Specialist Residential Market Review
Property Investors have seen various significant changes to the UK market place over the last 12-months, several of which may impact substantially on potential returns from their investments.
Firstly there was the announcement to cut mortgage interest tax relief for BTLs held in personal names, as a result of which we experienced a large increase in enquiries to fund transfers to Limited Company ownership (with several of our lenders happy for gifted equity transfers) in addition to full portfolio reviews to move debt from multiple lenders to one single funder.
Secondly, the increase to SDLT for purchases of investment property (or second/further properties to be more accurate) saw a rush of investment before the tax year end. Following this we have seen an increasing number of clients looking at re-investment in their existing properties including upgrading and undertaking refurbishments to obtain better returns.
Thirdly, there has been an increasing downward pressure on rental yields in prime areas meaning clients are no longer able to borrow the level of debt they either expected or were able to access previously. As a result, we are seeing a large increase in volume of enquiries away from specialist residential investment, with clients also looking at HMO (House of Multiple Occupation) opportunities and even Mixed and Pure Commercial Investments. Whilst the average rates from lenders can be higher due to costs of funds resulting from increased capital adequacy requirements when secured against Commercial Property or HMOs rather than vanilla BTL, the average rental yield received on assets of this nature (according to UK wide statistics) tends to be higher, allowing higher debt serviceability and in many cases additional surplus income.
Over the last 5 years we have also seen the stabilisation of those lenders who emerged into the market post-recession and lend predominantly against specialist residential (including HMO) and commercial property, with their increased market share contributing to a general reduction in available interest rates which means there are genuine options available for borrowers across the market including existing High Street and Challenger lenders, and also further new entrants into the market. The choice for property investment finance, notwithstanding the legislative changes noted above, is arguably wider than it has been for many years and certainly since the crash.
M Jones.
