Anyone who regularly casts their eyes over a newspaper will have noticed the increased popularity of buy-to-let among investors. Recent reports that around three-quarters of mortgage brokers have seen an upturn in buy-to-let business tally with findings from Shawbrook’s latest Broker Barometer, our quarterly survey of commercial mortgage brokers. As well as 78% of our broker respondents agreeing that the buy-to-let market is growing, over 90% feel the same way about specialist buy-to-lets.
Alongside the media’s reports on the growing popularity of buy-to-let, we’re also seeing no signs of let-up in the rental market. The recently released ONS figures show that UK house prices are continuing to rise, having increased by 6.8% compared with 2013. Perhaps because of this, despite the Help-to-Buy scheme and the cost of owning a home in the UK being less per month than renting, the rental market remains buoyant. In addition, the overhaul of pensions in the latest Budget has led to speculation that, due to pensioners no longer having to buy annuities, they will invest their pensions in buy-to-let.
Annual rises in rent have surged ahead, with the average rent in England and Wales now being £743 per month, according to the latest Buy-to-Let Index from LSL Property Services. These high rental costs add to the attraction of investing in buy-to-lets. Unlike run-of-the-mill or so-called ‘vanilla’ buy-to-lets, which are straightforward and can be applied for by clients with no previous experience, specialist buy-to-lets – as the name implies – involve a degree of speciality in investor and lender alike. They are used by property professionals who are prepared to invest and add value to the property, perhaps by refurbishing or splitting into multiple flats, resulting in greater returns in the future. This long-term view and desire to attract higher net worth tenants usually separates those people looking to make a quick buck from a mainstream Buy-to-let and those looking for more complex, specialist buy-to-let properties.
HMOs, multi-lets and complex portfolios are specialist buy-to-let projects that clients might have in mind. At Shawbrook we have always focused on helping experienced investors like these and accordingly our residential investment options cater for a range of needs. Instead of simply offering mainstream buy-to-lets, we relish working with property professionals with large portfolios or with non-standard properties, such as HMOs. We pride ourselves on our personal approach, with human underwriting and support from both our BDMs and sales desk team, from submission to completion. We believe this is crucial when dealing with more complex loans. Because our underwriting is done by a person, not a machine, complex cases aren’t filtered out, and our focus on relationships, with both brokers and clients, lies at the heart of Shawbrook’s work. Each investor has different requirements so the commercial mortgages team’s flexible approach is very much suited to working on specialist buy-to-lets. However, in order to take a truly sustainable approach to opportunities in the buy-to-let market, brokers, lenders and property investors alike need to consider the inevitable rise in rates in the coming years, taking future affordability into account.
If you add the combination of rises in rents, rises in property prices and a more optimistic economy to some banks’ genuine appetite to lend, you get the ideal scenario for savvy clients to make the most of specialist buy-to-let in the long-term.
Karen Bennett is sales and marketing director of commercial mortgages at Shawbrook Bank