Underwriting Portfolio Landlords Mortgages
David Lawrenson of LettingFocus is not scared by institutional investors getting into build to rent nor by new mortgage lending criteria for portfolio landlords.
Build to Rent
I am interested to read in the press that the big Build to Renters are now going for a more basic accommodation offering in the student private rented sector, which suggests that other evidence pointing to the fact they are having rather hard times with the more luxury type of accommodation they have provided hitherto was true.
Readers of this column will know that I have said for years that the big institutional investors would always struggle to compete with private buy to let landlords because their cost base is too high. It looks like I am being proved right.
Of course, the government has tried to help the big Build to Letters by increasing taxes on buy to let landlords in recent years, (all the while repeating the lie that the tax changes were really only about helping first time buyers). But this skewing of the tax playing field is still not enough to help the institutional Build to Letters compete with private landlords. They will continue to struggle.
Underwriting Portfolio Landlords and their Mortgages
Just around the next corner, at the end of September in fact, the screw is to be tightened yet further for private landlords, as mortgage lenders will now have to move to more detailed individual underwriting for landlords who have four or more properties. (The dozy government and regulator’s thinking on this was that portfolio landlords were somehow more vulnerable to going bust in the event of a property crash, despite there being no evidence to support this thinking nor any proof that they are more highly geared than other landlords).
It will be interesting to see how this plays out in practical terms as lenders are only just making their policies known. But it will clearly mean more disclosure for landlords of their personal financial circumstances and more work for lenders who will have to assess and process more information. As a consequence, we expect the more “dabbling lenders” to exit the market, leading to less competition and less good mortgage deals for portfolio buy to let landlords seeking mortgage loans. Ah well!
The Future is Still Bright
Many folk think this, and the tax changes, are all terrible news and that huge numbers of buy to let landlords will all sell up en masse and the private rented sector will shrink.
I’m not sure.
But, so what if some do now decide to give up?
The resulting shortage of private rented accommodation that would result would surely lead to rents rising much faster than they have in the last five years (when they have broadly only risen in line with inflation in most places outside London).
Fast rising rents will be good news for those landlords who remain in the sector.
The trick in any business is to better than your competitors. Private renting is the same.
The way ahead for buy to let landlords is to be better than other landlords – to buy the better type of property and to be more efficient at what you do.
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We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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