Although the stamp duty holiday ended last fall and interest rates have since risen to their highest levels in more than a decade, Buy-to-Let remains an attractive investment for newcomers or seasoned professionals with large portfolios looking to expand. In fact, a recent survey conducted by BVA BDRC shows that 15% of 700 landlords surveyed are want to buy more buy-to-let properties in the next 12 months and more than half of growth real estate investors plan to invest through a limited liability company. This is particularly the case in London, where the average monthly rent is now a whopping £1,698 – up almost 16% from this time last year, according to Zoopla’s latest Rent Index.
Hybrid and remote work as a result of the pandemic has fueled rental demand for properties with gardens or near public parks, which is exactly what real estate investors are looking for. As rental availability decreases and renters compete for larger homes with outdoor space, it’s likely that rental prices will continue to rise over the next 12 months.
And if the headlines are to be believed, a recession is looming, which will only fuel demand further. Why? Because in a downturn, many lenders tend to withdraw from lending to medium-sized builders and property developers. This is because real estate development is a counter-cyclical product – meaning a lender has to agree to finance something in the middle of a downturn that will be built in 2-3 years – which most are not willing to do. This means that when the market returns, there will be practically no new housing stock, as none could be built in previous years because financing could not be secured. With the UK having to develop 300,000 new homes each year to close the housing gap, this unwillingness by most lenders to lend over the cycle is a real concern and means demand for homes will still be weak in a few years’ time will be higher. All of these factors make expanding a buy-to-let portfolio all the more attractive right now.
In an increasingly competitive market, however, there is a need to be able to finance purchases quickly. It is no longer enough for investors to have their finger on the pulse of new construction projects or real estate markets. Those who can access funding quickly and at just the right time will end up coming out on top. That’s why we launched our new digital application for Investments in residential real estate. With loans ranging from £250,000 up to £3,000,000 for residential property, limited companies can now get loan terms in just five minutes, without exchanging emails or spending time on the phone – when they don’t want or need to.
The next 12-18 months will present a number of challenges for SME home builders and developers, but we want to reassure you that we are here to help and are absolutely ready to continue lending, whichever direction it takes the economy developed. If anything, we see this as an opportunity to step up and support businesses at a time when many other lenders will step down.
To learn more about how OakNorth is building growth for developers and investors, and to hear directly from our customers, click here.