Roy Armitage

The positive prospects for professional landlords




From a credit risk point of view, professional landlords offer a different challenge both in terms of underwriting and ongoing account management.

On the positive side, these landlords are generally either full-time or spend a substantial part of their day working with their portfolio and are increasingly using a corporate structure to hold the properties. That experience is invaluable, and it takes well trained underwriters and good systems to understand and manage the risks and opportunities corporate structures represent, something LendInvest has been doing for many years.
 
Professional landlords often enjoy a better cash flow and have a more substantive credit history, thereby providing a track record of having serviced and or paid off their loans compared with those borrowers who have a more limited credit history. Clearly as the move to corporate structures increases, it benefits the whole industry if credit bureaus receive from lenders the mortgage servicing records of both corporate and personal landlords.
 
There are potential complications, however, such as the need to be careful about the concentration of properties a landlord may pick up in a specific area. It’s quite natural that an investor will look to buy properties in an area which they know and understand, but lenders will be cautious about the potential for a landlord to become overly exposed to a single area.

Shifting ownership preferences

According to the English Private Landlord Survey 2018, just 4% of landlords own their properties through a limited company vehicle, with 94% preferring to let property as an individual. There has actually been a growth in the number of individual landlords since 2010, when 89% of landlords let their properties themselves, while 5% were company landlords.
 
While limited company buy-to-let remains relatively small across the market as a whole, there is no denying that interest in it has increased significantly as a result of the government’s various tax changes . We have seen the proportion of limited company applications cases increase over the last year and, anecdotally we understand, across the market as a whole. Data from Mortgages for Business last year suggested that around 44% of completed buy-to-let cases were by limited companies rather than individual borrowers, and there appears to be little reason to expect that trend to change.

That said, there is still a substantial number of borrowers who are quite happy to forgo incorporating and to continue to purchase property in their own name.

Positive prospects

Going forward, it is notable how positive a majority of landlords appear to be about the prospects for their portfolios and it is also apparent that the private rented sector is going through a period of adjustment as expected.

It is not yet clear what the end position will look like, but it does appear that the market is becoming more polarised around the larger landlords. Whether this achieves both the capacity the market needs or professionalism the government wishes to see remains to be seen.

What is clear is that statements suggesting the early demise of the private landlord, and the buy-to-let market as a whole, are somewhat premature.

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