"It also presents a USP for advisers in terms of a more complex picture to put together for the landlords, coupled with greater product options, which of course requires specialist advice knowledge and expertise."
It would seem fair to say that, over the last few years, there has often been a ‘tipping point’ for what we might deem ‘amateur landlords’, or a phrase I’m not that keen on, ‘dinner party landlords’.
Defined as those with one or two properties within a portfolio, it’s been clear that those with less homes to let have needed to weigh up their continued involvement in the private rental sector (PRS) under the pressures of increased mortgage costs, increased overall costs, the fall in mortgage interest tax relief, coupled with deposit requirements/extra stamp duty costs should they actually want to add to their portfolios.
Now, for a large number of those landlords, they have been able to maintain their investment. While not being able to add to the portfolio, they have been able to benefit from increased tenant demand versus a lack of supply, and secure the rent they need to meet all of those financial responsibilities above.
However, for others, the decision has been made that – with profits falling and perhaps equity to access – it has been the right time to divest of those properties and look for other investment opportunities.
Understandably, with saving interest rates available above 5%, a number of amateur landlords might well have decided to sell up, and move the money into – what is undoubtedly – a less stressful ‘investment’.
However, before we completely write off the large number of landlords who only hold one or two properties, it’s important to recognise that, firstly, this isn’t a ‘mass exodus’; secondly, that where property has been sold it tends to be bought by other landlords anyway; and thirdly, our own figures actually reveal a somewhat different landlord portfolio picture which might show where many landlords’ minds are at.
Within our Rental Barometer Index we look at the number of investment properties our landlord borrowers hold within their portfolios. While the average number, right across the board, has remained stable at 11 properties, there has been some movement in terms of the bands we place landlords in.
For instance, the number of landlord borrowers who own between one and three buy-to-lets has actually increased from 29% in the first quarter of 2023 to 31% in the first quarter of this year. There has also been a slight increase in those holding four to five properties, up from 6% to 7%, and similarly an increase in the number holding 15-plus properties, up from 20% to 22%.
It is actually landlords holding six to 14 properties who have dipped in number, down from 40% to 34%, and this is likely to be because they have a decent-sized portfolio which allows them to make decisions about either investing or divesting.
In other words, they can recognise those properties which are not delivering the profits they require, and sell them, and/or they can use the equity within their existing portfolio in order to purchase more. Hence, the increase in the number of landlord borrowers who now have over 15 properties.
This, of course, makes sense but what is also interesting – and again, goes against the grain somewhat in terms of how the sector is viewed by the ‘layman’ – is that we have also seen an increase in the number of first-time landlord borrowers we have on Fleet Mortgages’ books.
Now, admittedly, this hasn’t gone up a great deal – from 5% to 6% - but it has gone up, and again shows that those who are not already invested in buy-to-let properties are increasingly recognising that, if they can get their numbers right, then there is income, capital and profit to be made over a long-term period.
There’s no doubt that, with rental demand high and property supply still nowhere near enough to meet it, if landlord borrowers can get a good mortgage deal, a decent property which produces the yield they need, then they are unlikely to find it too difficult to rent it out.
That, of course, matters a great deal and is likely to be one of the major factors in keeping amateur and portfolio landlords invested, and new entrants willing to take the plunge.
For advisers, it opens up the landlord borrower demographic a little, in that the barriers to entry are not too large to stop new players making their first foray, and it also means portfolio players are looking at their options, seeking to utilise their full portfolio and make decisions to either scale back a little or to use them to forge ahead. Increasingly, the latter.
It also presents a USP for advisers in terms of a more complex picture to put together for the landlords, coupled with greater product options, which of course requires specialist advice knowledge and expertise.
Landlord borrowers are less willing to handle these financial decision themselves, and actively want and need advice in this space. If you can fulfil all those needs, and others, then you are likely to benefit from a landlord community who are far less likely to be sitting on their hands through 2024 and into 2025.
