A recent survey conducted (ARLA) Association of Residential Letting Agents and the Residential Landlords’ Association when polling UK landlords reveals that Buy To Let popularity isn’t just increasing in London, but across the UK too. The North East of England scored highly, with 30% of landlords buying property to let over the last year. Next was the Midlands with 26% and London at an equally impressive 26% also. The survey showed that Central London were most likely to add to their buy to let portfolio’s in the next year. 30% of landlords in and around the Midlands also confirmed that they too would be likely to buy more too.
National Landlord Association survey reports improved interaction for Buy To Let Landlords
The results of a recently conducted survey by the National Landlord Association point strongly to a much improved relationship between tenants and their buy to let landlords. In the survey, as many as 61% of Landlords reflected their positivity as ‘very good’ when dealing with tenants and a further 34% were happy to accept that their interaction was ‘good’. Only 3% polled that their dealing with tenants was ‘adequate’ and barely visible 1% termed it as ‘poor’. The results also revealed that as many as 36% had contact with their renters a minimum of once a month, and around four of ten have contact as and when required or needed.
Buy To Let Landlords are currently experiencing a dramatic increase in rental demand and experts forecast that one in five properties will be privately rented by the end of 2015. The latest figures presented by local government highlight that there has been an increase from just over two million in 2004 to a current figure of 3.35 million, a significant increase of 55%.
Buy To Let Investors Return En Mass
Buy-to-let investors are returning to the market in considerable numbers which is having a knock-on impact to potential first-time buyers.
Research by property investment firm Assetz reveals that buy-to-let investors with large cash deposits are outmuscling first time buyers.
A big reason for this is that risk-averse lenders demanding big deposits are being drawn back to the sector and away from the high loan-to-values required by most first time buyers.
Lenders must also hold more capital against mortgages with smaller deposits, under financial authority rules.
What is happening with buy-to-let?
Buy–to-let investors are looking to take advantage of current market conditions, with lower prices and strong rental growth which looks set to continue.
Paragon, which re-entered new buy-to-let lending in September last year, has reported today that tenant demand rose during the first three months of 2011.
The quarterly snapshot of the private rented sector and buy-to-let market from the group shows 49% of landlords recorded growing levels of tenant demand during the period, compared with just 5% who said it was falling.
Those buying with mortgages have deposits of 25-40% typically, and are an attractive prospect to lenders due to the lower loan-to-value loans required and their proven track record in repaying mortgages.
However, the typical first-time buyer profile means they are being squeezed from the market by stricter deposit requirements, lack of bank capital and because they present a less attractive prospect to lenders.
This is due to the higher loan-to value-loans required and their lack of track record in repaying a mortgage loan.
Stuart Law, chief executive of Assetz, said: ‘Lenders are making no secret of the fact that they would rather allocate the limited funds they do have to the lower risk option of buy-to-let loans, with deposits of 25-40%, than first-time buyers loans with 90% loan to values.
‘As a result, the buy-to-let sector is recovering at a remarkable rate, as investors are drawn back by the need for a long-term, low-risk investment for their cash.
‘The buy-to-let sector has not been as hard hit by the recession as people feared, due to the fact that interest rates have remained extremely low.
‘This has protected landlords by giving them cashflow, and future rate rises, which are likely to be small and gradual, will be covered largely by rental increases.’
And looking forward, landlords are expecting tenant demand to continue to strengthen. Over half of landlords expect demand to increase over the next 12 months.
Nigel Terrington, Paragon Group Chief Executive, said: ‘We are seeing evidence that strong tenant demand is feeding through to higher rents.
‘A lack of available mortgage finance is restricting the sector’s ability to expand and needs to be addressed to create a healthy and vibrant buy-to-let market in the UK.’
Property Investment Blossoms Again
The buy to let market is now a market worth returning to for investors, as returns are increasing to as much as 8%. Southampton is strong in this regard with a yield on buy to lets of 8.12%, according to Findaproperty.com. Following Southampton is Leeds in West Yorkshire with return of 7.52% and Virginia Water in Surrey seeing a yield of 7.5%.
Nigel Terrington, with the buy to let lender Paragon, commented on the success of the sector for the first quarter of this year, saying: “Landlords in the private rented sector have enjoyed a buoyant start to 2011, with growing levels of tenant demand, rising rents and strengthening yields.”
The strong yields are not the only successful aspect of the sector. A 62% increase over last year in the number of buy to let applications has been reported by the mortgage broker TBMC.
With strong demand from tenants predicted to continue over the next several months, analysts believe the buy to let market will stay on its successful track for some time.
The research done by TBMC the last two quarters indicate landlords have been primarily buying buy to let properties in London, Portsmouth and Brighton.
Due to higher yields, the buy to let market is garnering more attention. The market therefore has become more competitive, especially within the group of amateur landlords.
As banks see yields within the buy to let market increase, there is a new effort among lenders to assist those who are credit - worthy and help them take advantage of profitable opportunities.
David Whittaker, of Mortgages for Business, believes Whiteaway Laidlaw will improve the ability for a select group of landlords to add to their portfolios.
New Mortgage Products Introduced - Tread With Care
There is more choice for clients but this can’t hide the fact that the focus for lenders has moved to affordability
There are now twice as many products available as there were two years ago and that number seems likely to rise.
On the face of it, this is exciting news for first-time buyers who have had nowhere to turn during the past few years unless they had large deposits.
In the second half of 2010, tight lending criteria put downward pressure on house prices and led to record highs in rents. So has this all changed?
The average rental price in the UK has fallen for two consecutive months, buy-to-let investors are beginning to return to the market and several lenders have recently introduced 95% LTV products for first-time buyers. Mortgage lending, it would seem, is looking up.
While the number of products available has risen, their terms have changed markedly since the development of more stringent Treating Customers Fairly requirements.
The emphasis for lenders has moved towards responsible lending. This means affordability is the prime consideration and any assessment must include the repayment of the loan.
Gone are the days of high income multiples, self-cert and interest-only loans.
But simply withdrawing higher risk products isn’t enough to ensure that borrowers aren’t biting off more than they can chew.
Responsible lenders must not only exercise caution in the types of product they offer, but they must also take a proactive approach to assessing changing borrower circumstances.
Having the ability to predict when and where affordability problems may occur maximises the potential for a satisfactory resolution that avoids default and repossession, and allows lending decisions to be made with greater certainty.
Despite the rise in mortgage products, access to them remains restricted for many. The Council of Mortgage Lenders says providers still have to repay the £230bn lent to them by the Treasury and the Bank of England during the banking crisis of 2008 and 2009.
House prices, according to LSL/Acadametrics, have been falling for the past four consecutive months. The most recent figures from the CML show gross mortgage lending fell 13% in January.
Research by Lloyds Banking Group has shown that 9% of so-called second-steppers have been unable to move to a new home because of the depreciation of the value of their current properties.
Although lenders are offering large numbers of products it cannot disguise the fact that they have many reasons to be cautious in 2011.
The economic headwinds faced by the UK means lending criteria look set to remain relatively tight.
But there can be no doubt that a higher number of products gives borrowers much greater scope to search for a deal that works for them.
This is certainly a good thing because down the line, more carefully chosen mortgage products mean fewer defaults and repossessions.
But the elephants in the room remain restricted liquidity and tight lending criteria.
