‘Buy-to-let landlords need to act now or face losses’

UK buy-to-let (BTL) landlords need to act immediately to prevent them facing losses in the near future, according to a leading Edinburgh-based property management firm.

DJ Alexander Ltd, one of the UK’s largest family-run property management businesses, said that BTL landlords can no longer simply sit on properties and hope that they will make money as legislative and regulatory changes mean that many landlords may start to lose money on their investments if they don’t respond to the changing market.

David Alexander, managing director of DJ Alexander, explains: “The buy-to-let market has been regarded as a pretty easy way to make money by many people although this was never actually the case. However, the recent changes on legislation and regulation may make it considerably more problematic for landlords to break even on investments unless they have the proper management and financial oversights in place to manage their property portfolio. From the single property landlord to the multiple property empire there are considerable savings to be made to offset the negative impact of the recent legislative changes, but owners need to act immediately to ensure they are prepared for these changes and have put in order the financial and management elements of their investment.”

The latest figures from UK Finance highlight a considerable softening in the marketplace with just 5,500 new BTL mortgages completed in March worth £0.8bn which was 19.1 per cent down by volume and 20 per cent down by value on the same month last year. However, in the same month there were 12,600 new BTL re-mortgages completed worth £2.0bn up 0.8 per cent on the same period the previous year.

Mr Alexander said this softening is “undoubtedly” due to the triple whammy of 3 per cent SDLT surcharge on all new BTL properties since April 2016; limiting of landlords Mortgage Interest Tax Relief (MITR) to basic rate phased in over four years from 2017/18, and new underwriting requirements introduced by the Prudential Regulations Authority since January 2017 requiring lenders to maintain conservative underwriting standards and since September 2017 stricter underwriting criteria for borrowers with more than three BTL mortgages.

Mr Alexander continued: “Being a landlord has become much more complicated in the last couple of years and many people may not realise just how stringent and problematic the impact of many of these changes will be on their investment. Income will be hit as rents remain relatively static or falling across the UK, while costs are rising, and the ability to offset expenses hits profitability. In 2017 only one region in the UK recorded higher yields to investors and that was Yorkshire and Humber. The rest reported static or even falling yields. The result is that many BTL landlords may start to lose money in the next year or so without fully appreciating what is happening. Only by acting now can they offset this situation.

“The regulatory and legislative changes are only just starting to have an impact and the financial position of most BTL landlords is relatively strong. The latest figures show that there were only 4,500 BTL mortgages in arrears of 2.5% or more in the first quarter of 2018, six per cent lower than the same period a year earlier. There were just 1,100 BTL mortgages in arrears of more than 10% of the outstanding balance.”

Mr Alexander concluded: “Being a buy-to-let landlord is still a good way to make money in the medium to long term but now the goal posts have been shifted and investors need to be aware of the greater difficulties they face in ensuring their investment grows. Many may be tied in to old mortgages, or long term financial terms which are no longer beneficial, or they may not have an appropriate tax structure in place to ensure they aren’t being penalised for their property ownership. Landlords need to be more pro-active, and more aware of the shifting rental marketplace than they have ever been. While there will still be room for the ‘amateur’ landlord, a professional approach needs to apply across the sector whether you have one property or ten. Property investment remains a very sound and astute investment sector, but the playing field is no longer quite so level and the circumstances have become more difficult with greater challenges and problems placed in the way of investors. That doesn’t mean individuals and companies shouldn’t invest, it simply means they need to understand the complexities involved and put in place means and measures to deal with these complexities before they occur.”