The buy-to-let (BTL) market is changing rapidly reacting to recent major legislative, regulatory and financial shifts according to a leading property management firm. Apropos by DJ Alexander believe that the old BTL model no longer works and landlords and investors need to reorganise their positions quickly if they are to avoid difficulties with their portfolios in the future.
The market, which was once extremely secure financially has become less settled. The number of BTL mortgages in arrears of 2.5% or more of the outstanding balance rose by 5% in the second quarter of 2019 with those facing more significant arrears increasing 12% year on year. The number of BTL mortgaged properties taken into possession rose 2% year on year. Whilst the overall numbers facing financial problems remain relatively low compared to the whole market these figures are an indication that some landlords and investors may not be adjusting fast enough to keep up with the legislative and financial changes which have occurred in recent years.
The forthcoming UK Finance annual Buy-to-Let Conference on the 13th September will be examining some of the ways in which landlords and investors can adjust to regulatory changes, stronger underwriting standards, and the move to more tenant-focused legislation.
David Alexander, joint managing director of Apropos by DJ Alexander Ltd, explained: “Recent legislative and financial changes in the BTL market have introduced a more stringent and restrictive regime which can, if there is not an appropriate response, make it more difficult for landlords and investors to make money. The number of BTL mortgages is down 42% between 2015 to 2018 and remortgages are up dramatically rising by 30 per cent of advisers’ buy-to-let business in Q2 2015 to 52 per cent in Q2 this year.”
“With fewer property purchases landlords are concentrating on their existing portfolio and trying to adjust their finances to improve the yield. The result is that the savvier landlords are cutting costs and changing the way they operate.”
David continued: “Many landlords see incorporation as the way forward allowing finance costs to be set against rent before the deduction of tax. UK finance suggests that “over half of landlords (53 per cent) intend to purchase their next rental property within a limited company structure. For landlords with more than 11 properties, this is even higher at 69 per cent.”
“Other options for ambitious landlords include moving investments to different parts of the country. Yields in certain areas (Nottingham, Manchester and Liverpool for good yields, and the North West for good capital growth for example) are much higher so investing in high yield, lower cost areas improves income.”
David Alexander, joint managing director of Apropos by DJ Alexander Ltd, concluded: “BTL is here to stay but the way in which the market operates has changed and will continue to change at a rapid rate in the years to come. The best landlords and investors recognise this and always adapt to changing circumstances. It is an inevitable part of any business that there will be change and you must make your business model to match the market. Property is no different and the current regulatory and financial changes will ultimately make the market stronger. There may be some casualties along the way but BTL remains a profitable and viable investment for those who adapt to survive.”