Private Finance's Mortgage Memo - 23rd August 2021
This is our take on what is currently happening in the mortgage market. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.
- Increase in BTL investors looking to diversify
- Landlords can get caught out - Why seeking mortgage advice alongside accounting / tax advice is so important
- Borrowers take advantage of low interest rates and cheap(er) London flats
Increase in BTL investors looking to diversify
We have recently seen an increase in number of existing landlords that we have as clients looking to raise funds for alternate investments. Traditionally most lenders restrict borrowing on buy to lets for investment into other BTLs, or one’s main residence, however we are seeing increased numbers look to commercial property, or investment into stocks and shares and other financial products to diversify their portfolios. For instance, one client, a BTL portfolio landlord with 15 properties, is currently raising funds to purchase property and land to refurbish and develop due to increasing prices and flat rents in his historic investment area. Another HMO landlord is raising funds to invest with a wealth manger and into commercial properties in search of less stress and potentially higher returns.
- It has been widely reported how landlords have had a hard time during Covid, with tenants unable to pay rent and the ban on evictions (not that this was a bad thing) meaning they may have had assets that were losing them money, and thus instead of building their rental portfolios they are looking to diversify into other areas.
- Rent has not been increasing, whereas property prices have increased significantly and thus this has brought down the ROI for BTL investors, driving them to look for greater yields elsewhere.
Don’t get caught out… Why seeking mortgage advice alongside accounting and tax advice is so important
As we specialise in arranging finance in the most complex circumstances, we are often approached by clients especially in the BTL space, who have inventive accounting structures and are looking to get a mortgage on these properties as more of an afterthought. We have seen a rise in more inventive ownership structures to try to reduce tax bills, and this can discount a large number of lenders or make a property not mortgageable at all. For instance, ltd company shareholding structures including young children will significantly discount the number of lenders that will accept a case, landlords putting the rentals of a personally owned buy-to-let through a separate ltd company they own acting as their own "management agent" to get round some tax significantly limits lenders. We see some structures of more than 4 shareholders in a ltd company which can preclude any borrowing, as can the ages of shareholders if for example an accountant put elderly parents as minority shareholders and most commonly, accountants advising people to place beneficial interests in a company in trust, or purchase properties through trust and clients needing a mortgage not considering that this can make it extremely difficult if not impossible to mortgage the property.
- Ultimately, accountants come up with all sorts of structures without considering if it will have an effect on mortgaging a property, and without considering if a mortgage is wanted or needed on a property. Therefore, we recommend that those about to embark on changes such as this, but who may need finance in the future, be it in the short or long-term speak to a mortgage broker for advice.
Borrowers take advantage of low interest rates and cheap(er) London flats
We have had several enquiries recently from London residents looking to purchase a second property, usually a flat in their locale (a short distance from their main residence) to take advantage of the fact these properties are extremely well priced at present and interest rates are incredibly low. These buyers are both looking at buying investment properties as well as moving their main residence and letting that out or raising capital on it. For example, we have a client at the minute buying a property a 5-minute walk from his main residence as it is on sale for £570k where prior to Covid it was being marketed at £675k. He is consequently moving into this property and renting out his current place, with a view in 5 years’ time this property will have gone back to pre-Covid demand, and he will have a healthy capital gain that isn’t taxable due to living there (we are not tax advisers, but this is our understanding.)
- We suspect we will see more buyers and borrowers purchasing London property in the coming weeks, especially flats as, in some cases, as significantly cheaper than they were pre-Covid and potentially within their local areas that they have a knowledge of value as have already purchased here. Lenders will not let borrowers purchase a second home so close to their main residence, so they only have two options, move, and let their current, or buy it as an investment property should they not wish to sell their main residence.