Property Investor Survey
Results & Analysis November 2019 Survey
INTRODUCTION
About the survey Welcome to the results of the November 2019 Property Investor Survey. This survey is designed to gauge the property finance needs of landlords and report on their trends and views. The anonymous results of each survey are reported on by MFB to educate the market and give landlords insights into their peer group. The Property Investor Survey is run twice a year. Previous surveys can be found in the News & Insight section of the Mortgages for Business website. The next survey is due to open in May 2020. This edition of the survey had a total of 146 property investor respondents.
Steve Olejnik Managing Director, Mortgages for Business
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PROPERTIES
Properties Property Ownership ‘How many properties do you own?’ 67% of respondents own four or more properties; a slight drop from the 72% reported in our May 2019 survey.
variety of ways. Some landlords have decided to reduce their portfolio’s Of those with and there are an increasing number 4+ properties, of accidental landlords, who find 84% are of landlords themselves unable to move home as portfolio own 4 or more property values stagnate, so choose landlords (a properties to let out their property as a way borrower with to move on. Additionally, there are 4 or more those investing in rental properties mortgaged buy to let properties). Portfolio landlords accounted for 56% as part of their long term retirement plan. of the total respondents.
67%
How many investment properties do you own?
Most landlords have independent income over 25K in addition to the rent they receive (60%), a quarter earn less than 25K and only 14% solely have income from rental properties. Types of Property As expected, the most popular type of property to own by far were vanilla properties. Considered the easiest and cheapest to finance, these tend to be normal 2 or 3-bed houses and flats that fit the general lending criteria of most mainstream buy to let lenders. 91% of all respondents owned at least one vanilla property.
The majority of the respondents are experienced landlords, as highlighted by only 11% owning just one investment property. This figure has increased from 7% in the previous survey and is a reflection of the current economic climate which has impacted the BTL landscape in a Vanilla properties are popular with www.mortgagesforbusiness.co.uk
PROPERTIES
What types of property do you own?
new investors as they are less risky and comparatively of respondents easy to own at least one finance and ‘Vanilla’ property manage. They are also liked by experienced portfolio landlords (96%) who tend to hold a variety of property types to spread risk. Gross yields have remained stable at 5.7% as shown in the Q3 2019 Mortgages for Business Buy to Let Index.
91%
HMOs have been gaining in popularity since 2014, though more significantly since 2017, of respondents and currently stand in own an HMO second place
27%
with 27% of respondents now owning an HMO. Generally, HMOs produce higher yields; in Q3 2019 it was 8.9%. Semi-commercial properties and Multi-Unit Freehold Blocks came in at third and fourth places, with 12% and 13% of landlords claiming they had these types of property. Although considered more complex to finance than vanilla investments, they have the benefit of higher yields. Over the last 12 months, semi-commercial properties have averaged at 8.6% and Multi-Unit Freehold Blocks at 6.6%. Unsurprisingly, due to their more complicated natures, the least held property types were Commercial and Development which both had 10%. Property Distance The benefits of local knowledge and easy travelling continue to triumph
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PROPERTIES
as the majority of landlords (76%) hold investments within 25 miles of their main residence. There was a small fluctuation from 12% to 14% in the number of respondents that had properties over 50 miles from their home.
How far from home are the majority of your properties located?
Property Definitions
Vanilla BTL Property - Standard 2-3 bed houses & 1-2 bed flats
HMO - House in multiple occupation
Multi-Units - Multiple units in one building i.e block of flats
Semi-commercial - Mixed use buildings i.e. shops with flats above
Commercial - I.e. shops, offices, pubs, industrial units
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PROPERTIES
Borrowing Personal vs Ltd Company There has been a slight decrease in the number of landlords financing using corporate structures, from 52% in the previous survey to 46%. This decline is likely to be accounted for by a variety of reasons, of landlords including purchased greater through a Ltd Co. familiarity with the pros and cons of using corporate entities, an increase in the number of landlords with less than 3 investment properties who may feel that corporate structures, such as Special Purpose Vehicles, may not be appropriate for them, and those
46%
How many investment properties do you own in a limited company? previously using SPVs exiting the market. A greater change in properties owned using limited companies was seen by landlords that own between 2 to 3, which dropped from 21% in the last survey, to 12% in this survey and those with 4 to 10 properties which increased from 13% to 18%.
