In current market conditions the private rental market is valued at £1.4 trillion making it fundamental to the UK’s housing market. Yet the more properties you own the harder it can be to secure BTL mortgages and with the changes in tax impacting profits it leaves many begging the question – is property investment still worth it?
In recent months Ben Humphreys, property finance specialist at Bathgate Business Finance, has seen countless property investors making decisions based on news reports about fluctuations in property prices or poor experiences in finding finance.
Despite conflicting opinions in the sector and the experiences of the investors struggling to find lenders who can meet their needs, Ben believes that property investment is most definitely still worth it.
Ben said: “I remind people all the time to remember the goal of their portfolio. With anything we buy in the world – from washing powder to our tenth property – quite often the decision to buy or not comes down to emotion. However, we need to take this out of the equation and kill some myths.
“First of all, let’s remove the fear around terms such as ‘property bubble’ and ‘crash’. Prices go up and they go down. It has happened all our lives and always will. Keep the approach simple. When prices are low buy or improve properties.
“When they are high, sit tight, refinance, sell – if it is genuinely the most beneficial option – or diversify. Do not panic sell or buy based on scaremongering news reports or the opinions of those around you. Stay focused on the goal of your portfolio.
“There is a lot of talk now of an impending ‘property crash’ following the end of government supports for example the Stamp Duty Reliefs, yet this is something I don’t expect in the next 12 months mainly due to the return of 95% mortgages with more lenders returning to the market every week, meaning residential buyers are hungry and needing less deposit.”
However, even with opportunity still plentiful in the investment market, even experienced investors are struggling to find lenders who will meet their needs.
Ben continues: “In terms of lenders, there are a lot out there and the majority want to lend. The problem is that they each have their niche criteria which is a minefield, especially following the tax changes on property income and interest tax reliefs.
With the changes phased in over the last few years a lot of lenders are still working out how they want to assess especially higher rate taxpayers, as the true impact is only just showing.
“Several months ago, a client was introduced to me and said ‘I own 30 investment properties and cannot get a BTL mortgage. Is it still worth it?’ They had been trying to buy more properties for the past year, but even with over 15 years of experience and a portfolio with less than 40% gearing they were struggling to get mortgages from traditional BTL lenders due to how they paid their tax and some under value purchases.
“We had to find the right lender who would look at the portfolio as a business, who understood property tax and worked with a panel of surveyors that we could choose from and we knew understood the properties.
“Despite the gloomy outlook suggested by traditional lenders, we got the deal done at 2.4%+ BoE base rate at 70% loan to value. This just goes to show how important it is to get the right advice on funding your portfolio, compare opinions to make sure you are finding the right lenders and get tax advice from those with experience in the property sector, to ensure you maximise reliefs on gains and methods of drawing profits.
“Lenders want to lend but you need to find the right ones to fit your personal and portfolio position. At Bathgate, I more often than not work with Commercial Mortgage Lenders to achieve this. However, specialist BTL lenders are coming back to market and finding their way with products such as Top Slicing, where they will allow you to use personal or portfolio income to top up the loan if their rental assessment falls short.”
For investors who are facing similar issues, Ben recommends a number of steps they can take right now, to keep their portfolio healthy.
· As prices are high now, if you can get a surveyor out quickly it might be a good time to refinance and raise some capital. It may be the ideal time to sell, especially low yielding property, as it is difficult in current circumstances to review and increase rents
· Look at opportunities in commercial or conversion to multi-lets. You can get the finance, you just need to be matched with the right funders
· Development could also be an option for fresh opportunities, although labour and materials are costly and slow at the moment
· It might also just be time to sit still for a bit. Use the time to review other overheads like insurance and wait until the right opportunity comes around – because it inevitably will
To discuss property funding, contact Ben Humphreys on 07436 123856 or Ben@bathgatebf.co.uk, or contact the Bathgate Business Finance office on 0151 625 7323 or info@bathgatebf.co.uk
