LANDLORDS ARE MOVING QUICKLY ON UNDERPRICED PROPERTIES - COLIN SANDERS - FINANCIAL REPORTER
12.09.23
Colin Sanders, Chief Executive Officer at Tuscan Capital Limited, explores the opportunities available in the buy-to-let market amid falling property prices.
The property market has been through a tumultuous period recently, but the challenges have been welcomed by some.
One trend that we have seen of late has been the growth in landlords snapping up properties at below market value.
It’s clear that the door has been opened for certain landlords, spotting the opportunity to expand their portfolios and set themselves up for more long-term returns from the property market.
Spotting the opportunity
In many cases, the properties are changing hands between landlord owners. The big difference though is they are generally being sold by amateur landlords, those with only a couple of properties or little experience, and being purchased by portfolio/professional players.
There are all sorts of different factors driving these deals. Rising arrears is an important one; the latest data from UK Finance shows just how much of an emerging issue this is becoming. It found that in the second quarter of this year, there were almost 9,000 buy-to-let mortgages in arrears of at least 2.5% of the outstanding balance, a jump of 28% on the previous quarter.
That rise is even more significant when you focus on landlords with the ‘lightest’ levels of arrears, meaning between 2.5% and 5% of the balance. The 4,810 buy-to-let mortgages in this category represents a jump of 41% on the previous quarter.
With far more landlords now facing issues making their repayments, it’s little wonder that some are not only keen to sell up the property but accept an offer below market value in order to conclude a deal quickly. Getting the property off their hands as soon as possible is the priority, rather than holding out for the highest offer possible.
It’s not just those in arrears who are selling up in this way, however.
There’s also a swathe of landlords counting the cost of the recent spike in interest rates and the impact it has had on them meeting the interest coverage ratio requirements of lenders should they look to refinance.
Recognising that the only way to make the sums add up would involve hiking the rents they charge to levels that might not be achievable in today’s rental market, they are instead opting to sell the property.
And then there are those who are concerned about the incoming energy performance certificate (EPC) requirements. As it stands, and this is yet to be set in stone, we believe from 2025 newly-tenanted properties will need to have at least a C rating on their EPCs, with this expanded out to existing tenancies from 2028. Although there are some rumours this may actually change to a blanket approach for all tenancies, but from the later date – 2028.
Whatever the dates might be, given the cost involved in bringing some properties up to this standard, there are landlords who instead see this as an opportune time to sell up and move on.
Professionals making their play
While these all represent challenges to amateur landlords, the attitude among professional landlords is rather different. There is a significant community of professionals who see this as a real opportunity to put their portfolio on a firmer footing for the future.
For example, it’s not uncommon for properties coming to market to be in need of some refurbishment work in order to bring them up to a level that will draw in tenants willing to pay a higher rent. We have seen cases where an inexperienced landlord has not done much with their property, not had a programme of refurbishment to ensure that it delivers on their investment.
By contrast, the professional spots ways to add value. It may only take some light improvement work to deliver a significant improvement in what it could command whether it’s being sold on or retained as an ongoing rental.
Delivering for investors
That approach does rely on being able to move quickly, however.
The underpriced property may represent a real bargain today, but if it’s on the market for too long it will inevitably attract attention from a greater number of potential buyers. That competition could drive the price up, making it less appealing to the investor.
As a result, it’s crucial for brokers to work with lenders that they can trust to deliver swiftly.
Pinpointing lenders with a track record of quick turnarounds such as Tuscan, and who have reliable funding and processes, will mean that brokers can support their landlord clients in clinching those purchases at the best possible price.
Read the full article on Financial Reporter.
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