"As advisers know only too well, the best lenders are the ones who actively listen to the needs of the market, and use that as a basis from which to shape their product range."
It’s fair to say, the last couple of years have been a challenging time for property investors and landlords. In fact, there is an argument that, the aftermath of the disastrous ‘Mini Budget’ of September 2022 led to the most challenging period for investors in more than three decades.
However, one of the abiding lessons I have learnt over my career has been to never underestimate the resourcefulness of entrepreneurs.
My experience has taught me that with any market shock - whether down to a change of Government, a financial crisis like the Credit Crunch, or an unexpected political event like Brexit - entrepreneurs often look to reinvent themselves, to find ways to not only survive but actively thrive even in the most challenging of circumstances.
That desire to make the best of a difficult position has of course led to a polarisation in landlord strategies, with the higher interest rate environment being a big driver.
Shifting sands
Back before the Credit Crunch, it was simply the norm for interest rates to fluctuate, to rise up and down with the market. However, the financial crash rather changed things, leading to a sub-1% Bank Base Rate (BBR) for more than a decade.
Given this context, and the fact rates were so low for so long, it’s perhaps not hugely surprising landlords made the most of this market. In fact, I think they can be somewhat excused for having become used to borrower costs at such historically - and in the long-term, unsustainably - low rates.
Things have changed substantially though. We have seen BBR increase rapidly, from just 1% back in August 2022 to 5.25% today, one of the fastest proportionate increases in history.
Given this sharp turnaround, it’s little wonder so many landlords and property professionals have felt the need to take a step back and reconsider their plans for their portfolio.
What do we do now?
We have seen landlords increasingly opt for one of two main paths. Many landlords with large portfolios, particularly those that are highly geared, have been more likely to look to sell off some of their stock.
They want to restructure their portfolios, reducing their level of borrowing in order to achieve greater returns. They still see property as an excellent asset in which to invest, but want to find a better balance in their investing.
By contrast, we have seen some landlords who are lower leveraged taking a different path.
They recognise the opportunity it presents, the potential to pick up properties for their portfolio at a compelling price. In some cases that would mean acquiring some of the properties being offloaded by their higher leveraged peers.
What do landlords need?
As advisers know only too well, the best lenders are the ones who actively listen to the needs of the market, and use that as a basis from which to shape their product range. It’s clear to us at Tuscan that there is not a ‘one size fits all’ solution, so we have used that feedback to devise different funding options for landlords no matter their scenario.
For example, the landlords who want to add to their portfolios often need to move quickly, which is why our Fast Track process - which utilises AVMs and desktop valuations in order to complete the deal faster - has been so welcome.
At the other end of the spectrum, we have seen a significant number of restructuring landlords look to make use of our longer-term stabiliser funding. This allows the investor to refinance with a fresh start, service the loan from an income-producing asset and build their payment profile so over time they will be better able to secure competitive, long-term financing via a traditional mortgage.
It’s only by genuinely understanding what these clients need that we are able to build the products and processes that will make a material difference to them.
Understanding landlords
Advisers spend every day at the coalface in this industry, so are acutely aware of just how challenging this period has been for property investors. While some are looking to reshape and reduce their portfolios off the back of these difficulties, others see the situation as an opportunity to be grasped.
Irrespective of where your clients are, it’s important for advisers to work with lenders who actually grasp the needs of landlords in this market, and are agile enough to design products and processes to better support them.
