Markets tend to move in a certain direction because of numerous forces and I think it’s fair to say that the series of forces brought to bear on the buy-to-let sector in recent years have, without question, moved it firmly away from its (shall we say) historical base towards a more focused, portfolio-based and professional era.
Whether we like it or not, buy-to-let over the past couple of decades has often been seen as a type of ‘get rich quick’ scheme for those with the wherewithal and cash to be able to buy property and hold on to it for any length of time. In fact, pre-Credit Crunch you didn’t really need a lot of cash in many respects, as certain lenders were falling over themselves to lend on any property in any part of the country, and neither did you need to hold onto it for very long. Property prices were only going one way and lending appetite would never dry out – until it did.
In the immediate period after the Credit Crunch there was of course a significant pull-back in terms of activity, but not so long after we began to see a creep towards the type of activity – and importantly, mindset – that I mention above. Buy-to-let was starting to look a little like its pre-2008 self and it’s at this point that both the regulator and the government decided to act, especially as the latter could see more and more housing supply being taken out of owner-occupation and moving to the private rental sector.
You don’t need me to tell you what has resulted since then, but at its heart is a political determination to reverse this and, lest we forget, a renewed commitment to helping first-time buyers onto the ladder. Thus, the overarching benefits that many ‘amateur landlords’ have historically seen in being invested in buy-to-let have been eroded – indeed over the next few years, in areas like mortgage interest tax relief, we will see that profitability eroded even further.
Some ‘amateurs’ will continue to hold onto their property, being someway from a retirement, while others will sell up, but I suspect most will not be looking to add to their portfolios, happy with what they have now or looking to make an exit. I wouldn’t say the days of the ‘amateur/dinner party landlord’ are completely over but there will be far less activity in this space. It’s because of this that we focus a lot on the needs of professional and portfolio landlords, and the advisers who look after them, because this is where the market is heading.
If you wanted further proof of this, I saw a recent survey of brokers which suggested that significant numbers of their clients were ‘unaware’ of the PRA underwriting/portfolio landlord changes which might have an impact on their ability to purchase and refinance. For what it’s worth, I would suggest the bulk of these ‘unaware’ individuals are, what we might deem, amateur landlords because those who do this as a day job, or those who have significant portfolios, are completely on top of these scenarios and the true impact it has on their profitability.
It perhaps tells you everything about where the market is heading, and if you have tended to look after the mortgage needs of the amateur landlord, then you might not be transacting as much business as in previous years. Compare this, to a further survey from Mortgages for Business, which suggested more than two in five landlords intended to grow their portfolios – which suggests they’re at four mortgage buy-to-let properties already and looking to add to them. Increasingly, landlords will be housing their existing properties and making new purchases in limited company structures in order to be able to keep claiming the same levels of mortgage interest tax relief.
As we might have imagined, once these measures were announced, the professionals sought to understand them and sought the advice of tax/mortgage advisers and accountants, to see how best they might ride them out. Now, that this has been done, and the environment is perceived not to be as harsh as it might have been, we’re seeing increasing numbers looking to remortgage, capital raise and add to portfolios. We’re also seeing much more activity in higher-yielding properties such as HMOs and multi-unit blocks – areas where amateurs might not feel comfortable but the professionals are happy to work in.
That being the case, it’s important that advisers firstly secure the knowledge they need in these areas, but also market your practice as a buy-to-let specialist that can look after the needs of the professional landlord. This market is only moving in one direction and it’s vital that you follow it.
Bob Young is chief executive officer of Fleet Mortgages