06 Aug 2019

Buy-to-Let: Three perspectives on a changing market

Where are the opportunities in Buy-to-Let property? We speak to three of the Investec Private Bank team: Charlotte, Joe and Joshua, to find out what they are seeing in the market and how clients are taking advantage of the current rental landscape.

Charlotte Seward, Private Banker:

There’s no denying that the Buy-To- Let market has suffered in recent years. There have been a whole host of changes from the well-publicised higher stamp duty rates to the restriction of income tax relief. To compound matters, low to zero growth in London and the South East; areas which have traditionally performed well, has made BTL assets in these areas less palatable.

 

This does not mean, however, the asset class is disappearing. Rental demand continues to grow and a surge in the rent to buy market keeps demand buoyant. But the way people are approaching the market is evolving. People have started to look to the outskirts of London; to commuter towns, regeneration areas and communities benefitting from new or improved transport links.

 

Charlotte Seward
Charlotte Seward, Private Banker

People have started to look to the outskirts of London; to commuter towns, regeneration areas and communities benefitting from new or improved transport links.

 

We’re also seeing clients mitigate the tax changes by either becoming smarter in the way that they let properties, for example through holiday let arrangements which remain tax efficient, or in the way they plan their finances across the family.

 

One example of this is when clients purchase the property with a Special Purpose Vehicle; a limited company which houses the asset and the rental income, and where different family members may be shareholders. They may also vary the rental income splits between spouses through an HMRC form 17 election.

 

All of this requires a lender who can look across the whole piece and think laterally to find the right lending solution for the client.

 

Joe Websper, Intermediaries team:

In the mortgage introducer space, we’re definitely seeing a big focus from clients taking advantage of low interest rates to make their Buy-to-Let portfolios more efficient. There are a lot more fixed-rate Buy-to-Let mortgages coming across my desk as people lock in a rate for the next five-to-ten years. I’m also seeing interest in the higher end of the market – roughly a quarter of the enquiries we’ve had from mortgage introducers in recent months have been over £3 million.

 

Joe Websper
Joe Websper, Intermediaries team

Clients are increasingly sophisticated, holding a diverse asset portfolio which inevitably brings them to look at smarter purchases.

 

More people are holding on to their existing properties for longer due to the additional stamp duty for new purchases across the market. When they do move house, people are converting their old residence into a Buy-To-Let, which means remortgage deals are very popular at the moment.  

 

Clients are increasingly sophisticated, holding a diverse asset portfolio which inevitably brings them to look at smarter purchases and also to consider more commercial and mixed-use property assets.

 

Joshua Weinstein, Structured Property Finance

At the moment, there’s a lot of new builds coming on to the market from Buy-to-Sell developments. I’d say that pipeline’s looking strong for the next 12-18 months.

 

What’s changing is we’re now seeing a lot more American-style Build-to-Rent and Multifamily developments, which in the medium term will be competing with traditional Buy-to-Let investors. We expect that, in the long term, a big portion of the UK rental market will be professional landlords running purpose-built developments, so the rental landscape will look very different.

 

Joshua Weinstein
Joshua Weinstein, Structured Property Finance

For individual investors, the key question will be what they want to achieve from a Buy-to-Let portfolio – whether they’re looking for yield or capital preservation.

 

For individual investors, the key question will be what they want to achieve from a Buy-to-Let portfolio – whether they’re looking for yield or capital preservation.

 

Investors looking for yield over the long term have more moving parts to consider. There’s the political element around Brexit and housing policy more generally. Coupled with the changing market dynamics and there’s a lot investors will need to balance to get the returns they’re after. Capital preservation is relatively simpler because the return on the property just has to meet its outgoings.

Speak to a private banker about your Buy-to-Let needs