Buy-to-let was the stuff of dreams way back in the early 1990s. Before the first ever buy to let mortgage product was launched, owning a property to let was deemed to be a full on commercial business undertaking and there were, therefore, difficulties for individuals wanting to arrange a loan for this purpose and high interest rates if they managed to do so.
With the emergence of the first specialist BTL products in the mid 1990s, many thousands of people became, almost instantly, Buy-to-let landlords, quite a title, quite a status symbol, the talk of many a supper party at that time. Sadly, after a very lively start, bandwaggoners jumped into the market and started persuading people without any funds at all to use a credit card to get a buy-to-let property and to rapidly build a portfolio of properties. The get- rich-quick merchants took money from dreamers by ‘teaching them the tricks of the trade,’ namely buying cheap and letting for high rents in areas of ‘great demand.’ Inevitably, quite a number of dreamers lost out and Buy-to-let developed a bit of a reputation.
Now though, following the clear-out of the recent recession, mortgage lenders have dusted off their buy-to-let mortgage products, tightened up their criteria and relaunched the market, indeed, Mortgage Advice Bureau report growth in the Buy-to-let sector of over 30 per cent in 2013, compared to 2012 and they are predicting a further increase in 2014 of perhaps 15 per cent, equivalent to gross mortgage lending of £24billion.
Kevin Brown at One 77 is a little more bullish, “We think that the BTL mortgage market will grow over 20 per cent in 2014. The Mortgage Works, which is Nationwide Building Society’s BTL arm have recently carried out research results showing that 16 per cent of landlords added to the portfolio in Q4. So when the number of new clients looking to get into BTL is also factored in, the market is ripe for growth throughout 2014.”
Andy Young, Chief Executive at Landlord Centre is even more optimistic, “The CML has predicted total mortgage lending of up to £195 billion this year, and Landlord Centre expects to see uplift in new UK buy-to-let lending of 25 per cent more than in 2013.”
The final comment on lending levels comes from David Oastler at Mortgage Business, (who could be nicknamed Eeyore) “I’m never very keen to make predictions on anything, I’m the sort of sad individual who prefers to work with absolutes, but I’d be confident that we will do more BTL business in 2014 than we did in 2013.”
THE BEST BTL PRODUCT
Andy Young, at Landlord Centre, says that there are now many more lenders and products for landlords to choose from, “Landlord Centre now offers over 400 Buy-to-let products with around 30 different lenders from the whole of the market, including special deals that are not available on the high street.”
And Peter Brodnicki, at Mortgage Advice Bureau, says the market has changed, “Some mainstream lenders, who are not historically “serious players” in the sector, are targeting significant volumes in Buy-to-let and have very competitive offerings although with relatively conservative criteria.
“We are seeing some increase in lender appetite for risk, with loan-to-value (LTV) starting to edge up with a number of lenders offering 80 per cent LTV. Lenders are more demanding of their landlord borrowers than they were during the boom years and quite rightly so. Many want to see evidence of income at a minimum level of £20-£25k and unrelated to the letting of property, minimum age requirements apply with some lenders, and the credit profile of the individual is very important.”
David Oastler at Mortgage Business says that as Independent Mortgage Advisers they are able to recommend Buy-to-let products from all available lending sources and the beauty of that ,in terms of any moral issues advisers may have, is that there is no real conflict with the direct to lender market.”
“The specialist BTL lenders like BM Solutions and TMW have always been proactive but there are now more products available than pre 2008 as more lenders look to get back into the investment property market. As with residential lending there has been a period of criteria review which has opened up some opportunities that may not have been so prevalent before; higher Loan to Value schemes for example or applicants maximum lending age which has coined the new phrase ‘Granlords’ – which we love!”
One 77 Mortgage is a ‘whole of market broker’ so, says Kevin Brown, “We can offer any client the ideal solution. Whether they are a professional landlord or an ‘accidental’ landlord who needs to move but, doesn’t want to sell their existing house – we will be able to a find the right lender.”
The rates currently available are very low, starting from 1.99 per cent. Clients with a 40 per cent deposit will be able to enjoy the best rates but those with smaller deposits shouldn’t be put off. Currently there really is a BTL solution for anyone looking to get into the market.
