This week saw Santander launch its first buy-to-let (BTL) mortgage deals. It's the latest in a long line of lenders either returning to or entering the BTL market.
It’s a sector that’s certainly booming at the moment. In fact, some lenders seem to prefer it to the residential mortgage market. That's because rents are rising, void periods are low and first-time buyers are effectively shut out of the mortgage market. All in all, it’s boom time for landlords.
Santander is not the first lender to enter or re-enter BTL this year. Skipton Building Society returned to the market in March after withdrawing from BTL two years ago during the credit crisis. Meanwhile Yorkshire Building Society launched its first BTL deals in August and several other lenders have re-priced BTL deals to make them more competitive.
Mortgage deals
Santander is offering buy-to-let mortgages through its intermediary brand Abbey for Intermediaries. In other words, you can only get one of these deals via a mortgage broker. You won't be able to get them if you walk into a Santander branch.
Santander is targeting its offering at non-professional landlords who have no more than three BTL properties. The bank offering two BTL mortgages: a two-year fixed-rate at 4.29% at a maximum loan-to-value (LTV) of 40%, and a two-year fix at 5.19% at 75% LTV.
The rates are a bit higher than rivals. Elsewhere in the market you can pick up a two-year fixed deal at 3.59% from Nottingham Building Society while Nottingham also offers a variable rate deal at 3.29%. The maximum LTV for both mortgages is 60%.
In the higher LTV bracket, Skipton is offering a two-year variable rate at 3.89% at 70% LTV.
Rising rental yields
The latest figures from the Royal Institution of Chartered Surveyors show that yields on rental properties are still rising as a result of increased tenant demand and rising rents.
RICS’ latest Residential Lettings Survey shows that in the three months to October, 15% more chartered surveyors reported rental yields rose rather than fell. This is the seventh consecutive quarter that yields have increased and reflects the imbalance between rental demand and supply which is continuing to push rents higher. However, the pace of growth was more moderate than earlier in the year.
Demand and supply
Demand from tenants for rental property is set to increase too. Letting agent Haart is predicting a dramatic increase in the number of people renting in 2012.
The firm says the number of applicants registering at its branches has increased by 10% over the past three months and it thinks this trend will continue over the next 12 months. The lettings agent says there are as many as 10 rental applicants for every rental home at the moment.
Haart also says it’s seen an increase in enquiries from prospective landlords looking to invest in BTL, and says rental yields of between 5 and 10% are achievable in some parts of the country.
Experts say the increase in tenants is due to several key reasons including potential first-time buyers finding it difficult to get a mortgage, lifestyle choices and social housing reforms.
People are forced to rent for longer as lenders restrict mortgage availability and tighten lending criteria on the mortgages they do offer. A big deposit is necessary to be eligible for the best mortgage deals but as rents go up, it’s getting harder for first-time buyers to save for a deposit – creating a vicious circle.
Moving costs
It’s certainly tough for tenants at the moment. If saving for a deposit wasn’t difficult enough, a report published by the Resolution Foundation last week found that tenants were paying upfront costs of up to £2,000 every time the move house.
A month’s rent upfront and a month’s deposit take up the majority of the upfront fees with the rest made up of lettings agents’ administration charges.
The study found that administration fees ranged from £95 to £375 across the country with some costs bearing no relation to the work involved. Currently neither letting agents nor landlords are regulated meaning both can charge what they like to tenants desperate to get a roof over their heads.
BTL best buys
Before I finish, here's a table with the best BTL mortgages on the market:
|
Lender |
Initial rate |
Mortgage type |
Max LTV |
Fee |
|
Nottingham BS |
3.29% |
Two-year variable |
60% |
£1299 |
|
Nottingham BS |
3.59% |
Two-year fix |
60% |
£1,999 |
|
Skipton BS |
3.89% |
Two-year variable |
70% |
£1,240 |
|
Bank of China |
3.88% |
Variable for term |
75% |
£1,895 |
|
Coventry BS |
3.99% |
Two-year fix |
65% |
£950 |
More: Avoid squatters this Christmas | Number of people renting set to increase
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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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