Landlord mortgage debt rises as many borrow to ‘keep their operations going’

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Months of economic turmoil has pushed the average landlord’s mortgage debt up 19% to £558,423 in the last 12 months.

This growth has been driven by a greater reliance on borrowing, as the average number of buy-to-let loans has also increased by 12%, up from an average of six in Q1 2022 to 6.7 in Q1 2023, according to research by Octane Capital.

The West Midlands saw the largest rise in the number of loans held, up 49%, resulting in a 33% increase in the amount of money owed via buy-to-let loans, the fourth highest increase of all regions. 

Annual increase

Both the South East (+49%) and East of England (+29%) also saw a big uplift in the average number of buy-to-let loans held per landlord, with the South East seeing a 95% annual increase in the amount owed, and a 90% rise in the East of England. 

CEO Jonathan Samuels (pictured) says while it’s clear that a lot of landlords are willing to saddle more debt to keep their operation moving, it’s inevitable that a significant number will either downscale their ambitions or jump ship entirely. 

Properties overlooked

For those willing to stick it out, there is a real opportunity being presented by the properties either offloaded or overlooked by others, says Samuels. “While now might not seem like the best time to increase the size of your portfolio, being bold when others are meek can bring reap rewards in the long-term – especially now that mortgage rates have shown signs of easing.”

David Hannah, group chairman at Cornerstone Tax, says the fact that professional landlords are now buying up former buy-to-let properties and putting them back on the rental market will mean a resurgence in the wider availability of rental properties. 

He adds: “New measures should be considered and introduced into the rental market for aspiring landlords as it is becoming an increasingly unattractive environment for them.”

View Full Article: Landlord mortgage debt rises as many borrow to ‘keep their operations going’

Opportunity knocks for investors as mortgage debt climbs

admin    Uncategorized     agents

Months of economic turmoil has pushed the average landlord’s mortgage debt up 19% to £558,423 in the last 12 months.

This growth has been driven by a greater reliance on borrowing, as the average number of buy-to-let loans has also increased by 12%, up from an average of six in Q1 2022 to 6.7 in Q1 2023, according to research by Octane Capital.

The West Midlands saw the largest rise in the number of loans held, up 49%, resulting in a 33% increase in the amount of money owed via buy-to-let loans, the fourth highest increase of all regions. 

Annual increase

Both the South East (+49%) and East of England (+29%) also saw a big uplift in the average number of buy-to-let loans held per landlord, with the South East seeing a 95% annual increase in the amount owed, and a 90% rise in the East of England. 

CEO Jonathan Samuels says while it’s clear that a lot of landlords are willing to saddle more debt to keep their operation moving, it’s inevitable that a significant number will either downscale their ambitions or jump ship entirely. 

Properties overlooked

For those willing to stick it out, there is a real opportunity being presented by the properties either offloaded or overlooked by others, says Samuels. “While now might not seem like the best time to increase the size of your portfolio, being bold when others are meek can bring reap rewards in the long-term – especially now that mortgage rates have shown signs of easing.”

David Hannah, group chairman at Cornerstone Tax, says the fact that professional landlords are now buying up former buy-to-let properties and putting them back on the rental market will mean a resurgence in the wider availability of rental properties. 

He adds: “New measures should be considered and introduced into the rental market for aspiring landlords as it is becoming an increasingly unattractive environment for them.”

View Full Article: Opportunity knocks for investors as mortgage debt climbs

Uncertainty around Renters Reform Bill prompts landlords to call it a day

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Landlords are feeling gloomy about the future, with those selling up blaming economic pressures, the Renters Reform Bill and upcoming EPC rules.

Goodlord’s annual State of the Lettings Industry report reveals that nearly 60% of landlords are pessimistic, while 19% are ambivalent, compared with 47% of letting agents and 46% of tenants.

Over the last 12 months, 47% of landlords have either tried to offload a property or are considering doing so. Of the 30% of landlords who did sell, 40% sold one property, 33% sold two, and 3% sold more than five – and 10% of landlords turned one of their properties into a short-term let.

Significant amount

Goodlord’s poll of 1,168 private tenants and 861 property professionals found that 80% of letting agents expected more landlords to leave the sector in the next 12 months with 36% saying it would be a “significant amount”.

Almost half of all letting agents and landlords believe the introduction of new rolling contracts in the Renters Reform Bill will have a negative impact, while 17% of letting agents and 30% of landlords feel pessimistic about the property portal. Landlords have the strongest negative views about the introduction of the ombudsman, with 43% believing it will negatively impact the sector. Conversely, 42% of letting agents think otherwise.

Changes needed

Sean Hooker, head of redress at the Property Redress Scheme, tells LandlordZONE that the government needs to use expertise in the sector to deliver the changes needed quickly and efficiently. 

“The figures reflect the uncertainty surrounding the proposed legislation,” he adds. “I am not surprised that agents’ and landlords’ views differ as most agents have easier access to help and support through their professional network, so they can understand and adapt to the changes. A lot more help is needed to ensure landlords are prepared.”

View Full Article: Uncertainty around Renters Reform Bill prompts landlords to call it a day

Lib Dem boss: Distrust of red tape prevented Tories going green

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Liberal Democrat leader Ed Davey has revealed that the Conservatives dismissed his call for energy efficient regulations in the PRS as “communist”.

Speaking on The Rest is Politics podcast, Davey said that during the Tory/Lib Dem coalition, he had tried to regulate the private rented sector to require landlords to bring up their properties to a higher standard of energy efficiency.

