New research from specialist lender, Foundation Home Loans, has revealed that the majority of landlords who intend to expand their portfolios in the next year are likely to do so within a limited company vehicle.
According to Foundation, research undertaken by BVA BDRC and carried out in March 2019 with the results based on 829 online interviews with landlords – also shows that portfolio landlords (those with four or more buy-to-let mortgaged properties) are even more likely to purchase via a limited company, with almost seven in 10 of landlords with more than 11 properties in a portfolio, intending to do so in this way.
Just over a quarter of landlords intend to remortgage in the next year, although this rises to one in three for portfolio landlords. 29% of all landlords took out a new remortgage in the last year.
The use of mortgage advisers by landlords to secure their property finance also remains strong, with the research revealing that seven in 10 landlords used an adviser to arrange their most recent mortgage, however 23% did deal direct with a lender. Foundation believes mortgage advisers could utilise a strong marketing campaign to secure greater activity levels with those landlords who have previously gone direct.
When asked how they had first come across their mortgage adviser, 44% of landlords said it had been through a recommendation, 13% through an internet search and 9% via membership of a landlord body.
The research also reveals a number of key financial measures with regard to the ‘average’ UK landlord – the typical one has 10 properties in their portfolio, over half of which are owned via a buy-to-let mortgage, with the average LTV of those mortgaged properties down below 50%.
The average market value of a portfolio is £1.4m with average gross rental income of £66k. The amount of borrowing for each landlord is £427k across their portfolio, although there is a marked difference between those who own only one to three properties (£334k) and those with more than four properties (£1.073m).
Finally, 19% of landlords said they had seen an increase in tenant demand over the last three months, down 5% from the last iteration of the research. 37% had seen no change, 21% had seen demand fall and 22% were unsure. Those landlords in the Midlands are currently reporting the strongest tenant demand in the UK.
Jeff Knight, Director of Marketing at Foundation Home Loans, said: “Overall the report back from landlords seems pretty positive albeit with obvious concerns about falls in tenant demand and how existing and future regulatory and economic change is going to affect their portfolios.
What we are clearly seeing is far more portfolio landlords active in the sector, and while there has not been the great exodus that many were predicting, it’s less likely that those with only one or two properties are going to add to them.
Overall, portfolio landlords are showing serious ambitions for the future, while holding relatively low levels of mortgage debt and therefore risk for lenders. The market value of their portfolios is solid as is their annual rental incomes and, looking at these numbers, it’s obvious to see why they stress they’re in this market for the long-term.
When it comes to both anticipated purchase and remortgage activity, many landlords intend to do either or both within the next 12 months – which is clearly good news for advisers - and for purchasing especially this is now far more likely to be within a limited company structure, plus we have more landlords remortgaging properties out of their individual name into a company. Advisers do however have an opportunity to pick up more business, given that over two in 10 went direct to a lender for their last buy-to-let mortgage.
The growth in portfolio activity certainly chimes with our own business results for April with 62% of all our mortgage applications coming from portfolio landlords and 53% for limited company business. Our focus therefore remains on ensuring that we support advisers with these clients with an easy-to-understand limited company/portfolio landlord proposition that takes away much of the administration demands and presents products with flexible criteria and highly-competitive rates which are not higher just because the client is utilising a limited company.
We believe the market will continue to head in this direction and our specialist focus in this area will continue to help advisers who are likely to see a growth in client numbers over the months and years ahead.”