From a holistic view, property has often been considered a “long-term” investment in the UK. With limited stock of housing, and an ever-increasing ageing population, demand continues to outpace supply, a potentially winning formula for investors (landlords).
From a holistic view, property has often been considered a “long-term” investment in the UK. With limited stock of housing, and an ever-increasing ageing population, demand continues to outpace supply, a potentially winning formula for investors (landlords).
This culminated with the introduction of BTL mortgages by ARLA in 1996. This reshaped the private rental property sector and provided greater choice for the growing tenant demand, by allowing landlords to fast track the growth of their portfolios through part investment into tangible assets (property), heavily supplemented by mortgage borrowing. However, despite the positive sentiment behind the introduction of BTL, both landlords and tenants have seen, over the last few decades, both the good and bad sides to property investment.
At times, for many landlords, it has seen the opportunity to make large returns to either supplement income or set up longer term savings for retirement planning etc. But whilst many have prospered, some have not. BTL property is not impervious to property cycles, at times putting the investment into negative equity risking loss of property and initial investment. Furthermore, for those with mortgages, rate spikes like those seen most recently at the backend of 2022, have seen eroding investment returns. On the flip side of the coin, for some tenants, it has provided flexibility and better choice compared to Public State options but has also meant being at the mercy of those landlords who prioritise profit over ethical practices, like fair rents and ensuring safe and habitable homes.
BTL lending is consistent
Despite its challenges in recent years; stagnant house pricing, higher mortgage rates, increasing regulation, and increased taxation, BTL lending has been consistent, if not overwhelming. At Capital Private Finance (CPF), BTL lending continues to make up a sizeable proportion of our business split. This is supported further through data presented recently by Zoopla, quashing some recent media assertions that landlords are selling up in droves. The data shows that whilst many landlords who often own 1 or 2 properties may indeed be selling, the actual overall number of BTL properties in the UK remains consistent. This indicates that either these properties being sold, or alternatives, are often being purchased by more experienced portfolio landlords, who can still see the gains to be had from high rental yields… or are they even of the belief that property values are about to start increasing again, leading to potential capital appreciation?
BTL property investment could be about to turn a corner
Whilst no one has a crystal ball to accurately predict the future, there are key indicators in the market that may lead us to believe that BTL property investment could be about to turn a corner. This in turn could fuel the market, and lead to house prices increasing. Firstly, as previously mentioned with the market being more subdued, and with some exiting the BTL space, others may see this as an opportunity to increase their portfolio at a time where prices are reasonable due to reduced competition. Secondly, the ‘Limited Company BTL’ offering is growing. This notion is supported by one of the largest UK BTL lenders Birmingham Midshires Solutions (BMS), now entering this space for the first time. Head of BMS, Leigh Church, has told Capital Private Finance that
“Over the last few years Limited company has continued to grow in popularity within the private rented sector and up to 75% of all new purchases are being done via this route.”
Such infrastructure investment from a major lender is a strong indication that they believe there is plenty of opportunity still for BTL investment, providing it is set up correctly. Limited Company BTL’s are often set up within a Special Purpose Vehicle (SPV) and could be a great way of structuring portfolios, offering potential benefits like tax relief. But it is not a silver bullet and may not be suitable for everyone. As with all types of investment, there are considerations and risks, so we always recommend a client speaks to an independent qualified accountant/ tax adviser, alongside their qualified mortgage adviser.
Whilst property professionals will welcome these positive signs, we should not be popping champagne just yet and instead be mindful there are continued challenges on the horizon. There are continual global affairs impacting the UK financial markets, which in turn have a knock-on effect to mortgage lending and the property market. Domestically, the UK market continues to see reluctance from overseas investors with concerns around increased taxation, which could yet increase further because of Rachel Reeves’ upcoming October budget. Furthermore, the industry continues to wait for the finalisation of the ‘Renters Rights Bill’ that continues to procrastinate through parliament. Whilst early signs indicate it will rightly provide tenants with greater safeguards, this in turn will likely place increased burden on landlords to ensure they are meeting higher regulatory standards. For many of the landlords we interact with, this isn’t a concern as they have confidence they already adhere to these standards, providing adequate and fair offering to their tenants
BTL market remains resilient
Ultimately, the BTL market remains resilient, and through the receipt of good advice, combined with good practice, it is likely we will see more landlords having confidence to continue with their property investment plans. Fuelled by the ever-increasing demand it is quite possible we are indeed on the cusp of a new BTL property cycle. Regardless of whether a landlord is seeking to purchase a new, or refinance existing BTL, within a limited company or in personal name, our expert CPF advisers are on hand to provide tailored advice. This will help ensure the financing is set up effectively to enhance the potential return on investment.
For more information on how Capital Private Finance can assist with your property investment ambitions, please click here to speak with one of our experts.
Contact:
Amit Gupta
Regional Financial Services Manager – Capital Private Finance
Capital Private Finance Limited
ALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA. MORTGAGE PRODUCTS CAN BE WITHDRAWN AT ANY TIME.
A FEE WILL BE PAYABLE FOR ARRANGING YOUR MORTGAGE. YOUR CONSULTANT WILL CONFIRM THE AMOUNT BEFORE YOU CHOOSE TO PROCEED.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.
Mortgages available through Capital Private Finance. Capital Private Finance is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only. Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP. Registered in England & Wales under number 07552028.