What is the total amount of your mortgage borrowing for your property portfolio?
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REMORTGAGING
The use of limited companies originally shot up in popularity as a result of the overhaul to the tax treatment of mortgage interest, which was announced in July 2015 with the gradual phasing out of tax relief. For the 2019-2020 tax year, 25% of mortgage interest (as opposed to the original 100%) was deductible. Landlord Gearing Landlord gearing (use of a mortgage
to fund a property purchase) has of landlords are remained geared at a 50% level, with just over -74% level half (56%) of landlords sitting in the 50% to 74% loan to value category. 10% had levels of borrowing over 75% loan to value, 34% of respondents had of less than 50% and 4% had no borrowing at all.
56%
Remortgaging Again, there was a reduction in the number of respondents considering remortgaging any of their properties, 36% down from 45% in May 2019 and 47% in November 2018. This suggests that the market is starting to see the impact of the move towards longer-term fixed rates, reducing the number of mortgages available to remortgage.
Additionally, there will be those who have already taken advantage of the low-interest rates currently being offered to reduce their mortgage costs and those deferring a decision until the outcome of Brexit and the General Election were known.
Are you looking to remortgage any of your existing properties in the next 6 months?
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MORTGAGE RATES
Mortgage Rates The majority of landlords surveyed (89%), who indicated a preference, advised that they would opt for fixedrate finance. 5-year fixed rates continue to dominate with 55% of opt for a fixed respondents rate opting for the longerterm fix. It is no surprise as it has been a clear winner, leading the popularity race since May 2017. 5-year fixed rates became popular with landlords as they attract less stringent affordability calculations than 2 or 3-year fixed rates, together with low-interest rates and less frequent remortgage costs.
89%
option. While 3-year fixed rate popularity has fallen from 14% in May 2019, to just 9% in November 2019, 10-year fixed rates have grown to match the 3-year rates at 9%, their highest level since November 2016. Lenders have been pushing 10-year rates by offering competitive of landlords rates, as well as incentives prefer 5 year such as fixed rates cashback, free valuations or free legal services, in a bid to lock landlords in for longer.
55%
2-year fixed rates remained in second place with 17% of respondents opting for this term. Variable and tracker rate popularity Shorter-term options, such as 2 or has remained on a gradual decline, 3-year rates, have greater flexibility for refinancing as they have a shorter now reduced to just 5% of landlords who consider them. As lenders Early Repayment Charge. Many lenders offer product transfers at the competed to attract customers during the 2019 market slow down, end of a fixed-rate term and these, fixed rates have raced to the bottom on the whole, have tended to be for and with the turbulent politicalshorter-term options. While product economical climate, landlords are transfers tend to be a fairly quick more often turning to known, fixed process with minimal fuss, they are costs. not always the most cost-effective 0345 345 6788
MORTGAGE RATES
If you were to apply for a buy to let mortgages or remortgage today, what type of rate would you choose?
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TAX
Tax Implications of income tax changes As the 2020/2021 fiscal year approaches, the fourth and final stage of the changes in tax relief for buy to let landlords comes into effect. This means that landlords will no longer be able to deduct any of their mortgage interest payment from rental income achieved before paying tax, from April 2020. The change will see the entire interest element of the mortgage qualify for the new 20% tax credit relief.
62%
of landlords are For some affected by the landlords in higher tax tax changes brackets, this could mean an increase in their tax bill or for others (as the amount of initial earning will increase) has the potential to push them into a higher tax banding. 62% of respondents said they were affected by the changes, only 5% said they didn’t know or were unaware of the reduction in tax relief that started being phased in from April 2017. The remaining 33% said they were not affected.
information possible, Mortgages for Business always recommends that clients take professional tax advice and ask them to formally declare that they have either sought advice or understand the implications of the income tax changes.
