Buy-to-letMay 9 2019

How landlords can expand their portfolio

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How landlords can expand their portfolio

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.

Landlords can find that they need to comply with tougher rental requirements and stress tests David Hollingworth

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.”

Box-ticking

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?

Howard Levy, director at mortgage broker SPF Private Clients, says: “It is an ever-changing environment for these clients, with a lot of work going into every case to ensure that they fit criteria at the best rate.

“With so many boxes now needing to be ticked, we are finding more portfolio clients coming to brokers like us who specialise in this area,” he adds.

To remortgage or not to remortgage?

He explains while remortgaging remains an option, portfolio BTL clients are finding other ways to fund the expansion of their business.

Mr Levy says: “Many portfolio clients are still buying properties with funds they have already built up, refurbishing the properties, letting them out and then taking finance on the finished product. This seems to be the preferred route, rather than remortgaging to release funds and then buying, although some portfolio clients do this.

“It is still possible to remortgage up to 75 per cent loan to value. Some lenders will go higher, but for most clients this is as much as they wish to borrow.”

Adam Hosker, founder of Bespoke Finance, acknowledges the process of remortgaging properties to expand has become more difficult.

“You could remortgage up to 85 per cent LTV, releasing equity for an onward purchase. You still can, but the background portfolio is probed, including portfolio-wide LTV checks and portfolio-wide rental stress tests,” he notes.

“Established landlords are now asking [advisers and brokers] more about repayment mortgages and de-leveraging – to have profits as profits, not interest payments allocated as profits.”

Seeking advice

Mr Hollingworth suggests landlords will need to get used to having to provide more information and detail about their broader portfolio, along with those relating to the property in question.

But he adds that the provisions are sensible and have led to some lenders adapting the services and tools they provide.

“Lenders have sought to help these landlords with the use of technology platforms, where portfolio details can be uploaded which will make future remortgages and acquisitions simpler,” he explains.

“Having a good overview of the portfolio and understanding of the rental requirements will also help them gauge whether they have adequate equity – in particular, properties that have been held for some time that could enable them to release equity toward growing their portfolio.”

Given that the process of remortgaging is becoming harder, for many portfolio BTL clients, seeking advice is going to be vital when it comes to deciding whether to remortgage or not.

James Bunker, head of property at Vardags, urges landlords to take the time to find the right mortgage broker and the right accountant, “each of whom must understand the client’s individual circumstances and their expansion plans in the short, medium and long term” and have “sufficient experience in working with clients who own and who wish to grow their BTL property empire”.

He adds: “Having the right ongoing support from the right team of professionals, who have sufficient knowledge of the markets and the foresight to predict trends and react to changes, is absolutely key.”

Ellie Duncan is a freelance journalist