Rental income and demand reach record highs!

Buy-to-let has bounced back with new lenders, more products, rent hikes and demand through the roof

Buy-to-let is on a high at the moment. The sector has been recovering all year after a difficult 2008 and 2009 which saw it battered and bruised by the credit crunch and recession.

With lenders closing down left, right and centre the number of mortgage products was decimated, falling an incredible 95% from peak to trough. This left beleaguered landlords with very little choice if they wanted to remortgage.

So thank goodness things seem to be picking up now!

Tenant demand at record high

Firstly, the number of tenants looking for rental properties has reached an eight-year high, according to the Association of Residential Lettings Agents (ARLA).

It says there is a huge shortage of available rental properties as tenant demand far exceeds supply. And it reckons that the market has rebounded to levels of demand that have not been seen since the last century - incredibly, to more than double those experienced at the peak of the property boom in 2007!

This is great news for landlords with a property to rent out, and those looking to review rent levels with existing tenants at the end of a contract.

Plus, it gets better for landlords, because in the last few days a new study has shown that rental income is also sky high.

Rent levels rocket!

According to a survey from LSL Property Services, rents reached a record high of £689 per month in September after eight consecutive months of rises. This is 3.1% higher than the same time last year and surpasses the previous market peak in August 2008.

The rise in rents means that an investor buying property could now expect a total annual return of 9.2%, the equivalent of £15,592 on a typical rental property. Over the past year, the average UK landlord has made a total annual return of 10.4%, or £16,567.

This good news looks set to continue for the buy-to-let sector. Indeed, with Government spending cuts due to be announced next week and impending mortgage regulation expected to make getting a homeloan even more difficult, many wannabe first-time buyers will have to stay in rental accommodation for much longer.

The future looks bright for landlords. But what about getting hold of a decent buy-to-let mortgage? Has that become any easier?

The big boys are back in town

The biggest news of the last month has been the return to lending of Paragon Mortgages -- a buy-to-let stalwart that shut up shop during the credit crunch but has now resumed new lending.

What is particularly interesting is that Paragon specialises in catering for portfolio landlords -- those with a larger number of properties.

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There is a major lack of choice in this sector since some lenders restricted the number of buy-to-let mortgages you can have with them. In September Lloyds Banking Group announced it was limiting the number of mortgaged properties landlords can have across all its brands to three (up to a maximum of £2m).

Such restrictions make it hard for large scale landlords to remortgage, or get a new deal to expand their portfolios, so the news that Paragon is back will be very welcome.

It comes hot on the heels of a number of new launches into the buy-to-let sector. Just a few months ago Kensington Mortgages, another old-hand, resumed lending, as did Darlington Building Society, and a handful of completely new lenders have launched in the last 12 months, including Bank of China, Precise Mortgages and Aldermore Mortgages -- all offering buy-to-let deals.

More mortgage options

In fact, the mortgage choices available to landlords have doubled in the last 12 months according to financial information provider Moneyfacts, though it admits that there are still 90% fewer deals available now than in July 2007.

What is really encouraging is the number of deals available for those with a smaller deposit has rocketed in the last year. In October 2009 there were just four deals for those with only a 20% deposit, a figure that now has tripled to 12. And the number of deals for those with 25% upfront has rocketed by more than 50% from 65 to 99.

Average buy-to-let fixed rates have also fallen from 6.01% last year to 5.49% now. However, the average variable rate has actually risen, from 4.5% to 4.74%.

The fact is, the buy-to-let sector is doing more than just recovering. Some indicators show it surpasses its peak levels and mortgages are slowing catching up to help landlords take advantage of the current conditions. Below are some of the best deals:

15 large deposit deals (30% plus)

15 modest deposit deals (up to 29%) 

*London Interbank Offered Rate (0.73)

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