Tenant demand in the UK remains strong, there is still a shortage of housing coming to market for those who wish to purchase, and other demographics such as a growing number of households, all mean that the private rental sector continues to be a strong investment.
Plus, with the result of last month’s General Election returning a Government who are likely to intervene much more positively in the housing market, there appear to be plenty more reasons to be cheerful in 2020; even more so if we can get a successful Brexit outcome.
2019 was something of watershed year for buy-to-let, in that the market began to forge ahead again after a number of years when it was getting itself used to the regulatory and political measures inflicted upon it.
This had resulted in a different environment for landlords but one that certainly favours portfolio and professional participants, and we have seen a sea-change in lender activity as they recognised the move towards larger portfolio landlords and their wants and needs.
Even, what we might call, mainstream buy-to-let lenders moved their propositions towards portfolio landlords – offering limited company buy-to-let and seeking to tempt these borrowers with competitive rates and flexible criteria. There is an argument to suggest that, with the specialist lenders also competing hard, portfolio landlords have never had such a strong mortgage market to choose from.
However, regulations do exist and have to be obeyed particularly around borrower affordability. Lenders are expected to use various stress-testing measures when weighing up a buy-to-let lending decision; this can make the process seem much more complicated for portfolio landlords and it can feel like there are a number of hoops that need to be jumped through before the mortgage can be secured.
The important point for portfolio landlords is not to waste time, energy, resource and money applying to lenders whose lending policies mean they have little chance of securing their products. This is where a platform like Lendlord can make all the difference. But, first what are the basics to look out for?
For portfolio landlords, securing finance or a remortgage on a property is not as simple as presenting the facts of that individual property and expecting the lender to make their decision just on that. Many lenders, particularly the mainstream players, will stress test all your existing properties to ensure they fit within certain lending criteria parameters.
They want to understand the risk involved and ensure the portfolio landlord is not overstretched. Most now use a stress test involving an interest cover ratio (ICR) – essentially, they are looking at the portfolio as a whole and using a higher rate to see if the mortgage is still affordable at that level. In other words, does the rental income more than cover the mortgage (and then some) – lenders generally use an interest rate of between 4.5% to 5.5% and then stress this at a ratio of 125% to 145% of the resulting payment. If your portfolio doesn’t fit within the lender’s criteria you are likely to be declined.
Users of the Lendlord platform can enter all their properties’ details and get the results of the stress test on their portfolio by reviewing the ICR figure on different rates. You’ll see the portfolio ICR for 4/4.5/5/and 5.5% and knowing this will also provide you with the results of which lenders you don’t meet the stress test for. Important information in deciding which lenders you are going to apply to for remortgage/purchase finance.
There is further good news however in that, as mentioned, the buy-to-let market is not simply the preserve of the mainstream buy-to-let players. We have a highly active specialist lending community who tailor their propositions, criteria and pricing to the needs of the portfolio landlord. They can be much more flexible in the way they stress tests portfolios, and some are able to work on an individual property basis without having to take into account the entirety of your portfolio.
However, as portfolio landlords it is crucial that you understand the financial situation of all the properties you own because it may well be that you can secure both larger loans and more competitive rates if that portfolio meets the stress-test and lending criteria of various lenders. Indeed, you might find yourself in a very strong position; able to access low cost of funds which will allow you to do more with your money and secure greater profitability.
The first step however is using a platform like Lendlord to understand your current situation and where you might be able to take the portfolio next. We’ve yet to meet a portfolio landlord who isn’t ambitious for what they can achieve in the next 12 months and beyond, and now you have the tools available to help you move to the next level and to continue to grow your private rental sector offering. In that sense, 2020 could be a very good year for all.
