For all the recent talk about an increase in the number of new first-time landlords making their initial forays into property investment, which we can certainly welcome, we can also continue to safely say that the private rental sector remains very much dominated by existing borrower landlords.
A recent review of our landlord survey, conducted by Pegasus Insight, shows how important the portfolio player is in the private rental sector, and therefore, by definition, how important portfolio operators should be to advisers.
The typical portfolio of those landlords surveyed is estimated to be worth £1.77m, generating a gross annual income of £77,000. One in five landlords who borrow owe more than £1m, while the average amount of borrowing across all landlords is around £651,000 in total, which works out at about £107,000 per average buy-to-let (BTL) loan held.
Of all those landlords surveyed, not just portfolio players, the average number of properties owned is 7.4, with just under half of these using some form of borrowing. This makes the typical property held worth £239,000, generating a not insignificant £10,405 per year, equating to £867 per calendar month in rental income.
Unsurprisingly, almost all properties being bought by existing landlords are done so within a limited company vehicle. The share of properties held by those who operate a limited company has more than doubled in the last four years – up from 36% in the early part of 2020 to 74% at the end of the last year.
We anticipate this trend will continue in that direction.
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The specific needs of portfolio landlords
For advisers, there are some clear takeaways here and they lie in the growth of portfolio landlords.
They are more likely to be buying new properties and refinancing existing ones, their use of limited companies, particularly when it comes to purchasing, the level of debt being carried by these portfolio landlords and how important securing quality advice and lower-priced products will be on their bottom line. And, of course, the likelihood they will stick around and continue to grow – the typical landlord surveyed had been letting property for close to 20 years.
It’s why lenders like us have separate products and criteria specifically for portfolio landlords. We understand how they are different to other landlord borrowers and how their needs and circumstances may well require a more nuanced and targeted approach.
It is about looking at the borrower’s portfolio, but in a way to not put any unnecessary impediments in their way. Allowing them to make the most of their existing properties, the equity held within them, and the greater likelihood they are going to want to utilise this alongside their ambitions to grow, in order to provide them with the ongoing finance they require.
Overall, this should underline just how important portfolio landlords can be to advisers, particularly the point about their longevity in the sector, but also coupled with their continued ambitions to grow their portfolios.
Reliably invested in the BTL market
A client who, at the moment, perhaps just makes the threshold for being a portfolio landlord – holds four BTL loans on their properties – is much more likely to buy and refinance more frequently, and is much more likely to be around for a long time in order to secure the long-term value of being invested in property.
From these smaller portfolio landlords, larger ones do grow.
Advisers who can secure portfolio landlords are therefore going to be much more active for longer, because the market has shifted in this direction, and the level of debt these clients carry – both individually and within a limited company – is going to be higher and therefore comes with the opportunity for a more frequent advice provision service and thus more frequent income to be generated from it.
Overall, we should all anticipate further growth in the portfolio landlord sector, and as both advisers and lenders, we need to cater accordingly for it, both now and (hopefully) for the foreseeable future.
