Making the decision to expand a business can be fraught with risks, many of which are unforeseen, such as a sudden change in the fortunes of the economy.
For advisers and brokers with clients who are portfolio buy-to-let landlords, now might seem like a particularly uncertain time to add to a property portfolio.
Landlords are not only having to contend with the impact of Brexit on the property market, but also changes within their own industry that have the potential to affect their expansion plans.
Where once the process of remortgaging an existing property or properties to free up the capital required to expand a portfolio buy-to-let business may have seemed like the most straightforward option, now portfolio BTL clients will need to take a range of factors into consideration before going ahead with this.
David Hollingworth, associate director, communications at L&C Mortgages, explains: “There’s been a huge amount of change in the buy-to-let market that has affected landlords and had an impact on the costs of purchasing and owning a buy-to-let property, plus the ease and method of securing finance.”
An additional 3 per cent stamp duty surcharge was introduced in April 2016, while private and individual landlords have been particularly affected by the scrapping of mortgage interest tax relief which is being phased down to a flat rate of 20 per cent by 2020.
Mr Hollingworth points out: “Finally, the tightening of lending criteria has meant that landlords can find that they need to comply with tougher rental requirements and stress tests. Portfolio landlords are, of course, not immune to this and additional requirements mean that they have had to rethink their expectation and approach to adding to the portfolio.”
Dan White, managing director of White Financial Services, warns all of this has made it very difficult for a lot of landlords to refinance current mortgage balances, let alone to raise capital.
“Those that have grown their portfolios as actual businesses with a vision, not just a means of trying to make money without a forecast or plan, are the ones who can benefit from further borrowing, with a wider choice of property to purchase as a result,” he suggests.
In spite of the challenges, for some BTL landlords the decision to expand their business by remortgaging will still be the right one.
There is clearly still the appetite for it, with The Mortgage Lender entering the BTL remortgage market in April this year (https://www.ftadviser.com/mortgages/2019/04/18/the-mortgage-lender-enters-buy-to-let-remortgage-market/).
Keith Street, chief commercial officer at The Mortgage Lender, observed that remortgages were up by 12.5 per cent last year and says he expects the trend to continue.
So how can advisers and brokers help these clients to decide whether remortgaging is the right way to fund their expansion or whether other options are more viable?