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
Sunday 29 January 2012
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."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Liam Neeson's Downton dreams
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 Scottish independence live: Scotland gives a clear 'No' in historic referendum - as it happened
- 3 iOS 8 is full of shiny new features - but it's terrible news for app developers
- 4 Friends 20th anniversary: Six things we wouldn't have without influential comedy series
- 5 Scottish independence: Tory revolt against 'devo max' grows as Rail Minister Claire Perry joins
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize