An evolving buy-to-let market gives cause for optimism, despite the pressures facing the housing industry and high street retailers
It is tempting to get a bit deflated with all the negativity in the news at the moment. Housing indicators paint a subdued picture, with house price inflation relatively flat, transactions stagnant and lending down.
The high street also feels pretty gloomy after the fall of House of Fraser, a shock profit collapse at John Lewis and the scandal hitting Patisserie Valerie.
Meanwhile, the stockmarket is volatile, the pound is still weak and, of course, there is Brexit still to come. As I said, it is tempting to give in and join the naysayers.
But there are some positives out there too. Business confidence may be subdued, but business investment was still growing in Q2, up 0.5 per cent, according to the Office for National Statistics.
Expectations are that real investment for the long term will continue at a muted pace, as businesses remain in wait-and-see mode until there is a clearer outcome with regards to Brexit.
And while there is a sense in the residential market that buyers and sellers are sitting tight, also waiting to see what Brexit holds, landlords continue to rebalance portfolios – quite sensibly, seeing as there is little to be gained by stalling.
The latest figures from UK Finance showed strong growth in buy-to-let remortgaging in August. There were 13,800 new buy-to-let remortgages completed in the month, some 4.5 per cent more than in the same month a year previous. By value, this was £2.2bn of lending in the month, 4.8 per cent more year on year.
A straw poll from landlord forum the Property Hub showed almost 80 per cent of landlords plan to increase their portfolios over the next 12 months. Separate analysis from Mortgages for Business found the number of buy-to-let players lending to limited companies had risen by 47 per cent over the past year.
The structure of the buy-to-let market is shifting noticeably, increasingly moving towards favouring a more professional landlord with a mix of property types.
Our experience suggests houses in multiple occupation and multi-lets are gaining ground as popular choices for purchase, given their propensity to be higher yielding. Holiday lets also have much to offer landlords whose investments have been harder hit by the removal of tax relief on mortgage interest, as they qualify for an exemption.
Clearly, buy-to-let is no longer a mainstream market. Rewind the clock to 2005 and the vast majority of lending was straightforward purchase and remortgage of single units in the borrower’s name. Today could not be more different.
That said, reports of a mass exodus of landlords should be taken with a pinch of salt. The reality is far more subtle than such a black and white view. What we are witnessing is a market in transition. Yes, some landlords are selling up and not repurchasing, but others are selling up and buying back more profitable properties in corporate structures.
This goes to show there are pockets of opportunity in the mortgage market, but transacting in this context is far from straightforward. It requires not only skill, expertise, knowledge and experience, but time as well.
Landlords are in need of support, particularly as many will be in a position where they are juggling multiple properties in various stages within a portfolio. Not only are there now several different types of buy-to-let finance available, but affordability shifts depending on income tax bracket, employment status and the length of product term.
Brokers have always been invaluable at offering the support needed to navigate these challenges. Today, their services are even more necessary.
So yes, it is tempting to give into the sometimes-overwhelming negativity going about at the moment. But we would all do well to remember that life goes on regardless, and those working hard to keep it that way deserve some thanks and recognition.
Alan Cleary is managing director of Precise Mortgages