The rise of the cross-country landlord

The South East continues to offer eye-catching returns for property investors, as revealed by this month's LendInvest Buy-to-Let Index.

Only one postcode from outside the South East – Northampton – managed to sneak into the top 10, but it could not compete with the likes of Romford, Luton and Dartford that dominate the top of the table.

The LendInvest BTL Index may have gone through many iterations since we launched it in 2014, but one thing that has remained the same is how well-read and well-received it is by professionals across the industry. Readers tell us why. Our index takes one of the sector’s most uncompromising and holistic views of the life of a landlord. Of course, finding a property which offers a good rental yield is important, but property investors that know what they’re doing know there’s more to it than that.

For example, the index also takes into account the rate at which rental prices in that area are increasing. Rental price growth should always be an important consideration for any investor. How are the rents in the area developing? Are they stalling, due to over-competition? Or are they being pushed upwards by healthy demand? Buying an investment property is often a long-term project – nobody wants to lumber themselves with a stalling asset.

More landlords are looking at properties in various parts of the country

Capital gains are crucial too – while getting a return from the rent you receive each month is welcome, many investors will be keen to make the most of the increases in capital value when the time comes to sell up. Besides, if the property’s value is increasing significantly, that opens up more possibilities should they want to remortgage.

One often overlooked metric is transaction growth, but we know from speaking with our brokers just how fundamental a role it plays in assessing a healthy investment case. If property is turning over at a decent rate in a certain area, it shows that there is a healthy demand for properties there. That’s good news for the investor – it should translate into plenty of prospective renters for them to target.

Viewing the whole picture without fixating on a single headline figure is very much what the best brokers do, too. Yes, securing a nice interest rate for your clients is welcome, but there is much more to finding the right property finance than simply locating the smallest interest rate on your sourcing system.

Brokers need to be on top of the different criteria various lenders employ, what the extra fees will look like, how reliable the service levels are, and, of course, just how quickly the lender will be able to deliver the funds.

That’s why, when we surveyed brokers last year on the most important factors when picking a bridging lender for their clients, it wasn’t the interest rate that came top. No, brokers were most concerned about fast turnaround times and round-the-clock support from a lender’s business development managers.

The changing shape of the landlord market

Our index shines a light on just how the life of a landlord has changed thanks to the PRA’s new underwriting rules, and the way lenders have responded to them.

Let’s take north London as an example, with its average current rental yield of 3.86%. Where previously you might have been able to secure a 75% buy-to-let mortgage, the revised income coverage ratios and stress tests are such that some investors are now more likely to only be able to secure a 50% mortgage. Given the massive house prices seen in that area of the country, having to put together an additional 25% deposit will be a big ask.

Liverpool has been highlighted as an area of strong rental yields

In contrast, Liverpool still represents a great option. As the index reveals, it enjoys one of the highest rental yields in the country at 5.5%. Even with the harsher stress tests employed by buy-to-let lenders as a result of the new rules, securing a 75% mortgage is relatively straightforward.

For some time now, we have suggested that the UK is likely to see a growth in the ‘cross-country landlord’ – those who own investment properties across the UK, in some cases a significant distance from where they themselves are based. The new lay of the land in the buy-to-let world is only likely to encourage more investors to adopt that cross-country approach.


Leave a comment