UK Property Market – Is It Better To Be The Landlord Or Lender?

When it comes to investing in property, there are a number of ways to do so. Each has its own positives and negatives, some change the investors’ role with the property and also their capital risk. In this piece, we ask the question, is it better to be the Landlord or Lender?

Landlord: Buy To Let Mortgages

Becoming a landlord in the UK by using a Buy To Let mortgage has proven to be a very promising way to increase monthly income, and has been an incredibly popular choice for private investors for years.

A ‘Buy To Let Mortgage’ is a mortgage secured against a property for non-personal usage with the objective of renting the property out to tenants whose rent will then pay the mortgage plus regular monthly income for the landlord, offering a return on the mortgage investment. Theoretically.

Positives include long term investment and possible capital growth, the ability to generate income and meet mortgage repayments and offset some costs against tax as well as the option to create a leverage portfolio. Equally, when solely looked at from a cash-on-cash basis, yields can reach high single figure levels.

However, there are a number of potential negatives when it comes to buy to let mortgages and the wider buy to let market as well. As a private landlord you (or your letting agent) are responsible for finding tenants, which can take time, leaving you with the costs of the mortgage and no return from your investment right away, you may also find that there is not a huge amount of choice about who the tenants eventually are, which can be troublesome. As a landlord, it is your responsibility to maintain the property to a liveable standard and meet the increasing burden of legislation, which again can become costly. Whilst this was all bearable, the increasing impact of Article 24 is further stripping profitability. And all this on top of continued low interest rates and the continued high house prices. Equally, and has been seen on previous occasions now, an increase in interest base rates could quite easily push profit into a loss. And don’t even get us started on capital loss and negative equity risk…

Of course, this doesn’t put all BTL landlords into the same pot, as those already entrenched in the market for some time will have lower exposure due to lower prices paid, yet the genuine question should be “is now the right time to move into BTL”?

Lender: Structured Property Investments

Sector: DRS (Direct to Rental Schemes) & PRS Schemes (Private Rental Schemes)

DRS and PRS Schemes offer investment in the development of large professional communities that are sold directly into the hands (and portfolios) of medium-sized wealth investors and, increasingly, private clients as managed buy to let purchases. PRS Schemes (Private Rental Schemes) differ from DRS in one simple characteristic – ownership.

Whilst a DRS project may be professionally managed and let, there is usually a wide range of individual title owners. In contrast to this, a PRS project remains in the hands of a single, invariably Institutional owner such as Sovereign wealth or Investment funds. In many instances, these projects will be developed under a direct forward funding deal between the institution and the developer. Benefitting from the same amenities and facilities as the DRS projects, this sector is closed to the private investor at the construction and title stage.

One of the most appealing positives to DRS & PRS schemes are the high-value facilities for tenants to use, such as gyms and high-speed fibre internet. Professional tenants are drawn to the purpose-built schemes where there are often built in management and letting facilities as well as prime city centre locations. An interesting BBC article highlighted the trend of Generation Y back towards urban centre living, and this means ever increasing demand for rental properties.

When it comes to DRS schemes the purchase cost can often be an issue for a private investor. PRS schemes are not usually open for private investors at construction and title stage.

Loan Notes

Investors put forward funds for developers at the beginning of a project, with an agreed amount to be paid back with interest over a certain period of time.

Loan notes offer security for investors so long as there is a charge over the asset which states that in the event of default, the asset will be repossessed on behalf of the group of investors – the charge effectively acting as security in the same manner as the banks would extract for a mortgage. As long as the due diligence is done correctly, this approach to investment can often provide a high-yielding, less capital intense way of benefitting from the dominant market trend.


This is where the research pays off – security of the loan note being asset specific or rolling charge, asset and liabilities being clearly balanced, a developer with a track record and clear method. Not all loan notes are the same yet many investors are still wowed by a high-interest rate over the more key details of security and structure.

Landlord Or Lender?

Ultimately, the market is becoming increasingly difficult for private landlords to thrive. The competition from the buying power of major developers and institutions is brutal. A suburbs based 2 up, 2 down can struggle to compete with a prime riverfront luxury apartment building, and there is little to suggest there is an enormous price differential either.

As such, for many BTL property buyers, the appeal of secured property investments is just too great to resist as the higher income is more than competitive to the yields of BTL, the security offered is solid and the typical BTL factor of capital growth is no longer assured due to the current highs on house prices. When you consider the positives and negatives of each option, it’s clear to see that not all investment opportunities are created equally, with DRS showing clear advantages over direct BTL and some structured deals clearly superior to others.

When it comes to making investments in real estate, it’s important to be armed with as much information and research into the opportunity as possible. Our team are experts in their field and are ready and available to help you make the best investment decisions possible, get in touch here.

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