Even today, with demand for desirable properties at an all-time high, there is no such thing as a safe haven for landlords. Nevertheless, research conducted by Aviva suggests that as much as 10% of the adult population in the UK could be planning an investment property purchase over the next 12 months.

Anyone looking to get into the buy-to-let market will understandably have a robust and reliable ROI as their top priority. Accelerating house prices and tax hikes are making it more difficult than ever to turn a profit as a landlord in the UK.

Nevertheless, those who invest in the right kind of property in the right place have every opportunity to generate strong and reliable annual profits. According to the latest figures published by Coulters Property, there are some corners of the UK that are offering BTL investors average returns in the region of 3%, adding up to an annual profit of over £6,000 in some areas.

According to Coulters Property, these are currently the 10 best places in the UK to invest in a BTL property, on the basis of the potential annual profits generated:

Rank	City	Profits Per Year (£)	% ROI
1	Preston	£5,256	2.98%
2	Coventry	£6,033	2.74%
3	Glasgow	£4,836	2.67%
4	Swansea	£4,478	2.54%
5	Dundee	£3,965	2.47%
6	Manchester	£5,015	2.14%
7	Paisley	£2,746	2.12%
8	Leeds	£4,339	1.90%
9	York	£5,405	1.85%
10	Stoke-on-Trent	£2,481	1.73%

Preston came out as the surprise winner in the rankings, where average property prices are currently hovering around £176,378. With average monthly rents coming out at £981 per calendar month, this translates to a healthy £438 profit per month and £5,256 per year.

Cities in Scotland performed particularly well in the rankings, with the likes of Paisley, Dundee, and Glasgow all generating healthy returns on BTL investments.

Notable in its absence is London, which has traditionally been seen as the Holy Grail for investors looking to generate the biggest possible profits on their BTL investments. However, as property prices across London continue to climb to astronomic all-time highs, it is becoming increasingly difficult for landlords to generate viable profits, even where monthly rents are equally enormous.

A report published by the Climate Change Committee in June set out a series of urgent climate change risks while outlining opportunities for their mitigation. The report concluded that policy initiatives currently in place will achieve no more than 20% of the required reductions in emissions by 2050.

Consequently, there are those who now believe it is the responsibility of the people operating within the private sector to front the transition to sustainability and ultimately achieve net-zero targets.

“The past year has seen a host of pledges, promises, and policies emerge to incentivize the transition to the green economy. It is a step in the right direction on paper, but the practical implication of each is difficult to measure,” writes Ding Li, Senior Strategy Consultant at Longevity Partners.

“There are a number of competing guidelines and reporting frameworks for reaching net-zero carbon in the real estate sector, each with differing methodologies and timeframes, making it difficult to work out what these commitments mean.”

“Organisations should proactively audit their operations to set their own carbon reduction targets. It is becoming increasingly straightforward for businesses to begin their journey to net zero. Adopting best practices in ESG will always serve as an advantage in the long term, as regulation and legislation will catch up regardless.”

The role of the real estate sector

It is estimated that at least 30% of all CO2 emissions generated annually originate from the built environment. A report from the CCC suggests that in the UK, 17% of all greenhouse gases are produced by buildings. In order for net zero to be reached by 2050, the UN Environment Programme has stated that building emissions will need to be reduced by at least 50% by the end of the current decade.

“Policymakers and legislation will demand this sooner or later regardless of business practices; therefore, it is strategic to pivot towards net zero pre-emptively,” writes Ding Li.

“The results of net-zero measures equally generate significant financial returns in the long term. Property developers managing environmental and regulatory risk will drive greater value as they are taking a comprehensive and strategic approach to their portfolios.”

“Indeed, 88% of investors believe companies that prioritise ESG initiatives represent better long-term return prospects. And as a result, assets in sustainable investment products in Europe are forecast to outnumber conventional funds by 2025.”

Sustainability is a priority for most

A poll conducted by JLL on 1,000 senior executive leaders worldwide found that sustainability is one of their top priorities going forward. A further 83% stated that they were looking into ways to innovate and accelerate their sustainability strategies, having acknowledged real estate sustainability as a key priority.

Just 6% said that they currently saw themselves as ‘leaders’ in the field of monitoring and measuring the environmental impact of their properties.

“This decade is seen as the tipping point for climate change. With the built environment responsible for nearly 40% of global carbon emissions, reducing the environmental impact of real estate is a key priority for investors and corporate occupiers,” writes JLL.

 

A client approached UK Property Finance seeking a bridging loan of £2.25 million to cover the purchase cost of investment properties, carry out refurbishments, and later sell the developed properties for a profit.

The client wanted to take funds out of his unencumbered buy to let London property, although the tenants of the property had COVID-19. The client needed to move this forward quickly; therefore, we applied with Hope Capital, who agreed to carry out a drive-by valuation.

In order to meet the client’s deadline, it was paramount that all parties worked together to answer all points quickly and efficiently. This was completed by members of staff at UK Property Finance, Hope Capital, and the lender’s legal team, Freeth’s.

Swift turnaround

Laura Carr, Head of Underwriting at Hope Capital, commented: “It’s always a pleasure working with our friends at UK Property Finance and Freeth’s. Swift and transparent communication was key to ensuring we could get this deal across the line in time. A huge thank you to Lisa and Sian at UK Property Finance, Luke at Freeth’s, and everyone else involved who helped us pull this case off so quickly and efficiently.”

