The introduction of the Tenant Fees Act and the proposed removal of Section 21 evictions has been met with another round of stories in the media about how landlords are looking to jump overboard and abandon ship.
The Association of Residential Letting Agents reports that, on average, five landlords per letting agency branch have decided to exit the buy to let market, increasing from four in March 2019, while the Residential Landlords Association has found that 46 per cent of landlords and letting agents would consider quitting the sector if the government goes ahead with plans to get rid of ‘no fault’ evictions.
On the face of it, these figures look pretty bleak and seem to confirm the continuing exodus of thousands of landlords from the market, a trend which started following the introduction of the stamp duty surcharge and the reduction in mortgage interest tax relief.
However, what I believe we are seeing is simply a resetting of the buy-to-let market. Those who are leaving seem to be amateur landlords. This is perhaps not surprising considering all of the regulatory changes which have occurred, and which have perhaps proved too onerous for anyone not committed to being in it for the long term.
Those who remain are the professionals. We have seen a big increase in the number of landlords who are already using limited companies to run their BTL business or who intend to use a limited company structure to buy their next investment property.
When we asked leading research company BVA BDRC to look at how the buy to let market is changing, their Landlords Panel report made for interesting reading. It found that 55 per cent of landlords intend to use a limited company to purchase their next buy to let property, more than double the 24 per cent who said they planned on buying as an individual. That figure increased to 71 per cent among landlords with 11 or more properties.
The report also found that one in seven landlords plan to buy an additional property in the next year – that’s more than 14 per cent of landlords looking to purchase a new house. If you take into account data released earlier this year by the Treasury, which found there are nearly 2.7 million landlords in the UK, this equates to more than 375,000 property sales in the next 12 months. That’s a lot of potential new business for brokers to look forward to.
And there’s more good news for brokers – 70 per cent of the landlords interviewed as part of the research said they would use a broker to source mortgages for them compared with just 20 per cent who said they would go direct to a lender. Three quarters of landlords with six to 10 properties are most likely to use the services of a broker. When they were asked how they had found a broker, nearly half of landlords said they had been recommended a broker by a friend or relative, more than three times the next source of business, which was through an internet search.
While the market is certainly changing, there are still plenty of opportunities out there for brokers, particularly those who are comfortable dealing with limited company customers and who know where to go to get their customers the products they want.
Alan Cleary, managing director, Precise Mortgages