It’s a buoyant time to be a landlord. The latest Zoopla UK Rental Market Report says that in Q3 2021 strong rental demand pushed rental growth to its highest level in 13 years, as the resumption of a more ‘normal’ way of life with offices, restaurants and bars, cinemas and theatres and other amenities re-opening – as well as students looking for accommodation –led to strong rebound in rental demand. And, in meeting this demand, investors have rarely had as much choice when it comes to mortgages. Moneyfacts says that at the start of 2022, the number of Buy to Let mortgage products on the market hit the highest level since September 2007.
One area of particular growth has been specialist Buy to Let on investments such as HMOs, multi-unit freehold blocks (MUFBs) and holiday lets, as existing lenders have expanded their proposition into these areas and new entrants have targeted this more niche sector of the market. There are certainly opportunities within specialist Buy to Let and those investors that get it right often find that they can make returns that are far superior to a more standard Buy to Let investment.
However, despite the growing demand, as more investors are tempted into this sector by the growing availability of mortgage finance, competition amongst landlords is going to increase. Riding the wave of the market is one thing, but if the landscape changes, it’s important that investors are able to maintain a proposition that still stands out against the competition in a more crowded environment.
Consequently, at Daven Trust we have seen a flight to quality when it comes to specialist Buy to Let. Since the beginning of the year there has been a significant uplift in the number of applications for larger loans, often over £1m, on HMOs, MUFBs and holiday lets. Sometimes these larger loan sizes are to fund the purchase of larger properties, but often it’s the case that they are desirable, or high-spec properties in more salubrious areas.
This is a sensible approach. If the market were to turn, it is the most in-demand properties that will continue to attract attention, particularly if they have stand-out qualities when set against the stock of that type. At the same time, even in the current buoyant environment, the best properties will always command a premium and that potentially means better returns for investors. It’s good news for brokers as well, as high-end properties can mean larger loan sizes.
The current positive outlook for property investors may encourage many to expand their portfolios, particularly when it comes to more specialist type of investment that could deliver better returns. It’s worth thinking about what steps they can take to make their investment more resilient in the future and a flight to quality – choosing to invest in top-end property may help to do just that. If this is a path that your clients choose to go down, make sure you work with a lender that has the experience and expertise in this part of the market to help ensure that they set out on that investment from the best possible footing.
Rob Oliver, Sales Director