“Most of our clients are looking to take two-year fixed rates. Their thinking is that in two years’ time, when the rate ends, they will be able to release the increased value of the property, that they can then use to re-invest into a further BTL property. This process works well for people with more than one BTL as they can use the combined increase in the properties to allow then to raise enough money for all the deposit needed on the next purchase.”
WORKING WITH ESTATE AND LETTINGS AGENTS
The estate agent’s first priority is to sell the vendor’s property, thus securing his own fee for that business. For the letting agent, assisting an investor in the purchase of a property to let, is another very good route to future business. For both though, a spot of commission never goes amiss. In fact, it can be more than a spot.
One 77’s Kevin Brown says, “We work with a number of estate and letting agents looking after both their ‘new landlords’ and their existing clients. The existing client banks of the agents are a great source of business. Every company that has existing landlords and those landlords will have mortgages.
“Research recently carried out by The Mortgage Works (Nationwide Building Society’s BTL arm) says that in 2014, 27 per cent of landlords aim to purchase another BTL and that the average number of properties for a BTL investor is now eight.
“The level of commission depends on the volume and quality of leads. We look to build strong and lasting relationships with agents, giving the agent two very important things. Firstly, a great service that their clients will like and therefore reflects well on the agent and secondly, an income stream through the commission splits that we pay.
“There is little work needed from the agent other than to introduce One 77 and then we take things forward, keeping the agent updated as things progress.”
David Oastler says that Mortgage Business works with estate agents and lettings agents to “try and play our part in the habitation cycle; whether the tenant is buying their first property, the homeowner is going the other way or clients using their hard earned savings to invest into property. In theory this should be a never-ending cycle, with just a different entry point depending on the individual! We pay 25 per cent of the income stream generated back to the originating agent.”
Landlord Centre works with a large number of estate agents and letting agents, providing its specialist BTL mortgage service to over 200 NAEA and ARLA agents via a white labelled BTL mortgages website. This service is also provided for Belvoir Lettings regional offices.
“We pay commission for all referrals from agents and this is calculated as 25 per cent of the lender fee that Landlord Centre receives on completion of each buy-to-let mortgage.”
HMOs and student lets
HMOs and students lets can be financially rewarding for buy-to-let investors because of the potential to receive rental income from multiple tenants in a single property. Landlord Centre currently places HMO cases with five lenders – Leeds Building Society, Kent Reliance, Paragon Mortgages, Shawbrook Bank and TMW.
For larger HMOs, Paragon will consider up to twenty tenants on multiple or single ASTs and for landlords looking for higher gearing in their multi-unit investments, Kent Reliance is still proving popular with its 85 per cent LTV products, available for properties with up to eight tenants.
Buy-to-let Equity Withdrawal Scheme
Landlord Centre is currently offering a unique Buy-to-let equity withdrawal scheme with Castle Trust. It is an equity oan, secured via a second charge, of up to 20 per cent of the property value and up to 85 per cent LTV including the primary mortgage. With a maximum LTV of 85 per cent and no interest to pay, an existing client at 70 per cent LTV would be able to double the size of their portfolio.
Carrying out improvements to a buy-to- let property is a great way for landlords to increase its value and generate higher rental income. Fortunately, there have been some improvements in this niche area of lending and a number of buy-to-let products are available to help clients with their refurbishment projects.
For properties that require minor works such as a new kitchen, bathroom, windows, doors or plastering, there are some lenders who offer ‘light refurbishment’ products. These include Saffron Building Society, Shawbrook Bank, Paragon Mortgages and Kent Reliance.
Shawbrook Bank has also recently launched a product for ‘heavy refurbishments’ which are defined by the works being completed costing more than 15 per cent of the property value. This would include projects such as an extension, loft conversion, internal configurations or change of use such as converting single dwellings into flats.
Landlord Centre: www.landlordcentre.co.uk Mortgage Advice Bureau: www.mortgageadvicebureau.com Mortgage Business: www.mortgagebusiness.net One 77 Mortgages: www.one77fs.co.uk