lend to those that can afford to pay it back and we, predominantly, focus our products and service towards the professional and/or portfolio landlord.
Indeed, with all the changes which have been brought to bear on the landlord community and the private rental sector during the last four years, it’s clear that the professional landlord borrower segment was the right one to focus on, although of course we maintain a strong presence with those who might be defined as ‘amateurs’.
Overall, however, it has to be said that – whatever your view on the stamp duty increases/tax relief cuts, and clearly we are not too enamoured with them – these changes have pushed the sector down the more ‘professional’ route. Indeed, unless there are some major u-turns from the government – highly unlikely – this will continue at some pace.
I’ve lost count of the number of surveys and research reports which tell you how many amateur landlords are (at the very least) considering leaving the PRS but most, if not all, suggest the numbers are high. For what it’s worth, I believe these numbers are slightly overdone. If you’re close to, or in retirement, and have been ‘saving’ your investment property for retirement, then you may well think now is the right time to sell up. However, if you are a decade or more away from such plans, you currently have good tenants, the property washes its face in terms of rent and yield, then why would you sell up?
Regardless of what some might think, landlords are a canny bunch and the vast majority will realise they need to be investing for the long-term – anyone considering buy-to-let as an opportunity to make a quick buck on capital values increasing is approximately 15 years too late.
But, what we are able to see is that, while the amateur landlord may decide to hold onto what they have, they are now far less likely to be purchasing more properties in order to add to their portfolio. There are of course those landlords who want to do this; however both the increased cost of purchasing, especially in stamp duty costs, and the fall in the mortgage interest tax relief, has punctured their profit-making ability. House prices, while relative flat, are still high and the operating costs of being a landlord continue to grow.
The growth in limited company buy-to-let is as a direct result of landlords becoming more professionalised, and wanting to claim that tax relief in full, however the stamp duty cost increase is not removed. It’s perhaps no wonder that those purchasing via limited companies are looking at much higher-yielding properties to buy, such as HMOs and multi-unit blocks, in order to get more income-generating bang for their buck.
Of course, those sectors have also been ‘targeted’ in the sense that the new rules – to be introduced next month – mean many more properties will be classed as HMOs, will need the necessary license and have to meet the requirements in place to get one. Being a landlord – of any type, with any number of properties – was never meant to be easy but over the past four years it has certainly been made harder.
That said, the investment opportunity remains sound and the lending market is a real positive for landlords who do want to purchase or refinance. Rates remain very competitive, as does criteria, and specialist lenders like ourselves are absolutely dedicated to this sector and supporting advisers and their clients. While purchase activity has trailed off, the remortgage market is buoyant and is likely to remain so for some time.
The last four years have seen some considerable changes for all of us to deal with, but the foundations of buy-to-let remain strong and we certainly retain our hunger, drive and commitment to deliver quality lending in this space for many years to come.
Bob Young is chief executive officer of Fleet Mortgages
