FEATURE
COVER
The wider picture
N
o predictions could be made as we hit the end of Q1 2020 – it was a pure fallacy to think we could envisage what was to come next. As we now know, the famine in the wholesale markets was temporary, and it’s been a feast of property acquisition and activity ever since. Yes, the stamp duty incentives have without doubt created high levels of sustained activity throughout the remainder of 2020 and 2021, but there have also been a great many other factors at play. Extreme factors aside, the fundamentals remain. Bricks and mortar have long been the staple diet of savvy UK investors, and with savings rates already at historic lows – as well as other types of investments being seen as too much of a gamble by many – buyto-let (BTL) is invariably seen as the safest long-term investment. There’s comfort in tangibility. Added to this, the interest rate backdrop has long been in favour of borrowing, not saving. It’s always nice to gain long-term capital appreciation on 100% of an asset when you’ve only invested, say, 25% of the value. Average property prices are higher than ever at a smidge under £263,000, hitting record highs in August this year, but the pace of growth is undoubtedly slowing. This should be good news to landlords, who’ve been sitting on their hands for some time and who are now dusting off the war chest ready for new acquisitions. However, despite this indication that the market is cooling, the backdrop still supports further – albeit slower – growth in the short-term, as demand outstrips supply and consumer confidence is returning to pre-pandemic levels. Lenders are keen to attract new business, with rates dropping to unprecedented levels. I’d expect the BTL market to hit £40bn in lending volume this year, comfortably. Lenders are also flexing their muscles in the form of criteria amendments, and are keen to reshape and mould propositions to support landlords. However the market advances from here, BTL is set to remain strong. A recent survey by Paragon found that nearly 40% of landlords reported an increase in tenant demand, illustrating this robustness. In 2020, 41,700 UK special purpose vehicles (SPVs) were set up for property investment, another strong marker for landlord intentions. PANDEMIC CHANGES I think we are now seeing a more stable market, which is the closest we’ve been to a ‘pre-pandemic’ market in the entire 18 months. The sustained swell of activity as a result of the pandemic wasn’t really sustainable for much longer, with many service parties – including surveyors, solicitors and estate agents – starting to creak at the service seams. However, as we’ve now returned to a more manageable level, most have been able to catch a much-needed breath. Even after everything that the sector has been through over the decades, the pandemic brought with it a fresh set of challenges that we all had to rise to, including increased tenant
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BUY-TO-LET INTRODUCER
OCTOBER 2021
Matt Hardman director, The Buy To Let Broker
demand, as well as greater requirements for space and home office needs. I believe it is important that we don’t view these changes as a fleeting trend, but as an evolution of the fundamental way that we work as a society. The pandemic has also created an even greater split economically, between those who are struggling and those who have higher levels of disposable income. BROKERS’ RADARS The BTL market is proudly leading the charge in offering incentives to landlords in the form of cheaper mortgages for lower-rated Energy Performance Certificates (EPCs). However, most of these products are currently designed for landlords buying new-build property.
“In 2020, 41,700 UK special purpose vehicles were set up for property investment, another strong marker for landlord intentions” As we head quickly towards 2025, where the government’s – possibly misguided but well-intentioned – plans are to have every rented property rated as a Band C or above, the current green BTL products that are available are a very good way of managing clients’ expectations and advising them that they are missing out on at least some mortgage savings, or at the very least reminding them of their future required commitments. I believe that all brokers right now have a duty of care to their clients to ensure that they are fully aware of the upcoming changes, and to start the discussions as early as possible in order that all clients are fully aware. That being said, with the average cost of a buy-to-let property being upgraded to a Band C rated EPC standing at around £10,000, – regional variances aside for now – then an average portfolio could cost an investor upwards of £70,000 to £80,000 to comply. It is therefore understandable that some are reluctant to initiate the conversations, as the savings right now – when balanced out with the cost – may not be as attractive. Having said that, many haven’t factored in the yield increase where homes are green, as well as the reduced heating bills and a conceivable increase in demand as a direct result – although admittedly, it will take some considerable time to break even. Brokers need to look at the wider picture, stay ahead of the legislation and analyse deals from all sides with foresight in mind.
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