Why BTL still holds promise for new and small landlords

The same is often said about those existing landlords who only have a small number of properties.

I’m writing this prior to the budget, and we await any further measures that might again impact on landlords, however I’m also of the opinion that the narrative mentioned above is far too general in its theming, and as you might suspect, the reality is much more nuanced than a number of commentators or articles have been making it out to be.

You will perhaps have seen some of these pieces talking about large numbers of landlords being hell-bent on selling up before a perceived increase in CGT comes down the tracks post-budget, and while I have no doubts that some landlords have been looking to offload property, there is never a time when some landlords aren’t looking to do this. It’s a natural part of having a property portfolio.

It doesn’t mean for one instant that whole portfolios are being sold off, neither does it mean that the vast majority of landlords are looking to make a full exit.

And, again to go against the grain, neither does it mean there are no new landlords making their first foray into the BTL space, nor does it mean that existing landlords aren’t looking to add to portfolios, even those with smaller numbers of properties.

Each quarter, Fleet Mortgages delves into our own market data, our own application numbers, including an assessment of the type of landlords that are applying for mortgages with us.

You might be intrigued to learn that during the third quarter of this year, one in 10 applications we received were from first-time landlords, which I suspect will be quite surprising to some who continue to suggest the sector is no place for ‘newbies’.

On top of this, 31% of applications came from landlord borrowers who have between one and three properties, again going against the narrative grain, that those who have relatively small portfolios are somehow exiting the market in droves.

Indeed, this landlord demographic holding one to three properties delivered the biggest percentage of applications to us, while we had 7% from four to five properties, 30% from six to 14, and 21% from those who hold 15 or more.

To me this suggests two things, that we have a strong number of new investors who continue to recognise the strong pull of investing in property via BTL, and that we have existing landlords of all sizes of portfolio who also continue to recognise the benefits of such an investment, particularly no doubt drawn by the continued supply-demand gap, and the returns that can/are being generated as a result.

Our rental yield analysis of all the regions in England and Wales in which Fleet lends shows the continued strength in that regard.

Taking the average across all regions, rental yield was at 7.2% in Q3, almost exactly the same as it was a year ago, showing the stability available, plus the lowest yield was still 5.9% in Greater London — where we expect yield to be lower due to prices — but moving up to 9.7% in the North East.

This is highly important, particularly in an interest rate environment which is on a downward trend, and which we might believe will continue to move in this direction, certainly over the next 12 months or so.

Rates have dropped fairly substantially, which makes affordability a lower obstacle for landlord borrowers to get over, plus of course lower mortgage costs are likely to deliver higher yield, particularly as rents remain strong due to the demand/supply imbalance.

This is an investment and sector which requires investors to consider all aspects, not just what may or may not be coming out of the budget.

Lest we forget that, again according to our most recent statistics, 77% of all applications came to us in a limited company name, not an individual borrower’s. CGT rises are only applicable to those selling properties in their names, which is perhaps another reason why we anticipate the sector continuing to move in a more corporate structure direction.

Undoubtedly, there has been a shift in BTL investment, with a more professional/portfolio-based landlord community, but that isn’t stopping new landlords seeking to enter the market with a first purchase, and it’s certainly not stopping landlords with vastly different portfolios looking to remortgage and purchase.

That is good news for advisers, and with strong competition in the BTL mortgage market space from Fleet and others, the finance options open to these borrowers is greatly enhanced.

Expertise in this space will be rewarded, and regardless of what is coming at the Budget, the need for private rental property is not going away.