Adrian Moloney | 26.09.2023
The media has been so full of stories about the number of landlords exiting the rental sector that it’s sometimes difficult to see the wood for the trees and decipher what’s actually happening.
Sure, the removal of mortgage interest tax relief and tougher underwriting standards, not to mention soaring interest rates and a cost-of-living crisis, has led to a certain type of landlord deciding that buy to let’s no longer for them.
But these have largely been landlords with one or maybe two rental properties to top up their pension pots, or ‘accidental’ or ‘unintentional’ landlords who’ve acquired a property through a variety of different circumstances.
What you won’t read about so often, maybe because it doesn’t fit the narrative that the buy to let industry is on its knees, is that they’re being replaced by a more professional type of investor who’s likely to own a portfolio of rental properties.
And these portfolio landlords seem to be doing quite nicely indeed, thank you very much.
According to research by BVA BDRC, after a relatively stable 12 months the average portfolio size saw a sharp upturn in Q2 of 2023, increasing to its highest point in more than four years – likely due to the number of single property landlords divesting and exiting the market1.
The average portfolio size has grown by 2.1 properties and now stands at 11.6 tenancies across an average of 9.7 properties2. And it’s not just the size of portfolios that’s increasing; it’s the value and the rental income they’re earning too. The typical portfolio has increased in value to £1.65 million, which is around £100,000 more than it would have been worth in the first quarter of the year, and now earns a gross rental income of £71,000 a year3.
Perhaps not surprisingly, landlords with larger portfolios achieve a higher rental yield on average with those who own between 11 and 19 properties receiving a mean yield of 5.9%4.
Furthermore, those with larger portfolios are significantly more likely to purchase in a limited company structure, with nearly two-thirds of those with six or more properties saying they intend to buy their next property via this method5.
So, if you’re approached by a landlord who already has a healthy portfolio of properties and is now looking to extend their buy to let business, do you know which lenders could help them to achieve their investment goals?
Here at Kent Reliance for Intermediaries, we know that every buy to let case is different and while some lenders may not be able to help, we always look for the potential. Our strength lies in our flexible, common-sense approach to lending, combined with a willingness to consider cases that fall outside of standard criteria.
We don’t set limits on the size or value of existing portfolios held with other lenders, and we don’t put a limit on the number or value of properties mortgaged with us. So whether your client’s a landlord with a portfolio of four or 40 properties, we could help you meet their needs.
To give you an idea of how we could support landlords grow their portfolio, let me describe a scenario which shows how our flexible approach could help.
Say you’re contacted by a client with an existing portfolio of 43 properties which is valued at around £10.75 million. They’d like to expand their business by purchasing an additional property worth £250,000 but are struggling to find a mortgage as many lenders have a cap on the number of properties and/or a maximum mortgage value.
Fortunately, you know Kent Reliance for Intermediaries doesn’t set a limit on the number or value of properties mortgaged with us. What’s more, as we don’t set limits on the size or value of existing portfolios held with other lenders it means our experienced underwriters assess the application and are able to offer your client the mortgage they need to complete the purchase.
It’s just part of our wider buy to let mortgage offering which enables us to support a wide range of different client types. Whether they’re a personal owner, getting into buy to let for the first time, looking to explore the opportunities offered by HMOs and MUFBs or want to run their business in a limited company structure, we could provide solutions for even the most complex of scenarios.
What’s more, our national team of BDMs are empowered to support you, so you can rest assured knowing your portfolio landlord clients are in experienced hands. We now also offer even more ways than ever for you to get in touch with us. Whether you’d prefer to meet face-to-face to discuss a case, speak over the phone, or chat online or by video conferencing, the choice is yours.
And with our office-based BDM team on-hand if you’ve got a query about an existing case and your local BDM isn’t available, you’ll never have to wait long to get the answer you need.
Source: BVA BDRC Landlords Panel Report Q2 2023 (slide 461, slide 452, slide 183, slide 234 and slide 405)
Forewarned is forearmed. Proper preparation prevents poor performance. Fail to prepare, prepare to fail… there are so many sayings about the importance of planning ahead that I’m always amazed when I hear about people making big decisions without carrying out the necessary due diligence.
Over the past few years, we’ve seen many ‘part-time landlords’ leaving the buy to let industry and selling their rental properties because of increased taxation and higher mortgage interest rates, as well as tighter rules and restrictions. Their exit has made way for more portfolio landlords and resulted in increased professionalisation within the sector. This trend is borne out in findings in OSB Group’s Landlord Leaders report which found that 73% of brokers and 64% of landlords agree that the sector is professionalising1.
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