I’m a huge fan of all things property related. Location, Location, Location? Yes, please. Grand Designs? Never miss it.
Property development is a real passion of mine and I’m currently gutting and renovating a property for my parents-in-law. No jokes, please. But I still class myself as an amateur for this kind of thing and, as such, I have always found it fascinating to talk to developers, investors and landlords about property, their aspirations and the challenges they face.
A greater number of these conversations are happening with portfolio landlords, who have become increasingly active over the past 12 to 18 months. It’s always prudent for our advisers and I to get to grips with changing dynamics across these portfolios, where possible.
Typical traits
On this topic, it was interesting to see research from BVA BDRC and Foundation Home Loans that outlined some of the characteristics of a typical portfolio.
This highlighted that, in the second quarter (Q2) of 2021, a standard portfolio was worth around £1.25m, generating an annual gross rental income of £54,000. Based on an average Q2 portfolio of 6.9 properties, the typical individual value of a property was £182,609; meanwhile, the average loan-to-value of a portfolio of any size was 49.5%.
Landlords are seeing more capital gains than expected
Landlords with more than four mortgaged properties had average portfolio values of over £2m (£2,040,000) for the first time since Q3 2020. In addition, 40% of all properties owned within an average portfolio were owned outright.
It also piqued my attention that an estimated 30% of landlords who planned to remortgage within the next year intended to release equity from their portfolios.
In addition, portfolio landlords were said to be more likely (43%) to want to remortgage in the next 12 months compared with their ‘consumer’ landlord counterparts (20%). And they were significantly more upbeat about the prospects for their own business: 46% said they felt either ‘good’ or ‘very good’, compared with just 35% of single-property landlords.
As we know, there has been a huge focus on the purchase market in recent times, largely driven by the stamp duty holiday and the available tax savings for both homeowners and landlords. With property prices rising rapidly during this hectic period for the whole housing market, landlords are seeing more capital gains than they may have expected, especially those who have maintained a constant portfolio over many years.
An estimated 30% of landlords who plan to remortgage within the next year intend to release equity from their portfolios
It’s little wonder, therefore, that the appeal of extracting this equity is rising. And, with landlords looking to diversify into areas such as holiday and short-term lets, houses in multiple occupation and semi-commercial, the reliance on specialist lenders and good, professional advice on refinancing will also increase accordingly.
Competition too is growing in these product areas, meaning this advice will pay dividends over the short, medium and longer term for a range of landlords in the latter half of 2021.
Cat Armstrong is mortgage club director at Dynamo for Intermediaries
