Finance, costs, maintenance and yields have always been factors at the forefront of any landlord’s mind, but this is even more apparent in the modern buy-to-let marketplace.
The UK government continues to ask difficult questions of private landlords and this goes way beyond the realms of Brexit. We’ve also seen a warning from the Residential Landlords Association over budding plans announced by the Labour Party – if it gains power at the next general election – to introduce a radical right to buy scheme which could ‘kill off the private rented sector’. A concern which further highlights the potential impact of any further government squeeze.
This combination of factors, some within the control of landlords and some way beyond them, is placing an increased focus on the quality of specialist professional advice when it comes to financing or refining their investments. And here’s why.
From 2017, lenders have had to apply stricter underwriting to all BTL mortgage applications. This means that lenders now need to check a mortgage is affordable through a minimum interest rate coverage ratio (ICR) test of 125 per cent, which equates to a more complex lending and application process.
Portfolio landlords; those with four or more mortgaged properties, have had an additional level of scrutiny applied to the underwriting process – with some lenders asking for additional information such as a cash flow analysis, business plan, property schedule and details of assets and liabilities.
Competition has also risen across the BTL sector. Whilst this is a positive move, the sheer weight and choice of products can be daunting for landlords to filter through. Especially with the emergence of many specialist lenders whose extensive product ranges are only available via intermediary channels.
With these issues in mind, it was interesting to read a special report – Buy to Let: The Landlord Experience, from The Mortgage Lender which evaluates how landlords feel about the market in general, especially in light of all the major changes which have taken place in the last few years. The analysis revealed that only 15 per cent of landlords are seeking out specialist tax advice about their rental properties. Of landlords using a mortgage to purchase their BTL properties, 42 per cent are utilising the benefits attached to a specialist BTL mortgage broker.
In addition, one in ten landlords are now using a limited company structure for their investments, and the most common number of properties for buy-to-let investors currently stands between two and four. On a highly positive note, it also found that eight out of ten (84 per cent) landlords are committed to the buy-to-let market and want to maintain or increase the number of properties in their portfolios over the next year.
Whilst this raft of information does not dilute from the value attached to the specialist advice process, anything which further arms landlords with additional knowledge is certainly no bad thing. After all, knowledge will always be power.