Why investing in property has become attractive again.
It's about time landlords got a bit of good news and the last few weeks have been full of bullish buy-to-let announcements.
Not only are landlords taking out more mortgages, but more deals are being launched to serve them. Landlords are also feeling upbeat about the year ahead -- and for good reason. Their returns have just turned positive for the first time in over two years.
Could it be that happy days are here again for the buy-to-let market?
Lending up
Lending in the buy-to-let sector grew in the third quarter of this year for the first time in two years, according to data published last week by the Council of Mortgage Lenders.
It totalled £2.1bn over the quarter, 10% higher than in the previous three months. The third quarter also saw the first increase in two years in the number of buy-to-let loans advanced, from 21,600 to 23,700.
Good news indeed, although let's not forget that the increases were from a very low base compared to 2007 lending levels. Still it's encouraging to see the market is actually growing.
Lending within the sector was up for both purchase and remortgage business, with house purchase lending 'appreciably stronger' according to the CML -- that's not surprising when many borrowers are reverting to low standard variable rates (SVRs) and deciding to sit tight until rates rise.
Plus with no buy-to-let mortgages available over 80% of a property's value, anybody with less than 20% equity would be unable to remortgage, whether they wanted to or not. Lucky for them that many SVRs are low!
There has also been a continued improvement in the number of arrears in the buy-to-let sector -- helped by low rates. According to the CML the number of mortgages with arrears of more than 1.5% of the balance dropped for the third quarter in a row, falling in from 22,900 to 20,500 (which represents 1.7% of outstanding buy-to-let mortgages).
The CML points out that while the recovery in the sector is only modest is does show that buy-to-let is "here to stay".
Landlords feeling bullish
The positive stats are supported by happy landlords, with many feeling much more optimistic about the sector in the third quarter of this year.
According to buy-to-let lender Paragon Mortgages, landlords expect the net value of their portfolios to increase over the next 12 months and have been taking advantage of lower house prices since the first quarter of 2007.
On average they owned 11 properties at the beginning of 2007, which increased to an average of 12 properties by the third quarter of 2009.
Plus they are feeling good about the future with a third of landlords now saying that tenant demand will grow over the next 12 months, and 57% predicting it will remain stable.
Paragon added that it is unlikely that the mainstream mortgage market will recover for a number of years and that this means that large number of people will continue to be excluded from buying, and will need to rent property.
Positive return
Landlords have even more reason to feel cheery following the latest rental index from property company LSL property services. It says that annual property investment returns turned positive in October for the first time since the UK fell into recession.
After taking rental income and the fall in house prices into account, a landlord investing in property in October 2008 would have made an average annual return of 2.4% -- the last annual positive return was in July 2007.
The rental index also showed that tenant arrears have improved -- an issue that has been a huge problem for landlords during the recession. By the end of October, arrears had shrunk to 495,000 or 14.6% of UK tenancies, the lowest level since LSL began calculating these figures one year ago.
What about mortgages?
Even more good news, the mortgage market is also improving with lenders offering more buy-to-let deals. There were just 179 buy-to-let mortgages in September and now there are 239 available, according to financial information provider Moneyfacts.
But that's still a drop of 93% from the peak of the market two years ago, when there were over 3,600 buy-to-let deals on offer.
Maximum loan-to-value ratios are still tight but there are a couple of deals available up to 80% LTV from sister lenders Yorkshire Bank and Clydesdale Bank. For any real choice though landlords still need to find 25% upfront.
This is a world away from the market two years ago where 85% and 90% mortgages accounted for 65% of the buy-to-let market. Plus lenders are still tightening some criteria, such as restricting the size of portfolios that landlords can have.
But if you want a buy-to-let deal, there are some options around -- provided you have that all-important equity of course!
Here are some of the best:
|
LENDER |
TYPE OF DEAL |
RATE |
FEE |
MAX LTV |
|
The Mortgage Works |
2-year tracker |
3.74% (Base rate + 3.24%) |
3.5% |
60% |
|
Cheltenham & Gloucester |
3-year tracker |
4.69% (Base rate + 4.19%) |
2.5% |
60% |
|
Cheltenham & Gloucester |
3-year fix |
5.39%
|
2.5% |
60% |
|
Woolwich |
Lifetime tracker |
3.99% (Base rate + 3.49%) |
1.75% |
60% |
|
BM Solutions |
2-year fix |
5.20% |
2.5% |
70% |
|
Whiteaway Laidlaw Bank |
2-year fix |
4.69% |
2.75% |
70% |
|
Whiteaway Laidlaw Bank |
3-year fix |
4.94% |
2.75% |
70% |
|
Cheltenham & Gloucester |
3-year fix |
5.94% |
2.5% |
75% |
|
NatWest |
2-year tracker |
4.99% (Base rate + 4.49%) |
£1,999 |
75% |
|
Yorkshire/Clydesdale Bank |
2-year fix |
6.99% |
£999 |
80% |
|
Yorkshire/Clydesdale Bank |
5-year fix |
6.99% |
£999 |
80%* |
*only available up to 80% LTV on a capital repayment basis. Interest-only deals are available up to 75%
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First, adopt this goal: Become a buy-to-let landlord
Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.
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 will revert to the lender's standard variable 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.