Leicester Buy-to-Let Market Still Expanding Despite Challenges

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Duns Lane 2 bed flat to let, Leicester, Leicester CanalThe Leicester Buy to Let market is still expanding in spite of the challenges faced by landlords over the last couple of years with rising costs, increased compliance obligations and recent tax-relief changes affecting private landlords, however, sales are down due to an undersupply of property; this comes as Leicester City Council consider repurchasing homes sold under right to buy and more than 17 people were found living in squalid conditions in a three bedroom house, as reported by the Leicester Mercury.

More than 44% of private landlords with fewer than 4 properties surveyed by Aldermore, a bank offering specialist mortgage and banking products, believe the private rental sector will grow, with 17% looking to expand their own BTL portfolio over the next year whilst 41% of portfolio landlords (those with more than 4 properties) are in a position to expand their portfolio in spite of recent predictions that the market will shrink though this isn’t a surprise as the number of new landlords entering the marketing is still increasing.

Property is still a go-to choice for investors and those akin to saving money, with yields far exceeding saving rates and property still being considered a safe, tangible investment so it’s no wonder why so many new landlords are entering the market and more experienced landlords are looking to expand their portfolios.

House on coinsHowever, there is still an increasing demand for rental properties which is especially prominent amongst millennials, many of whom still can’t afford to get on the property ladder, according to the Aldermore, this may change though depending on whether or not the current government continue to adopt policies which favour the first-time buyers of today and tomorrow.

The study shows that just 8% of landlords in the private rental sector are looking to reduce the number of properties and this is largely down to increased landlord legislation, higher taxes and increased licensing fees and/or increased licensing.Charles McDowell, the commercial director of mortgages at Aldermore says;

There is no denying that the buy-to-let market has taken a bit of a battering thanks to a multitude of regulatory underwriting and tax changes.

However, we are pleased and slightly surprised to see that there remains a net sense of optimism amongst buy-to-let landlords. Despite the recent changes, many still view buy-to-let as a good investment, with expansion on the horizon, particularly amongst those who are specialists in the area.

This means Aldermore have quite a positive outlook on the market with landlords still acknowledging the ongoing and increased challenges facing the sector at the moment. A quarter of landlords told the bank they are most concerned about ongoing tax relief changes that affects individual private landlords whilst slightly less are worried about stamp duty.

Leicester Buy-to-Let Market Still Expanding Despite Challenges 1It is noted that 17% of all landlords surveyed said they would deal with the market challenges, increased costs, etc by increasing rents while the same number of landlords plan to sell one or more of their properties.

McDowell added;

Our research has highlighted that whilst landlords are weathering the storm of change, policymakers need to shift the spotlight away from the market.

Until the dust settles we’re unlike to see the full impact of the sector and the ramifications for the future.

A new survey by Mortgage Brain suggests that despite many lenders increasing their rates, meaning an increased cost of borrowing, many mainstream mortgage lender’s rates are lower than they had been at the beginning of the year.

Mark Lofthouse, chief executive of Mortgage Brain says;

We are seeing a number of lenders starting to increase their rates ahead of the likely base rate rise next month, however, so it could well be back to reporting on a wave of cost increases at the end of June.

Moneyfacts, an independent organisation who monitor the mortgage market reveals there’s been a significant rise in fixed-rate Buy-to-Let mortgages available to limited companies since the phasing out of tax relief for individual investor landlords, however, these changes don’t apply to landlords operating as a limited company which explains why more and more individual landlords are incorporating as a company; it is often misunderstood but being a landlord is indeed a business.

In April 2013 there were just 17 fixed limited company mortgages; by April 2016 there were 80. Now there are 235.

Charlotte Nelson, a finance expert at Moneyfacts, says;

The number of fixed rates available to limited companies has almost tripled in the space of just two years. The reality of last year’s tax changes hit landlords hard, as they were unable to claim tax relief. However, with things working slightly differently for limited companies, many landlords have started to shift their focus from individual ownership to this type of private company

Borrowers considering this type of mortgage should be aware that they could find themselves in a more expensive deal compared to the rest of the BTL market. For example, the average two-year fixed rate BTL mortgage, for those applying as a limited company, stands at 4.29% today whereas the average two-year fixed rate for the rest of the market is significantly less at 3.01%.

What does this mean for Leicester’s Buy-To-Let market?

Property experts have reported a trend in landlords selling up in London and looking for buy-to-let opportunities elsewhere. Northern powerhouse cities like Manchester, Liverpool and Leeds proved popular for buy-to-let investors in 2017, alongside Birmingham and Leicester in the Midlands. PropertyReporter predicts that investors will be looking to smaller towns and cities this year where property tends to be cheaper and offer potentially higher yields.

Other research shows that the majority of landlords own more than one buy to let investment properties each. This figure has risen for the fifth consecutive year since 2012. It shows that landlords are still considering residential property as a strong investment! Especially with the new services on offer to landlords, including Harry Albert Lettings & Estates offering to landlords who really want to maximise their property revenues through a mix of long-term lettings and short-term accommodation or their advertise only service allowing DIY landlords to expose their properties to thousands of potential tenants.

These numbers apply across the UK but our understanding is that it would be mostly applicable to London when compared to Leicester as a result of the slowing (and stagnating) increases in house prices throughout the country, not to mention the 3% stamp duty that’s added on top of the stamp duty landlords pay on their second (or third, fourth, etc) properties introduced in 2016 meaning on properties below £125’000, which don’t have any stamp duty, will now incur a charge of 3% of the value of the property. which Leicester hasn’t experienced due to a less dramatic increase in house values over time and the abolition of mortgage interest tax relief for landlords in April 2017. Further research showed 64% of landlords had their finances negatively impacted by the mortgage interest tax changes.

The research that shows more landlords are entering the market also suggests that landlords continue to consider residential property as a strong investment. They said;

The long-term picture for the buy to let market remains strong. Even taking into account the implementation of government changes to buy to let tax relief, there are a number of [other] tax reliefs available to landlords.


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