Guide clients in buoyant BTL
Santander recently announced it was going back into the buy-to-let mortgage market with its first deals for part-time landlords since 2008. The new loans will be sold exclusively via advisers and mortgage brokers through Abbey for Intermediaries and will only be made available to borrowers that already have a residential or buy- to-let mortgage but no more than three properties in their portfolio.
The private rental sector is playing an increasingly important role, hence the impressive growth of the buy-to-let sector from lows of two years ago, so this move is not surprising, especially following moves from the Yorkshire and Skipton building societies earlier in the year.
Overall BTL lending terms have been improving as more lenders have entered the fray but more competition is needed, so Santander coming in with real intent is a major boost as it increases lending supply and should work well for consumers to get more choice. In contrast to other aspects of the mortgage industry, the picture for buy-to-let investors appears relatively rosy and warrants closer inspection.
For a long time, rental yields have remained strong and 10.2 per cent of overall lending last year can be traced back to BTL products, the same as its peak in 2007. It might suggest that those of us that can should start our own BTL portfolios but it is needs to be approached as a business decision. Buy-to-let landlords have to commit a lot of time and effort into making their venture a success. Help is at hand via the broking community, estate agents and lenders and this support is crucial to the novice landlord entering the market.
Despite the apparent and seemingly obvious benefits, it is important that we as an industry impress on clients this is a business transaction and they should fully understand all the financials before committing to the first purchase. When planning a portfolio for a client, consider all the options but try to focus on a few quality products rather than a wider, extensive range.
A small portfolio built quickly can help in minimising rental voids, spread risk and increase yields. It is important to explain the capital required if further properties are to be acquired as this may influence your client’s initial investment in the first property. Advise them to look carefully at managing tenancy agreements as they near maturity to minimise rental voids and maximise rental incomes.
It is also worth mentioning for first- timers that insurance can protect against accidental damage, loss of rental income from specific causes, third-party liability and cover buildings and contents for furnished lets.
Intermediaries and lenders have an important role to play in guiding clients through what can be a tricky market to ensure they make the right choices. Landlords will have an increasingly important role and the industry needs to ensure we give clients every opportunity and support to ensure they are able to get things right with their property investment.
Ben Thompson is managing director of Legal & General Mortgage Club