Minimum standards

“The regulation I wanted to get through would say that you wouldn’t be allowed to rent your house out unless you met these minimum efficiency standards. My biggest opposition in the Tories was Eric Pickles – I had a few clashes with him – and he said to me at one stage: ‘Ed me old chum, regulations are communist. And I said to him, ‘Eric, thou shall not kill’ is a regulation and it came in before Karl Marx’.”

Climate change

Davey was Secretary of State for Energy and Climate Change from 2012 to 2015 while Pickles was Secretary of State for Communities and Local Government after the Cameron–Clegg coalition was formed in 2010.

Davey’s remarks illustrate how far Conservative policy has evolved, with the Renters Reform Bill and regulations for private landlords to meet EPC band C ready to impact the sector.

He told host Alastair Campbell he believed the case for regulations was really strong. Added Davey: “We could lead the world in offshore wind. If we had the right policies for net zero, you could not only make us a world leader, and innovative, you could use that as a vehicle to address some of the gross inequalities in our country.”

View Full Article: Lib Dem boss: Distrust of red tape prevented Tories going green

HMOs: the evolution of the market and current hotspots

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HMOs (Houses of Multiple Occupation) first came to prominence in the form of student digs: fairly tatty shared houses, where students could live in groups for a low monthly rent.

‘Professional’ HMOs really took off in the mid-2000s, when buy-to-let investors realised that if they made the effort to provide an attractive, well-maintained shared home, working adults were prepared to pay a relatively high all-inclusive rent for a private room. And although running costs were higher than if the property was let to a single household, the rent could be two to three times more.

The evolving legislation of HMOs

Legislation started to tighten up for the whole Private Rental Sector (PRS), with HMO landlords subject to additional regulation including carrying out risk assessments and installing fire safety measures (2005) and licensing brought in for HMOs housing 5 or more people (2006).

Nothing hit the HMO sector after this for around a decade. Many landlords continued to move into the ‘luxury HMO’ market, providing accommodation with a boutique hotel feel that appealed to tenants with professional jobs.

From 2018, more legislation was introduced including minimum room sizes being introduced for HMOs. Some landlords found that rooms they had been letting as single bedrooms could no longer be legally let, which instantly cut a significant amount from their profits.

Most recently, in January 2023, new fire safety regulations came into force, requiring a ‘responsible person’ to be appointed for every HMO, to ensure certain fire safety instructions and information is provided to all occupants.

All these legal changes are great in terms of improving standards and health and safety in shared houses. However, they have undoubtedly made setting up and managing HMOs more challenging.

How profitable are HMOs today?

Because rents have been increasing at a higher than usual rate over the past few years and energy costs are still high, tenants are snapping up all-inclusive room rentals. And while you must meet the legal standards for condition and health and safety, as long as your HMO is modern and well-maintained, it doesn’t have to be fancy to be profitable.

Although the relative cost of ensuring an HMO is legally compliant is higher than it was 15 years ago, rental yields are still strong. Paragon Banking Group’s PRS report for the first quarter of this year in England shows HMOs generate the best yields at 6%, versus 5.3% for houses and 5% for flats and bungalows. And their latest research shows HMO yields around the UK varying from around 6% to 9%.

What’s just starting to have an effect on the profitability of HMOs is the sharp rise in mortgage rates and of course utility bills. Those landlords who are having to remortgage in the current climate could find their monthly payment tripling, which will hit HMO landlords with high LTV mortgages particularly hard. If you already have a HMO or you’re thinking of investing, it’s never been more important to run the numbers – before you buy and then regularly once your HMO is let – so you don’t get any surprises.

Where are the current HMO hotspots?

You should be able to find a good HMO investment in most major towns and cities. But the widespread shortage of student accommodation over the last two years has created great opportunities for student HMO landlords in Manchester, Bristol, Durham and Glasgow.

Paragon’s research shows that Wales leads the way on returns, with the average HMO delivering a yield of just over 9%, followed by Yorkshire & Humber and the North West at 8.6%. The South East (7.18%) and London (6.13%) deliver the lowest yields, which is to be expected, given the high property values.

What is essential when investing or running an HMO is to work a qualified letting agent that understands the compliance minefield of an HMO and also understands the different target markets. Leaders understands the importance of making sure an HMO deal stacks up financially and meets health and safety criteria for tenants, so do contact us for help and support.

View Full Article: HMOs: the evolution of the market and current hotspots

Social and PRS landlords handed guidance on mould and damp in properties

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Landlords in the private rented sector (PRS) and social landlords have been given guidance from the government on how to deal with damp and mould in tenant homes.

The government stresses that mould in a property should not be seen as a tenant’s ‘lifestyle choice’.

View Full Article: Social and PRS landlords handed guidance on mould and damp in properties

Harnessing Share Classes and Trust Agreements in UK Property Investment for Effective Inheritance Tax Planning

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Within the sphere of UK property investment, astute investors are perpetually on the lookout for ways to optimise their financial strategies, especially when it pertains to safeguarding family wealth and mitigating Inheritance Tax (IHT). One sophisticated strategy that’s gaining traction is the utilisation of Family Investment Companies (FICs) in tandem with carefully structured share classes and Discretionary Trusts.

View Full Article: Harnessing Share Classes and Trust Agreements in UK Property Investment for Effective Inheritance Tax Planning