Find out the key trends opening doors for mortgage advisers to secure business and assist landlords
Average rental yields in the UK have reached a 10-year high of 6.3%, Foundation Home Loans has reported.
According to the Q2 2024 Landlord Trends report conducted by Pegasus Insight on behalf of the specialist lender, 82% of landlords described tenant demand as strong.
“Despite a challenging market environment, landlords are finding ways to maintain profitability and expand their portfolios,” said Grant Hendry (pictured), director of sales at Foundation Home Loans.
“Average rental yields increasing, the ongoing preference for limited company ownership and high tenant demand are all encouraging trends which keep on emerging and should provide mortgage advisers with opportunity to secure business and help landlords navigate the market.”
The study found that 60% of landlords borrow to fund their portfolios, with the average landlord holding 5.3 loans. Among those with over 11 properties, the average number of loans rises to 14.4.
The report, based on 799 online interviews conducted between June and July 2024, also revealed that over a third of landlords plan to remortgage or undertake a product transfer in the next 12 months, with an average of 2.5 products expected to be refinanced. Of those, 38% have one mortgage to refinance, 34% have two, and 7% have over five mortgages due for maturity within this period.
“There is clearly a significant remortgage market to target in the months and weeks ahead, with a number of the landlords surveyed outlining how they had multiple mortgages coming to an end which will need refinancing,” Hendry said.
“In an interest rate environment which has seen some falls already, we believe the opportunity to remortgage is now greater than in the last couple of years, and we’ll see a growing cohort of landlord borrowers able to remortgage to a different lender rather than simply having to accept a product transfer.
“Again, this presents a strong opportunity as it doesn’t just bring the remortgage into ‘play’ but clearly the opportunity to talk to existing landlord borrowers about any other product/service wants and needs they might have.”
Meanwhile, the average landlord borrower now owes £665,000, which equates to approximately £125,000 per buy-to-let mortgage. Borrowing varies significantly, ranging from £268,000 for non-portfolio landlords — those with one to three buy-to-let mortgages — to £1.16 million for portfolio landlords. Notably, one in five landlords owes more than £1 million.
Foundation Home Loans noted that the volume of mortgages coming up for remortgage, along with the amounts owed, presents a significant opportunity for mortgage advisers to offer competitive refinancing solutions and earn substantial procuration fees.
The report also identified a continued preference among landlords for limited company ownership, especially for new purchases, with 67% of new acquisitions now held within a company structure.
Additionally, 10% of landlords intend to increase their portfolios in the next 12 months, with 67% planning to use a buy-to-let mortgage, 31% to release equity from existing properties, and 29% to purchase outright. Smaller percentages will use commercial loans or funds drawn from pension pots.
The incidence of rental increases has tripled over the last four years, with 74% of landlords raising rents in Q2 2024. This trend is driven by rising portfolio management expenses and increasing mortgage costs.
The report also explored the potential impact of rent controls and other legislative changes on the private rental sector. It found that 55% of landlords believe rent controls would significantly affect their commitment to renting, with one in three considering selling their properties if such controls were introduced. However, landlords expressed less concern about other potential regulatory changes, such as bans on specific tenant types or the abolition of fixed-term contracts.
“As the market evolves, we would urge advisers to stay informed about regulatory changes such as potential rent controls and the removal of Section 21,” Hendry said.
“By providing expert advice and comprehensive mortgage solutions, advisers can help landlords navigate these challenges and capitalise on opportunities, ensuring the continued growth and profitability of their portfolios.”
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