Landlords need more support than ever across a sector where yields, costs and tax benefits are being squeezed. And with product numbers increasing - in terms of volume, variety and in some cases complexity – the value attached to a good, professional advice process continues to rise accordingly.
But do you feel confident in dealing with the slightly off-mainstream borrowers, or those with uncommon properties such as HMOs and multi-unit blocks? It’s a rapidly growing area of investment borrowing which could be as much your ticket to more profitable business next year as theirs.
A growing proportion of landlords are looking to restructure their portfolios through the exploration of more tax efficient methods and focusing their attention on limited company buy-to-let offerings. This is especially apparent in areas where landlords are looking to ensure greater yields - for example HMOs or multi-unit blocks - and there’s growing flexibility in the way lenders are looking at borrowing requirements in these areas.
Focusing on HMOs, we’ve seen heightened landlord demand for such properties in recent times and this is also a trend which was highlighted in the latest Q3 landlord research from Foundation Home Loans in conjunction with BVA BDRC. The data revealed a potential step-change in the type of properties landlords were adding to portfolios and where they were likely to concentrate in the future.
HMOs continued to generate the highest rental yield for landlords at 6.5%, with 20% of landlords now having an HMO property within their portfolio – landlords were said to typically branch out into HMOs after their fifth property, while 10% of landlords now own a multi-unit block of flats.
HMOs are particularly popular in Wales (31% of landlords have at least one) and the East Midlands (26%). To complete this HMO mapping of the UK, the data showed that 25% of landlords in Central London and in the South West incorporated HMOs within their portfolio. The South East (excluding London) saw 23% of landlords own such a property, the East of England 20% and the West Midlands 20%. In the bottom half of the rankings, the North West and Yorks & Humber polled 19%, London (Outer) 17% and the North East came in at 13%.
The types of property typically owned by landlords remained largely unchanged in Q3, with terraced houses continuing to be most common. Portfolio diversity increased in line with size, with 11+ property landlords having an average of 3.3 different property types in their portfolio, compared to the 1.9 held on average by those with 10 or fewer properties. A fifth of landlords were reported to own an HMO property and landlords with 11+ properties were twice as likely to hold an HMO within their portfolio.
With landlords diversifying their portfolios to minimise risk and bolster yields, then its highly likely that HMOs will continue to rise in popularity. So, make sure you are fully aware of all potential HMO options for your clients.
Have a look at the Kensington Affordability Tracker
New research from Kensington Mortgages, the specialist mortgage lender, reveals that homeowners in the North of England are the best off in Britain – with more disposable income, on average, than families elsewhere in the country.
Data from the new Kensington Affordability Tracker launched today has shown that, based on mortgage application data, the stereotypical views on the richest and poorest parts of Britain are wholly inaccurate.
The model shows that first-time buyers in the South East are the most financially-stretched group of borrowers in the country – even though they have higher than average salaries.
The Kensington Affordability Tracker uses the models used by mortgage lenders to calculate the borrowing power of a family, after taking account of bills, transport costs and other household living expenses. It tracks the difference between the amount a homeowner could have borrowed, compared to the amount that was loaned.
Based on loans made by banks, building societies and other mortgage lenders during the first quarter of 2019, the average homeowner in the North could have borrowed 55% more.
In the South East, the average mortgage borrower would have been able to get just 11% more in a home loan. First-time buyers in the South East were right at the borrowing limit (after applying standard stress modelling to ensure customer affordability), with no room to borrow more.
In London, the average mortgage borrower could have taken a loan that was 25% larger. The average Scottish mortgage borrower could have borrowed 50% more.
Mark Arnold, Chief Executive Officer, Kensington Mortgages commented: “Common perceptions about the richest and poorest parts of Britain are contradicted by this data. Salaries may be higher in London and the South East, but so are living costs. Obviously, there are a great many people mortgage-free, in houses that are now worth millions. But when you look at the borrowers needing to pay off a mortgage, those with the least room to manoeuvre, financially, are people in the home counties commuter belt.”