Despite all the changes, the choice for property investors of all sizes is wider and more competitive than it’s been in ages
Property investors in the UK have experienced numerous changes over the past 12 months – relating to the properties themselves, the funding market and general taxation – which may have affected their returns significantly.
For example, changes to stamp duty land tax for purchases of additional properties resulted in a huge upsurge in residential property investment cases looking to complete before the end of the tax year.
We continue to see more clients looking at capital raising and re-investment in their existing properties, including straightforward remortgage to a higher loan-to-value and undertaking refurbishments to obtain better returns. All of this, of course, is designed to squeeze every last penny of return from existing stock.
The funding market for this type of activity has perhaps been the fastest growing in the past couple of years anyway; it certainly appears to have been spurred on by these events.
The Treasury also announced its intention to cut mortgage interest tax relief for buy-to-lets held in personal names.
Almost immediately we saw a substantial increase in enquiries about funding transfers to limited company ownership, specifically gifted equity in such situations, and from investors seeking to move multi-component debt from various lenders to a single funder.
Not affecting everyone – but of sufficient impact to be of particular note – increasing downward pressure on rental yields in certain prime areas meant clients were no longer able to achieve the same levels of borrowing they had previously enjoyed. For us, at least, this has caused a big proportional increase in enquiries regarding investments other than specialist residential, with an increased focus on HMO, semi-commercial and commercial investment opportunities.
While lender rates can be higher – often due to the resultant cost of funds from higher regulatory capital adequacy requirements for certain property types, including most commercial stock – average rental yields on such assets tend to top that. In many cases, this can counteract higher pricing.
In terms of the funding market itself, we have seen an ongoing stabilisation of lenders that emerged subsequent to the crash, with many of those predominantly financing specialist residential and commercial property.
Their increasing market share, arising from a combination of their maturing as lenders plus this stabilisation and further resultant competition, has contributed to a healthy reduction in overall lender pricing.
This, in turn, provides real options for investor borrowers – from the more mainstream funders that have reacted to the higher competition levels, the so-called challenger banks that are arguably now more mainstream than the term implies, and continued new and aggressive entrants.
So in spite of all the changes to our market, the choice for property investors of all sizes is wider and more competitive than it has been for some time, and certainly since events of the late 2000s.
Jane Simpson is managing director at TBMC