Are you and your properties affected by the income tax relief changes that are being applied to landlords?
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THE FUTURE
The Future Property market outlook Optimism on market growth is starting to creep back in, as although the majority of landlords continue to predict a flat market (51%), an increasing number of respondents feel that it of landlords will show growth, up believe the from 24% in market will grow May, to 31%.
How do you see the property market shaping up next year? 18% Declining
18% Declining
24% Growing
31% Growing
58% Static
51% Static
May 2019
November 2019
31%
Future investment intentions This more positive outlook was also reflected in investment intentions, with a reduction in the number of landlords considering selling properties, a drop of 3% to 17%. The slower property market and more competitively priced properties may
also be influencing this, together with an increasing demand for rental accommodation, which in many regions is beginning to push up rental prices.
What are your intentions for your portfolio over the next 6 months?
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THE FUTURE
Property purchasing preferences The majority of landlords looking to expand their property portfolios look to purchase vanilla properties (84%, up from 75%). Houses in Multiple Occupancy continue to be the second most popular type of property (30%). For landlords looking to diversify, the HMO is an enticing choice as yields tend to be higher on this type of property holding. The same is also true for Multi-Units within a single freehold, which came a close third at 25%. All of these property types saw an increase in the proportion of landlords of landlords willing to want to add consider HMOs to their them, which highlights portfolio an increase in landlords looking to diversify portfolio diversity since May 2019.
30%
Due to the tax relief changes, landlords are increasingly looking for ways to maximise their profits from their investments. Either via higher-yielding property types or alternative investment types, such as commercial properties, where they fall under different tax regulations and stamp duty charges. As a response to this, more lenders are opening up their products to capture markets such as holiday lets, which are becoming an ever-
Property purchase preference
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THE FUTURE
increasingly popular diversification 17% to 57%. This increase is likely to for the traditional buy to let landlord. demonstrate the savvy landlords who are looking to leverage their existing The only investment category not equity to take advantage of lower to see an increase in preference house prices. was land and development (20%), which only varied by 1% from the last Less than half said they would be survey. making purchases through corporate structures such as Special Purpose Of landlords looking to expand their Vehicles, and this view was reflected portfolio, an increasing number of in the general feeling of respondents respondents said they would need who were considering purchasing in to refinance existing properties to the longer term. do so, with the figure jumping by Investment Intentions
What is your main reason for wanting to reduce the size of your portfolio?
How do you intend to purchase buy to let property in the future?
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LANDLORDS VIEWS
Landlord Views Landlords’ lending perceptions In a change to previous surveys, we have seen an increase in the number of respondents that felt lenders were doing better at supporting property investors and landlords. 46% said that lenders were doing enough, which is the highest since we started tracking landlord sentiments. 2019 saw a far more competitive marketplace. With a contracted buy to let sector, uncertainty surrounding Brexit and the December 2019 election, many landlords and wouldbe property investors paused for thought and to shop around for the best deals, encouraged by the lowest interest rates seen for some time. Successful lenders listened to landlord’s requirements, adapted, specialised and tried to streamline
processes to make themselves a more attractive choice. Rates have dropped, incentives such as reduced fees, cashback, free valuations, free legal fees have increased, and greater flexibility and assessment on an individual case basis have, in the majority, improved. All of this is good news for landlords. The product improvements which have come out of the increasingly competitive lender market has changed landlord opinion, with a reduction from 65% (May 2019) to 54% (November 2019) of landlords who felt that lenders could make further improvements. The better feeling towards lenders is a marked improvement from the 74% who felt lenders needed to do more in 2015.
In your opinion, what is the most important change lenders could be making to support property investors/landlords?
