The number of buy to let mortgages reached its highest level in 4 years during 2012 as landlords benefited from strong buy to let lending. Gross lending reached 16.4 billion last year, a 19% increase on the 13.8 billion lent in 2011. Although the 136,900 loans granted last year were a welcome fill up, the figures are a long way off the 346,000 loans advanced during the peak of the market in 2007.
Buy to let has, over the last decade, become mainstream lending with 13% of all mortgages outstanding that total 1.4 million being buy to let. It looks likely this growth is going to continue with the amount of people renting having increased from 31% a decade ago to 36% today, and according to census figures the population continues to rise. The reasons for the increase in the rental population are well documented with an apparent lack of supply, with fewer houses being built due to financial crisis. But more importantly I feel that the rental market has increased due to high hurdles being placed by lenders in front of first time buyers. These hurdles make it very difficult for them to satisfy criteria. Also people’s jobs have become more flexible and uncertain, making it harder for potential purchasers to actually commit to buying.
I don’t believe that conditions will become a lot better for home buyers in the near future, but I think that lenders are taking more interest in buy to let and are creating more products and better rates. I think they have figured that experienced borrowers with deposits of between 25-40% represent a better risk than high percentage residential mortgages to first time buyers. Therefore, criteria has eased with some lenders such as Birmingham Midshires being prepared to lend to borrowers whose tenants receive housing benefits. A few years ago this sort of borrowing was not a problem, but due to the difficult market a lot of lenders tightened criteria to restrict this kind of lending. It is nice to see lenders bringing it back. In addition the governments funding for lending initiative has helped to lower the cost of borrowing in the last few months, and to have the opposite effect for savers who are struggling to now get 2% gross on their money. These actions have allowed lenders such as the Mortgage Business to lend on 5 year fixed rates from as little as 3.99%. These are excellent rates for buy to let borrowers as they allow people to plan their buy to let cash flow better into the future, in the knowledge that interest rates will not rise. With gross yields from the rents averaging out at about 7% per year, there is certainly some scope for surplus each year in addition to potential capital growth on the property.
So people who have been savers and have suffered as a result of the Government Funding for Lending could benefit by using some of their cash for a deposit on a buy to let property, and taking advantage of the scheme by locking into low interest rates. However, although I’ve noticed that Robbie Fowler the footballer has set up the Robbie Fowler Property Academy Workshop that comprises of a 3 day training course that will cost an all in £1,744 and explains the secret of successful property investment, overall it may be worthwhile contacting an Independent Financial Adviser who specialises in mortgages to talk you through the benefits and pit falls of buy to let lending without the associated up front costs.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
18th March 2013
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