Sian Taylor, Processing Executive at UK Property Finance, commented: “Working alongside the team at Hope Capital was a joy; they were very efficient and worked quickly to resolve any issues that arose during the process. The client wanted fast finance, and that is exactly what was delivered by the team at Hope Capital and everyone else involved. The smooth process delivered by Hope Capital was a relief to the client and to the processing team at UK Property Finance.”

If you require property finance through a bridging loan, contact the team at UK Property Finance for a quick and efficient solution.

First-time buyers looking to get on the property ladder without a conventional mortgage now have the option of an innovative new scheme from Way Home. Albeit, with a significant stamp duty catch and major restrictions on subsequent home improvements,

The new scheme will enable first-time buyers to purchase a property with a 5% deposit without having to obtain a mortgage. Announcing the initiative, Way Home said it will form partnerships with home buyers on their purchases, with the buyer responsible for paying a deposit of 5% to 30% and the company covering the rest of the costs.

After this, the buyer pays a monthly rent to Way Home on the basis of the outstanding amount, rising annually in accordance with inflation. The buyer will also have the opportunity to pay lump sums to Way home to increase the share of the property they own over time.

It is essentially a slightly new take on the classic rent-to-buy model, where the ‘buyer’ makes a continuous series of payments to increase their ownership stake in the property. But with 5% deposit mortgages now available on the High Street, under what circumstances would a rent-to-buy agreement with Way home be preferable?

A case of qualification criteria and loan size

Quizzed on the benefits of the scheme, Nigel Purves, chief executive of Way home, says applicants will be able to borrow much more than would be possible with a conventional lender.

With most high-street loans, first-time buyers are restricted to no more than around 4.5 times their annual income. With the Way home scheme, they will have the opportunity to move into homes valued at up to eight times their annual income.

This could subsequently give first-timers the buying power to move into much more desirable homes rather than settle for basic ‘ starter homes’ on the basis of affordability.

According to Way home, properties eligible under the scheme will be priced between £200,000 and £500,000, in a guaranteed good state of repair, and will require no major building works or alterations. They will also be located exclusively in desirable areas in 41 locations across the country.

“If you can get the size of home you want in the location you want with a mortgage of four times your income, we tell people that, obviously, they should take advice, but that is something they should probably do if they can,” commented Nigel Purves.

“The problem is that most of our customers are living in areas where properties are six to seven times their income or more, and the only way to bridge that gap is by saving for decades or having family members able to help you, which of course most people don’t have.”

Terms and conditions apply

As for the catch, various restrictions will be placed on those purchasing properties under the Way home scheme. For example, major renovations and structural adjustments to properties will not be permitted, such as putting in a new kitchen or building a conservatory.

In addition, buyers will face top-band stamp duty liability, the same as if they were purchasing a second home. In addition, Way home will only allow its customers to build a maximum 40% stake in the property they live on.

“We expect there will be some people who see it as a way to access a property now that they would only have been able to get with a mortgage in ten years’ time: they will chip away at the equity and their salary may increase, and eventually they will be able to get a conventional mortgage and buy us out,” Purves explains.

“Others we think will find during that time period that they might want to change location, they might want to move to somewhere less built-up, maybe where their income to value ratio is lower, and therefore they will ask us to buy their stake back off them, and they will go and buy a home somewhere else.”

It may appear a bizarre concept on the surface, but student BTL mortgages do exist, the idea being that with a ‘student mortgage’ you purchase a property with no down payment and earn money by renting it out to your friends.

Only because it is technically possible does not necessarily make it an appropriate pathway for most students; covering living costs is a real concern for most university attendees, but purchasing a property to rent out is not without its complexities.

An interesting proposition

Several small lenders have put together a range of innovative products aimed exclusively at students. Examples of this include Bath, Loughborough, and Vernon building societies, all of which provide students with the opportunity to buy a home with no deposit required.

Those taking advantage of the products will subsequently be able to rent space in their properties to other students in order to cover the mortgage payments.

‘Mortgages and students are not usually two things that you’d associate as a package,’ commented L&C Mortgages associate director, David Hollingworth.

‘Students are unlikely to have much if any income and therefore will always struggle to meet the primary requirement of a mortgage lender in demonstrating affordability to take on a mortgage,’

‘They also aren’t likely to have a deposit to use a buy-to-let mortgage, let alone the minimum income or homeownership that many lenders would expect,’

‘These issues have seen some lenders offer students a chance to buy a property rather than rent, but with the help of their parents.’

How the scheme works

Eligible applicants are offered a loan to purchase a property with an LTV of 100%, meaning no deposit is required. A guarantor is required to co-sign the mortgage agreement along with the student, typically a family member.

The funds can subsequently be used to purchase a property and rent out spare rooms to friends or other students. From there, monthly payments are collected to both cover the mortgage repayments and make money to cover the owner’s living costs.

‘’The mortgage amount is based on the rental income the property could yield from letting out the spare rooms.

‘The guarantor will be on the mortgage deeds but not on the property deeds, and their income can be used to help the application,’ explains Chris Sykes, associate director and mortgage consultant at Private Finance.

‘If no deposit is available, then the guarantor can either put money on account with the lender to the value of 20 per cent of the mortgage or they can use their own home as security for the loan.’

An attractive initiative, but must be carefully considered from a longer-term perspective. The ongoing costs of homeownership are at an all-time high in the UK, as are those of running a BTL business of any kind.

Anyone interested in becoming a student landlord is therefore advised to seek independent broker support in order to establish their suitability and determine whether it is something they can realistically afford.