Buy-to-let booms despite mortgage squeeze

Property values are depressed and tenant demand strong, so is this the right moment for investors? Sarah Davidson reports

It's hard to call a surge of activity in such a subdued economy a frenzy but as far as success stories go in 2012, buy-to-let is one to watch.

Mortgage lenders, still cautious about lending to residential borrowers, are stepping up their efforts in the investment side of residential property. And more finance means more opportunities for would-be landlords.

David Whittaker, a director at buy-to-let specialist Mortgages for Business, says this year is set to be a good one. "Buy-to-let is one of the few segments of the mortgage market that is really flourishing and investors are seeing strong returns," he says. "Yields on buy-to-let are much stronger than in other asset classes, which is tempting an increasing number of investors into the market."

Research suggests at the end of last year investors were seeing yields of 6.1 per cent on so-called "vanilla" buy-to-let, semi-commercial yields of 7.8 per cent, and for complex investments with multiple tenants, yields were pushing 9.9 per cent. Mr Whittaker adds that with lenders keeping a tight grip on residential mortgage finance the backlog of buyers confined to the rental sector has pushed demand for rented property "astronomically high", supporting rents.

On a national basis LSL Property Services, which owns estate agents Your Move and Reeds Rains, said rents rose 4 per cent in 2011 and experts say regional "hot spots" could see an uplift of around 5 per cent this year. On a monthly basis LSL says rents are starting to plateau.

Meanwhile, lenders are piling back into buy-to-let because low interest rates, depressed property values and strong tenant demand make the perfect storm for investors. In the past fortnight Santander has cut rates on its just-launched buy-to-let products, Co-operative Bank has committed to lend £600m in the sector and Paragon Mortgages, the specialist buy-to-let lender, has launched 50 new deals for professional landlords.

Rightmove's Miles Shipside says there are nearly three times more buy-to-let mortgage products available than two years ago. "With low yields on most alternative investments, 2012 is potentially a good year for investor landlords to expand their portfolios," he claims.

Mortgage rates on low loan-to-value buy-to-lets start from around 2.94 per cent for a straightforward deal and for landlords with less cash to splash more options are opening up. Leeds and Aldermore have both launched deals for those with a 20 per cent deposit in the past two weeks joining The Mortgage Works – part of Nationwide – and Kent Reliance. Rates for 80 per cent LTV deals are much higher but, advisers suggest, still represent good value. They tend to start around 5.69 per cent and fees range from £199 to £1,999.

Hugh Wade-Jones, a director of mortgage broker Enness Private Clients, says some lenders are also becoming more flexible on how they assess investors applying for a mortgage – moving to a balance of rental income guarantee and personal income. "Some lenders are stating rates and criteria improved for people earning above a certain level," he explains.

It is worth remembering that buy-to-let is a commercial investment decision and the experts warn that you must do your research properly.

Rents and tenant demand vary locally affecting the likelihood and length of void periods. Local unemployment and cuts in public spending can also impact on tenants' ability to pay and LSL research shows 10.7 per cent of all rent was either late or unpaid at the end of last year.

John Heron, the managing director of Paragon, explains: "Buy-to-let is not an investment in the normal meaning of the word. It is a commercial activity regardless of whether you have one or 100 properties.

"If you are new to buy-to-let, get financial advice, join a landlord association and get accredited."

general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before