Buy-to-let keeps the housing blues at bay

Landlords seem untroubled by the market slide, so Laura Howard asks if new investors should cross the threshold

Whether or not to jump on board the buy-to-let bandwagon has been a big question for homeowners since the turn of the millennium. During the property boom, thousands of ordinary people morphed into property millionaires seemingly in the blink of an eye, while the less brave just talked about doing it a million times instead.

But now falling house prices, rising mortgage costs and the bleak economic outlook have provided just the excuse that the risk-averse camp was waiting for. Buy-to-let has finally, as they said it might, come to grief. Actually, it's not that simple. According to the Royal Institution of Chartered Surveyors (Rics), just 2 per cent of landlords plan to sell up when their current tenants' leases expire. That's no more than usual and hardly represents a market that is in freefall.

And this small proportion can be viewed in the context of the new capital gains tax regime, says Martin Taylor, partner at accountants HW Fisher. "The rate of CGT is now a flat 18 per cent as opposed to the previous minimum rate of 24 per cent for a higher-rate tax payer, which is advantageous to landlords who decide to sell."

It's not the case either that landlords are being forced to hand back the keys. According to official figures from the Council of Mortgage Lenders, repossessions in the buy-to-let arena accounted for just 0.12 per cent of all homes repossesed during the fourth quarter of last year.

In fact, British landlords are barely breaking into a sweat. "Our customers are not worried about falling house prices – they are making use of them to buy more property with enhanced negotiating power," says Lynsey Sweales, director at buy-to-let specialist The Money Centre. "They have experience in the field, owning an average of 7.2 properties each, which means they have an adequate financial cushion."

And because of the dwindling confidence in the housing market, rents are rising. According to the latest buy-to-let index from lender Paragon, average monthly rents reached a new peak of £990 in February – up from £967 the previous month. "This should increase further still because while fewer people can buy, the same number want their independence," says Andrew Montlake, partner at broker Cobalt Capital.

Perhaps, then, the debate over whether to enter buy-to-let is as finely balanced as before – it just has a new twist. "First-time investors can get clever in this market," says Ms Sweales. "Estate agents are feeling the pinch, so go and make contact. Ask about properties that have been on the market for a while so you are in a good position to negotiate on price. But first it's crucial to speak with lettings agents in the area about the types of home that rent well."

But for many novice landlords, funding could be a problem. Financial analyst Moneyfacts says there were 884 separate buy-to-let mortgages up for grabs on 3 April – that has since dwindled to 621. And it will be harder to qualify for these deals, explains Mr Montlake. "Buy-to-let lenders now typically require a 25 per cent deposit, while interest rates are also higher at between 6 and 7 per cent."

Lenders will also need reassurance that the rent generated from the property will outweigh the interest on the mortgage. During the boom, borrowers would have to prove the rent would cover 100 per cent of interest repayments; now that figure tends to be between 115 and 120 per cent.

But, as ever, for those with plenty of cash, there are some decent offers around. BM Solutions, for example, has a deal fixed at 5.79 per cent for three years providing you can put down a 25 per cent deposit and manage "rent to interest" cover of 125 per cent.

Investors looking to make their debut in buy-to-let by bagging a cheap property from a distressed seller will also encounter problems with lenders. At one time, if you could buy a house valued at £100,000 for £80,000, this difference would act like the 20 per cent deposit. Now you will have to put down a deposit based on the purchase price regardless.

Even trying to save a buck at a property auction comes with dangers, says Phil Akilade, director at buy-to-let specialist The Diverse Finance Company. "You are required to put down a 10 per cent deposit on the spot at auction to secure the home and must then complete in 28 days. And not only is funding in the market tighter than ever, it is changing all the time. So while you may have a mortgage approved in principle, the deal could be pulled during those 28 days. If this happened, you could be left with no means to fund the property and so potentially lose your deposit."

And if your auction bid goes smoothly, make sure it's not because you are buying a property that no one else wants. "New-build apartments, for example, are being viewed very suspiciously by lenders," says Mr Akilade. "There is a glut of two-bed flats in Manchester, Leeds and Birmingham that can't be sold or rented for love nor money."

Arts and Entertainment
Game Of Thrones
Uh-oh, winter is coming. Ouch, my eyes! Ygritte’s a goner. Lysa’s a goner. Tywin’s a goner. Look, a dragon
tvSpoiler warning: The British actor says viewers have 'not seen the last' of his character
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Esteban Cambiasso makes it 3-3
premier league
The Etihad Stadium, home of Manchester City
premier leaguePlus updates from Everton vs Palace
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Heskey's aim has improved since the end of his English football career

Long after his career in English football has ended, Emile Heskey's impotency in front of goal remains an object of ridicule.

Dame Vivienne Westwood has been raging pretty much all of her life
peopleFirst memoir extracts show she 'felt pressured' into going out with the Sex Pistols manager
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late
Lewis Hamilton in action during the Singapore Grand Prix
Formula OneNico Rosberg retires after 14 laps
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
tvReview: 'Time Heist' sees a darker side to Peter Capaldi's Doctor
Finacial products from our partners
Property search
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

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam