Landlords are being wildly optimistic about the potential of the buy-to-let market. Stop kidding yourselves - you're still in for a rough time, says Christina Jordan.
The buy-to-let sector punches above its weight in terms of press coverage -- it always has done. But because there is a near-daily churn of press releases, news stories or statistics about the topic it can be difficult to sort the wheat from the chaff, and to work out what's really happening. For every positive green shoots story, there is another that week from the doom-mongers talking of a sector in strife.
So what's going on?
Good news stories
In the last few weeks there have been loads of positive noises coming from the buy-to-let sector. Yes, most of them are from parties with a vested interest, but they still show that not only are lenders and trade bodies feeling good about the future, but so are the landlords they lend to.
According to property portal findaproperty.com, long-term landlords have been rewarded in October as the rental market has strengthened.
It said the stock of rental properties plummeted by 10% between September and October, as 'accidental landlords' made the decision to sell their properties. These were the people that decided to rent out their homes because they couldn't achieve the asking price that they wanted, boosting the supply of rental properties on the market. The trend is now reversing -- good news for 'non-accidental' landlords.
Average rents have also risen slightly by 0.1% to £830pcm in October, the sixth consecutive month of stable or rising rents according to findaproperty.com. Plus properties are being let within an average of 58 days, the shortest time since the start of the year (though it is the student boom period!).
Rental returns
LSL Services which owns the UK's largest lettings agent network, including national chains Your Move and Reeds Rains, also reckons rents have been rising in the last few months.
It says they have jumped a significant 13% over the last 12 months with London and the South East seeing the strongest recovery. It pegs the average UK rent at £669.
It also points to increased demand for rented property from thwarted first-time buyers, who are unable to secure mortgage finance to buy and have to continue renting. The organisation estimates this has pumped an extra 200,000 renters into the system.
The feel-good factor is also affecting landlords, with more now planning to increase their property portfolios according to Paragon Mortgages.
In its latest quarterly survey the lender said that 14% of landlords expect to purchase investment property in the last quarter of the year.
And they now predict the first increase in portfolio values for more than two years. In other words landlords now believe that house prices have bottomed out.
The Association of Residential Letting Agents have recently released figures that support the trend of landlords increasing their portfolios and the National Landlords Association said that its own members have for some time been noting improving conditions in the market, and saying they are keen to make new acquisitions.
Great, so the buy-to-let sector is back on its feet then according to the organisations that represent it anyway. But, let's not get carried away.
Doom and gloom
Despite the apparent green shoots in the rental sector, the picture isn't a completely rosy one.
Indeed tenant arrears are still causing headaches for many landlords, according to the National Landlords Association.
Research conducted by the NLA, reveals nearly three-quarters of landlords have experienced rental arrears, and worryingly, 43% of these occurred in the last 12 months.
Of course, if tenants are struggling to pay their rent this impacts directly on landlords' ability to cover their mortgage repayments as well as finding the cash to cover necessary maintenance on properties.
As a landlord you can take out rental guarantee insurance to cover yourself in case tenants are unable to meet their rent, but are also advised to keep in regular contact with tenants so they feel they can come to you early if they are having any financial problems.
Another big concern for buy-to-let landlords is the regulator's plan to bring buy-to-let mortgages under full statutory regulation. While this is intended to offer protection and transparency to borrowers, the reality with most regulation is that it costs a lot of money. And this cost is almost always passed down the chain to land at the borrower's feet in the form of increased rates and fees.
With the buy-to-let sector still pretty delicate this could cause huge problems for landlords. And it is made worse by the fact that many in the sector do not want, or feel they need, extra regulatory protection.
Finally, mortgages are not exactly easily accessible or competitive for buy-to-let borrowers at the moment, with new deals still unable to rival many lenders' standard variable rates. In other words it makes sense for many borrowers to stay put on SVR than to refinance. Some are simply unable to refinance because changing loan-to value criteria now means they do not have enough equity in their property to get a new deal -- at least 25% in the current market.
This is all well and good while Base Rate is low at 0.5%, but it will rise and many buy-to-let borrowers are currently exposed to the threat of heavily increased repayments.
If you do have the 25% needed to get a new deal there is little on the market, with Nationwide's The Mortgage Works (TMW) and BM Solutions doing the majority of buy-to-let lending. You should also be aware that arrangement fees are currently sky high.
Below are some of the best deals for those who want to, and are able to, refinance.
|
LENDER |
TYPE OF DEAL |
RATE |
FEE |
MAX LTV |
|
TMW |
2-year tracker |
3.74% |
3.5% |
60% |
|
BM Solutions |
2-year tracker |
4.10% |
3% |
60% |
|
C&G |
3-year tracker |
4.69% |
2.5% |
60% |
|
TMW |
2-year fix |
4.99% |
3% |
60% |
|
C&G |
3-year fix |
5.39% |
2.5% |
60% |
|
Woolwich |
Lifetime tracker |
3.99% |
1.75% |
60% |
|
Coventry BS |
2-year fix |
5.20% |
£1,250 |
65% |
|
TMW |
2-year fix |
5.19% |
3.5% |
70% |
|
C&G |
3-year fix |
5.94% |
2.5% |
75% |
|
NatWest |
2-year tracker |
4.99% |
£1,999 |
75% |
|
C&G |
3-year tracker |
4.99% |
2.5% |
75% |
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