Landlords are looking to expand their property portfolios at an accelerating pace over the rest of 2015, according to the latest property investor survey from specialist buy to let mortgage broker Mortgages for Business.
- Over the next six months, two thirds of landlords (65%) expect to add to their portfolios
- Compares to 55% who were looking for new buy to let properties just six months ago
- Landlords have capital to invest – only 12% now have overall borrowing above 75% LTV
- Fixed-rate loans less popular as over a quarter of landlords (26%) opt for variable-rate deals
As of April, 65% of UK landlords plan to buy at least one further property in the next six months. This compares to only 55% looking to buy as recently as November 2014.
Just 8% of landlords currently plan to sell any property, while 27% do not intend to either grow or reduce the size of their property portfolio over the next six months.
David Whittaker, managing director at Mortgages for Business, comments: “Landlords are better capitalised and now more confident about reinvesting. A strong rental market is being driven by tenants moving to make the most of job opportunities, and now gradually starting to earn more too. That new surge of demand is putting more upwards pressure on rents, and landlords are only just beginning to supply more homes to let in response.
“On top of this, after the surprise stability of a majority government, landlords will almost certainly see a short-term boost of house price growth – while the threat of damaging regulation has been lifted for at least the next five years.”
Landlords’ changing approach to borrowing
When choosing how to finance borrowing, landlords are also changing their approach. More than a quarter (26%) would currently prefer a variable rate deal for a new buy to let mortgage, up from 23% in November 2014.
However, choosing to fix repayments for just a short time period is actually slightly less popular than six months ago. Currently 22% prefer a two year fixed rate mortgage, down marginally from 23% in November, while 12% would go for a three year fix, down from 15% in November. Approaching a third of landlords (30%) would still choose the safety of fixing their mortgage repayments for five years, though this is also slightly down on 31% in November.
By contrast, very long term fixes appear to be gaining popularity. One-in-ten landlords (10%) would now choose a 10-year fix, more than the 8% recorded in November.
Landlords’ average loan-to-value ratios have fallen in the space of the last six months.
Overall, the average overall LTV ratio for UK landlords now stands at 54%, down from 57% in November.
The proportion of landlords with overall borrowing above 75% LTV has fallen to just 12%, down from 16% in November.
The vast majority have some borrowing, though below 75% LTV. This now represents more than four in five landlords (81%), up from 79% in the previous survey.
Currently only 6% of UK landlords have no borrowing whatsoever.
David Whittaker explains: “Over the medium term, interest rate expectations have never been friendlier to landlords. This is clearly reflected in the proportion willing to eschew guaranteed stability in favour of some immediate savings. Over a two year period this may be rational, and landlords as a whole don’t tend to take extraordinary risks with their financial position.
“However, over the longer-term, the stability of a fixed rate is likely to pay off, and given how five year fixes are barely more expensive than some variable rates we maintain our existing advice to fix now if it fits with a landlords’ investment plans over the next five to ten years.”
Landlords want action on restrictive lending criteria
Just 30% of landlords say mortgage lenders are doing enough to support property investors. This is even lower than the 36% who felt lenders supported landlords enough in November.
One in five (20%) say mortgage lenders should be lending more to landlords, while despite record-low mortgage rates a further 20% feel lenders should reduce rates further.
However, by far the most common demand for lenders from landlords is to ease lending criteria – an absolute majority of 57% believe landlords should be less rigid in their selection of borrowers. In part, this may be due to the profusion of professional landlords.
Those with no external income above £25,000 per annum now make up a significant 41% of all landlords, but according to many buy to let lenders this lack of significant non-rental income disqualifies such professional landlords from certain mortgage products.
Different property types are also a growing aspect of dissatisfaction with some lenders. The vast majority of landlords (91%) owns at least one standard or ‘vanilla’ buy to let property, stable compared to November 2014.
However, a significant minority (27%) now own at least one House in Multiple Occupation (HMO), 31% own at least one property classified as a multi-unit freehold block (or MUFB), and more than one in four (26%) own a semi-commercial property.
Looking ahead, 61% of landlords are considering a purchase of a ‘vanilla’ buy to let property, almost all of the 65% considering any further purchases. However a significant 17% are also considering buying an HMO in the next six months, 10% a MUFB property, while 13% are interested in a new semi-commercial property in the immediate future.
David Whittaker concludes: “Buy to let mortgage lending is a relatively new aspect of finance, only really defined in its modern form for a couple of decades. But as the financial world evolves certain safe-guards tend to be proven ineffective or irrelevant – and the same is true for buy to let.
“For example, it is hard to prove who is on average the better borrower: a professional landlord with three properties but a minimal external income, or a part-time landlord with one investment property but a well-paid job. Lenders are still adapting and improving their models for these things. But property investors are understandably annoyed when their personal circumstances aren’t taken into account, and good lenders won’t want to avoid too many borrowers unnecessarily.
“What’s more, for plenty of traditional mortgage lenders, more complex property types are also a sticking point. Many buy to let mortgage products just don’t apply if a flat is above a take-away, or a house is split into separate rooms. However once again, depending on the circumstances such properties could prove excellent investments, and their landlords extremely worthy borrowers – as specialist lenders who are able to support these sorts of projects know all too well.”