Specialist lender Paragon believes that the increase in portfolio and complex buy-to-let business seen over the past two years is set to continue in 2020.
Recent tax changes have forced landlords to look for more efficient ways to structure their business, driving an increase in demand for mortgage products for incorporated and limited liability partnerships.
Research from BVA BDRC for Q3 2019 reveals landlords expecting to purchase property in a limited company structure has almost doubled in under two years. This, alongside the Prudential Regulation Authority’s (PRA) more detailed underwriting approach for portfolio landlords, has resulted in specialist lenders like Paragon tailoring products to match more complex requirements.
Paragon also predicts intermediaries will refocus on purchase business in the buy-to-let market, following a significant increase in the popularity of longer-term fixes since 2015 reducing remortgage opportunities.
It forecasts that those who do purchase are more likely to be larger-scale portfolio landlords, with non-portfolio landlords owning fewer than four properties far less likely to expand since the introduction of the Stamp Duty surcharge in April 2016 and subsequent tax changes. Recent research by Paragon found larger scale landlords are three times (11%) more likely to consider buying than smaller scale landlords (4%), within an overall much smaller buy-to-let market.
Despite this constrained buy-to-let market, the Private Rented Sector (PRS) continues to provide a home for one in five households, according to the 2017/18 English Housing Survey, and the demand for PRS property will continue to grow.
Following the ban on letting fees to the proposed abolition of ‘no-fault’ eviction, Paragon believes 2020 will see the introduction of more tenant-friendly regulation, as PRS landlords play an increasingly vital role in meeting the UK’s housing need.
Moray Hulme, director of mortgage sales at Paragon, said: “In recent years, landlords have had to be more strategic in their approach than ever before and the buy-to-let market has seen a significant increase in portfolio and complex business.
“Whilst mainstream lenders have limited their involvement to smaller-scale landlords, Paragon and other specialist lenders have been able to adapt and offer the right products to enable landlords to remain efficient – and this is a trend that we expect to continue in the long-term.
“As we look ahead to 2020, we will start to notice fewer opportunities for remortgage business as a result of landlords having opted for stability with longer-term fixed rate products during a turbulent few years in the buy-to-let market. Intermediaries looking for growth in buy-to-let may want to refocus back on house purchase.
“We also expect to see more tenant-friendly regulation in 2020, as the PRS continues to support a housing crisis caused by multiple factors, including population growth, limited investment in social housing, and tighter mortgage affordability. All of this increased complexity and growing professionalism is good news for Paragon, as we head into the new year as one of the few specialist lenders with the capability to support complex buy-to-let mortgage requirements.”