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LANDLORDS VIEWS
Landlords felt that lenders still need to improve in assisting mortgage prisoners, reducing paperwork in a digital age, improving product switching options, and providing greater flexibility in criteria for larger portfolio landlords and limited companies. Only 19% of respondents wanted fees to reduce further, which at 10% lower than May 2019, is as a result of the race to the bottom between lenders. Tenant Fees Act
60%
The Tenant Fees Act bans most letting of landlords fees and caps the value were affected by of tenancy the Tenant Fees deposits paid Act by tenants, in the private rented sector in England. The ban on tenant fees applies to every new or renewed tenancy agreement signed on or after the 1st of June 2019. The Tenant Fees Act came into force between the May 2019 and November 2019 surveys, and in May (before the act came into force) 5% of landlords were unaware of the change, and 45% said they would be affected. The surveys highlighted a lack of awareness of the full impact of the bill, with 50% not believing they would be affected back in May. Only 34% in November said they had been unaffected, indicating 16% were
impacted but were not expecting it. What about the landlords who were affected? 31% of respondents who were affected said they had absorbed the costs themselves, 20% passed the additional expense onto the tenant, 9% said the letting agent had incurred the extra cost. Landlords who are waiting for rent reviews to pass on the cost to tenants, properties which were held outside of England or not yet affected as new or renewed tenancy agreements are still pending; all made up the last 6%. Tenant Fees Bill
Letting to tenants with housing benefits 61% of respondents said that they would be unwilling to let to tenants
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LANDLORDS VIEWS
in receipt of housing benefits. While still a large proportion, this represents a small improvement on the 65% that previously said they would prefer not to let to this group. The main reason for not letting to tenants on benefits was due to payment issues (30%), including unreliable payments due to Universal Credit difficulties and the inability to have the payments made directly to the landlord. Personal experience came in of landlords are second unwilling to let at 28%. Landlords to tenants on included benefits many reasons in this section, including the perception of increased risk, damage and inconvenience.
61%
by letting agents and insurance companies. Other reasons given were lack of experience in this area and adverse press reports (4%). As the demand for rented properties continues to grow, lack of landlord support may make it increasingly difficult for those in receipt of housing benefit to find suitable, available properties to rent. Effects of the Election
The third group (26%) was due to unsuitable accommodation and low rent caps - examples of this would be high-end properties that would be outside the scope benefit recipients or student accommodation.
Investment Strategies We asked if the news of an upcoming election had changed landlords investment strategies in the short term.
Despite there being very few lenders left in the market who will not finance a property where the tenants receive benefits, 11% of respondents stated that this was the reason for not letting to this group of people, along with restrictions placed
56% of landlords and property investors who commented, being a resilient lot, said no they would be continuing as usual. It is unsurprising to see this as landlords have weathered many changes and challenges in recent times. If
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LANDLORDS VIEWS
anything, respondents seem to have a more positive outlook. 4% said they, with the election and the current lower house prices, are taking the opportunity to purchase more property. A further 8% said that said the although they were upcoming election looking to isn’t effecting invest, they their investment were having strategy difficulty finding suitable properties due to the market slow down in the run up to the election. 29% said they had been disrupted and have stopped looking for new investments until after they knew how the election results would affect them.
56%
Tenant Behaviour An overwhelming 90% said they had seen no change whatsoever in tenant behaviour. Only 7% said that they felt tenants were less likely to move until the outcome was known. 3% said they found that tenants were more likely to look for a new home. While the majority of respondents felt that there would be little impact on their immediate strategy, as with Brexit itself, the camp was fairly equally split. It is likely to be a different story when the results of both the election and the Brexit deadline in January have passed... watch this space for the May 2020 survey!
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Further Research We publish a variety of papers designed to help landlords, businesses and home-buyers make informed property investment decisions. For more information please visit the News & Insight section of our website. To discuss the results of this and previous surveys, in the first instance, please contact the marketing department. Email: marketing@mortgagesforbusiness.co.uk Mortgages for Business Limited is authorised by the Financial Conduct Authority (313537) to transact regulated mortgages. The FCA does not regulate some investment mortgage contracts.