Buy to Let Mortgages are at a confusing stage after tax changes and lenders product criteria tighten up. BTL investors now need to evaluate the benefits of a Limited company offering, yields attached to HMOs and short term lets.
According to the BTL mortgage index 59% of all buy-to-let mortgage lenders offered products to landlords who utilise limited companies’ structure. The introduction of new tax rules for landlords which began two years ago has changed the ways BTL investors run their portfolios. LTD companies are now used as a tax and financially efficient way due to the restriction of income tax relief on mortgage interest.
As a result, the number of providers offering corporate buy to let products has been growing steadily since the implementation of these rules. The index shows that the gap in pricing between the average buy to let mortgage and the average rate available to limited companies receded by two basis points compared with the first quarter of the year. The index identifies some good news for landlords as those using limited companies now have a wider choice of lenders especially in the specialist lending industry.
The reforms of the Buy-to-let property market has seen many amateur landlords leave the market. Those who have stayed (professional) landlords have restructured their business model and now many are utilising the LTD company format. However, there is still a healthy number of first-time landlords out there. As the BTL sector evolves over time and the number of landlords with one rental property fell to 45% in just 8 years, compared with 17% of landlords now own 5 or more properties since 2010. Professional landlords now make up 48% of the private rented sector, an increase from 38% since 2010.
An HMO is a property in which three or more people from two or more different families live. This includes properties which have been converted into self-contained flats. The rise in HMO’s is due to the attractive higher rental yields which can often be as much as three times as high as single lets. HMO’s can be resistant to market shifts due to their flexibility and low cost provides a consistent demand and return on investment. By including HMOs into a portfolio of BTL allows your client to benefit from higher returns with fewer properties to manage.
Landlords also need to consider Airbnb style of short term letting for a maximum period of 6 months. Demand is due to relocating corporate tenants, people researching an area before committing to purchase and contract workers looking for accommodation. For landlords this means around 30% higher rates than long-term rentals. Short let’s offer greater flexibility to extend tenancy agreements weekly or monthly. However, if the property sits empty for a given length of time this can eat into the overall return.
To conclude as a specialist lending broker at Smart Money, we can offer corporate landlords specialist products to meet their requirements including providing BTL for Sole Traders. If you have a specialist BTL enquiry contact us today on 01829 730 554 to discuss your case with us so we can match your client with the most suitable specialist buy to let mortgage lender.