By sativafin, Feb 1 2016 03:32PM
We feel the funding market for landlords and investors in residential properties is set to change significantly in 2016. Over the last few years there have been lots of options for small landlords owning one or two properties – these are typically lending options supported by high street banks and building societies. Also large institutions with portfolios of £10m / £20m +. Have also found funding, typically from insurance companies, pension funds and also certain banks. However the middle ground of professional landlords with borrowing requirements between £1m - £10m have been harder to place. Many of the smaller BTL lenders have restrictions on loan size, number of properties etc… that make it difficult for those with larger portfolios to get the funding they require and those funding the very large institutional investors typically have minimum loans around the £10m mark.
There have been a few tax changes that we feel will make a big difference to the market and a lender’s view. Firstly the one getting the most press has probably been the 3% SDLT – this will impact on buying appetite across the market but we feel this will put of ‘part-time’ landlords more than professionals and larger landlords. The latter tend to think long term and the residential market has consistently outperformed other commercial real estate sectors and many take the view that the additional costs will be more than compensated for in the long term. For smaller landlords we think that those ‘adding value’ through refurbish works to be less concerned than those buying new units off plan so we expect lenders in the market to be more open to allowing refurbishment works prior to renting.
Another change has been the way landlords will account for their interest payments and tax deductions. This doesn’t kick in until 2017 but ultimately an individual owning a property in their own name will not be able to deduct the interest payments against their income tax. However if the properties are owned within a company the interest can still be deducted as a business expense – we’re therefore expecting serious residential investors to be purchasing their properties into Limited Companies and LLP, if they aren’t already. Some BTL lenders historically won’t lend to limited companies however we’re seeing this change and also some of the Challenger and International banks are starting to lend more to serious residential landlords, typically to companies rather than the individuals.
We don’t feel that landlords will be ‘dumping’ property on the market and quite the rate certain media reports suggest and the ‘death’ of the BTL mortgage market certainly seems to be exaggerated. Also if a landlord has a well let property it is probably still not a bad place to invest their money and if they can find opportunities where they can modernise / refurbish a property before renting it out then the additional costs may be absorbed in the value being added. A significant interest rate hike may well damped the market further but whilst the residential investment market is changing, we don’t feel its dying and lenders are putting their money to work still in this space so they seem to agree.