The Future of Buy-to-Let
The fuTure’s brighT, Th
Buy-to-let isn’t just about small time landlords and vanilla deals. The real opportunity lies in commercial
When brokers think of buy-to-let they usually think about vanilla buy-to-let. And it’s true the vast majority of the buy-to-let market is vanilla. These are the deals a residential broker is likely to get across his desk where the landlord is small-time and has up to three properties in his portfolio. It makes up more than 80% of the market and the lenders and various building societies in the sector are in a rate market and there’s not much difference in criteria. It’s undoubtedly core to the buy-to-let market and will no doubt continue to be the lion’s share of lending in this sector for the next few years but as a broker, to limit yourself to vanilla would be missing a trick. The future of buy-to-let lies in the specialist end of this niche market. Commercial buy-to-let, by which I mean limited companies, trading companies and special purpose vehicles, HMOs, student buy-to-lets and multi unit lending on one title are increasingly looking for finance and there are deals to be done. There are two things holding this back. There are limited options from the vanilla lenders for specialist deals and a lot of brokers are put off getting involved with this type of deal. One, they don’t happen across them all too often and two, they see the word commercial and think they won’t bother. But there are opportunities for regulated and residential brokers if they just give it a little more thought. If they don’t write this business the broker up the road will so it’s worth knowing what your options are.
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Appetite For a start there is an increasing appetite from investors
to get into the buy-to-let market on a larger scale. For landlords investing through a limited company or in student accommodation and HMOs (houses in multiple occupation) there are terrific yields to be had at the moment. At 3mc we also work with commercial lenders on product design and we’re in the process of helping them look at niche areas within the specialist buy-to-let market. Yield is always the most important thing for landlords and we believe refurbishments offer the possibility of achieving those yields. There are opportunities to help investors access those yields but while commercial lenders remain risk averse, it is often a case of arranging a bridging deal for the refurbishment project and then negotiating a term loan for the exit. Refurbishment projects with multiple units is also a growth area, though I’d say that helping landlords to get finance for properties in need of work before letting them is more complex than arranging a term deal. But with increasingly aggressive appetite for short-term business from a growing number of lenders there are definite opportunities to get this sort of deal away. Short-term finance can help landlords get rental properties bought at a discount to market value up to scratch before agreeing a term loan with lenders such as Aldermore which have demonstrated a desire to service this part of the market if the risk is acceptable to them. And with repossessions unfortunately still
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