The professional adviser can make a real difference to a buy-to-let client, argues Richard Tugwell, head of intermediary sales at Northern Rock
As the mortgage market shows no sign of the long awaited revival and the housing sector continues to flatline, brokers continue to look for additional business opportunities. Many have diversified their offerings into protection insurance and debt management. Yet there is an area of the mortgage market, which is not only growing but where broker expertise is definitely required, and that market is buy-to-let.
Both the Bank of England and the Council of Mortgage Lenders (CML) confirm the growth of the buy-to-let market, with the 16% rise in June’s gross mortgage lending being attributed directly to buy-to-let demand.
The CML’s chief economist, Bob Pannell, also points to the buy-to-let market as the major growth area in the statistics released by the CML in July, noting increased landlord activity on the back of rising rental demand. He predicts that buy-to-let will prove to be a major component in underpinning the market this year.
The credit crunch led to restricted mortgage availability, as well as tighter lending rules, resulting in reduced consumer confidence in house purchase. This has been the catalyst for an increasing consumer demand in the rental sector, illustrated by rising rental prices. This combination of lower property prices and higher rents has led to aggregated rental yields of up to 5.2% in certain areas and higher in certain local hotspots, according to research published by Findaproperty.com.
For the intermediary, choice of lender is certainly not a problem as many lenders have responded to the demand and launched or refreshed their buy-to-let offering, to make the most of what they perceive as a progressive sector of the market. But the matter of providing the best advice becomes even more important when the amount of choice can lead to confusion over which is the best product for a client’s circumstances.
Intermediaries keen to build business in this area need look no further than existing clients seeking greater income returns and the opportunity to build a retirement portfolio. Working in concert with local estate agents and letting agents keen to secure badly needed sales, can generate a valuable prospect bank, whilst the increasing stable of professional landlords with growing portfolios of property need professional advice to make the most of their assets through refinancing. By far the most common prospect will be the first time landlord, or those with one or two properties, where property management is not their full time occupation.
So where can a professional adviser make a real difference to a buy-to-let client?
By helping a customer understand the legal and financial implications of buying property to let – maintaining an emergency fund to cover void rental periods – insurances to minimise risk, the advantages of longer term tenancies as well as demystifying Assured Shorthold Tenancy agreements. Also, by getting a competitive rate – aiming to provide the deal that offers a good balance between cost and flexibility:
* Fixed rates are as low as they have ever been and present an opportunity to lock in outgoings providing peace of mind and a guaranteed pay rate for many years
* Tracker rates are also attractive and provide healthy short term returns whilst retaining the flexibility to switch lenders and restructure portfolios.
Many lenders look for proof of personal income (not rental income) and it is worth making sure there is proof before applying.
Buy-to-let has proved to be not only resilient in the face of the wider economic downturn, but has demonstrated that given the right conditions it can be a growth area and market conditions are looking increasingly favourable.
For intermediaries not operating in this sector, it is worth considering investing a little time with the prospect of opening up a new income stream.