With rates falling, and ever growing numbers of mortgages to choose from, landlords face a promising future.
It looks like now is a great time to be a landlord.
The number of mortgages available to landlords has jumped significantly over the past three months, rising by 26% compared to the second quarter of the year, according to figures from Mortgages for Business. Indeed, this represents the third straight quarter in which the number of mortgages open to landlords has grown.
Back at the start of the year, there were just 19 lenders active in the market, with an average number of 298 mortgages available. Today, there are 23 lenders operating in the buy-to-let sector, with a whopping 508 deals to choose from.
What does this mean for landlords and the housing market as a whole?
The merits of choice
Clearly, an increase in the number of buy-to-let mortgage deals available is a boost for existing and would-be landlords. Competition leads to greater choice, giving buy-to-let investors better options for their borrowing. This is exactly what landlords have been asking for: in numerous surveys earlier this year, a lack of mortgage finance was pinpointed by many landlords as a major reason they had not been able to expand their portfolios.
And while it’s still not always the easiest of things for landlords to get hold of funding, it’s certainly improved. The underwriting process for landlords can be somewhat complex – some lenders will only deal with experienced landlords, others are more open to new landlords. By having more lenders with differingly structured deals active in the marketplace, different types of landlord are more likely to get funding.
A year of falling rates
Now, that’s all well and good, but if the new mortgages that have come onto the market aren’t particularly competitive, then it’s all just an illusion of choice.
But thankfully for property investors, buy-to-let mortgage rates are getting better too!
Analysis by Defaqto has found that both rates and arrangement fees for buy-to-let mortgages have generally fallen over the past 12 months. Here’s how they break down, based on a buy-to-let deal for borrowers with a 25% deposit.
|
Mortgage |
Average interest rate (Sept 2010) |
Average arrangement fee (Sept 2010) |
Average interest rate (Sept 2011) |
Average arrangement fee (Sept 2011) |
|
Two-year fixed rate |
5.78% |
£2,492 |
4.86% (down 1.18%) |
£2,603 (up £111) |
|
Three-year fixed rate |
6.03% |
£2,859 |
5.56% (down 0.47%) |
£2,559 (down £300) |
|
Five-year fixed rate |
5.94% |
£2,122 |
5.69% (down 0.25%) |
£1,956 (down £166) |
|
Two-year tracker |
5.01% |
£2,861 |
4.11% (down 0.9%) |
£2,300 (down £561) |
As you can see, only two-year fixed rates have seen their arrangement fees rise. Everywhere else things have fallen, making life a little easier for landlords looking to refinance or expand their business.
Another month, another new record
And the reason that landlords are so desperate to expand is that rarely has the rental market appeared so attractive. The number of would-be homebuyers forced to turn to rental properties is forcing rents ever higher.
Indeed, according to the latest buy-to-let index from LSL, rents rose in all regions of England and Wales for the first time on record, with six different regions seeing new record highs.
Here is how the different regions look in terms of average rents, and most importantly, the yields landlords are enjoying.
|
Region |
Rents September |
One month change |
Annual change |
Yields September 2011 |
Yields September 2010 |
|
London |
£1,029 |
0.4% |
5.8% |
5.1% |
4.9% |
|
East of England |
£741 |
0.5% |
0.4% |
4.8% |
4.7% |
|
South West |
£648 |
0.5% |
5.4% |
4.0% |
3.7% |
|
Yorkshire and The Humber |
£530 |
0.8% |
0.6% |
6.4% |
6.0% |
|
North West |
£577 |
0.6% |
4.4% |
7.0% |
6.4% |
|
Wales |
£564 |
0.9% |
3.9% |
4.5% |
4.1% |
|
South East |
£746 |
1.8% |
4.1% |
5.0% |
4.7% |
|
North East |
£524 |
0.3% |
3.8% |
5.1% |
4.5% |
|
West Midlands |
£550 |
0.2% |
5.1% |
5.8% |
5.3% |
|
East Midlands |
£551 |
1.1% |
4.0% |
6.1% |
5.7% |
|
England & Wales |
£718 |
0.7% |
4.3% |
5.3% |
4.9% |
Clearly then, the prospects are good for landlords. Unless house prices suddenly fall sharply, or banks decide to lend more to buyers with small deposits, the demand will remain for rented properties.
Whether you like them or not, buy-to-let landlords aren’t going anywhere.
15 fabulous buy-to-let mortgages
|
Lender |
Term |
Fixed rate |
Maximum loan-to-value |
Fee |
|
Two-year fixed rate |
3.25% |
60% |
3.5% of advance |
|
|
Two-year fixed rate |
3.69% |
70% |
£2,495 |
|
|
Two-year fixed rate |
3.99% |
75% |
3.5% of advance |
|
|
Three-year fixed rate |
4.29% |
60% |
£999 |
|
|
Three-year fixed rate |
4.35% |
70% |
2.5% of advance |
|
|
Three-year fixed rate |
4.89% |
75% |
£1,299 |
|
|
Five-year fixed rate |
4.89% |
70% |
£998 |
|
|
Five-year fixed rate |
5.39% |
75% |
3% of advance |
|
|
Five-year fixed rate |
5.49% |
75% |
£1,749 |
|
|
Two-year tracker |
2.95% (tracks base rate + 2.45%) |
60% |
3.5% of advance |
|
|
Two-year tracker |
3.79% (tracks base rate + 3.29%) |
70% |
£2,450 |
|
|
Two-year tracker |
3.89% (tracks base rate + 3.39%) |
75% |
£1,999 |
|
|
Lifetime tracker |
3.48% (base rate +2.98%) |
60% |
£1,999 |
|
|
Lifetime tracker |
3.99% (base rate + 3.49%) |
70% |
£1,295 |
|
|
Lifetime tracker |
4.49% (base rate + 3.99%) |
75% |
£1,499 |
More: A two-year mortgage will break your heart | How to buy a bargain property
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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
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