With no end in sight to the boom in the letting business, landlords are even turning to more expensive loans in a bid to expand their portfolios in time to take advantage of the present situation.
A report by bridging loan experts West One Loans says that more and more brokers are being approached by professional landlords keen to get buy-to-let loans but who have been turned away by High Street Banks. 98% of brokers interviewed said they were doing more business now with property investors interested in landlord insurance than they were at the beginning of the year.
Chairman of West One Loans, Duncan Kreeger, said the report conversely showed slightly fewer brokers thinking now was an opportune time for landlords to take on more properties but explained: “While there has been a fall in the number of brokers who are certain investors should expand their portfolios, the change is small – and 81% of brokers are still confident it’s a good time to invest in the sector. Furthermore, the number of brokers who think it’s definitely not a good time to pile into the market has fallen to less than one in ten. Landlords and brokers have different opinions of the market. While fewer brokers think it is a good time to invest in buy-to-let, high demand from landlords suggests they feel otherwise. Despite a slight cooling of broker sentiment towards buy-to-let as an investment for the future, thanks to the current demand from landlords, buy-to-let bridging is flourishing. Bridging is still not being affected by increasingly problematic conditions in the wider residential market. In fact, it’s thriving off the back of them.”
It is perhaps indicative of the confidence landlords feel that they are prepared to go for these expensive loans. Tenants are in plentiful supply in all areas of the country and they have virtually killed off competition from first time buyers who find it even more difficult to get a home loan from the High Street Banks. The result is residential landlords can drive a hard bargain with sellers when it comes to negotiating a price on a property, which in turn will reconcile the extra interest they are paying on their loans.
A survey by one of the leading landlord organisations in the UK suggests that property investors are still looking to expand their portfolios but would like to see more competition in the mortgage market place.
The National Landlords Association (NLA) discovered that 9 out of 10 members would like to see more competition amongst loan companies, with 75% saying they would like lenders to be a little more innovative when it comes to packaging their products. It is little wonder that mortgage products raise such interest in the private residential letting market as almost three quarters of those questioned revealed they had loan obligations on their properties. The average buy-to-let investor had outstanding loans on 8 properties, with 1 in 5 of those saying they had taken landlord insurance out on new projects over the last 12 months.
David Salusbury, Chairman of the NLA, said the survey gave loan providers plenty to think about, saying “More than half of landlords surveyed do not believe that access to buy-to-let mortgages is getting any easier, with three in five agreeing that their individual circumstances as landlords are not being considered by buy-to-let lenders. Early signs of increasing property acquisition suggest that landlords are feeling more confident about future prospects of the buy-to-let market. However, while these findings are encouraging, some professional landlords, with more extensive portfolios, seem to be struggling to secure funds for additional expansion.”
The NLA reported little change in their Landlord Optimism Index but suggested that the majority of their members are treating the future with cautious optimism rather than being bullish about their prospects.
As mortgages rise and rental income drops, a report from a high profile online letting agency suggests landlords may have seen the peak of the boom that has enveloped the sector for the last couple of years.
According to LSL Property Services the average monthly rent dropped to £707 in February. Still way above the average of two years ago but significantly lower than the £719 being achieved at the back end of 2011. At the same time as income has dropped landlords are finding their mortgage payments going up for the first time in ages. Santander and the Leeds Building Society, both big players in the buy-to-let market, have upped the rates on mortgages targeted by landlords, and other lenders are expected to follow.
The drop in rental achievement accompanied with higher loan repayments will certainly make some landlords think twice before they go ahead and buy more properties but insurance companies who specialise in landlord insurance say they are still experiencing high demand for their products.
David Newnes, speaking on behalf of LSL, said it is too early to say the boom is over just yet explaining: “There are already indications that mortgage lending is falling back, and that mortgage rates are beginning to climb, which will limit the number of prospective homebuyers leaving the rental sector. Given the growing number of households, the pressure will remain on the private rented sector.”
Certainly government experts expect house prices to fall slightly this coming year, the big question may be who will have the easiest access to funds, landlords or first time buyers.
Better mortgage deals are at long last being offered to investors in the buy-to-let market, with one lender willing to provide a mortgage of up to 85% of the property’s value. This is the highest Loan to Value (LTV) figure made available to a landlord since the credit crunch started.
More lenders are looking to enter the buy-to-let market which may see an increase in competition in the sector and provide a better choice for property investors. The last few years have been very difficult for investors in the private housing sector. The financial crisis has seen many banks and building societies stop selling buy-to-let mortgages altogether, while others put their rates up so much that it made it almost impossible for landlords to make any kind of profit.
David Hollingworth, who works for a mortgage brokers, said “It has to be a welcome addition to the current range of buy to let products on the market and opens up options for those keen to invest without making such a big capital outlay required of many lenders. But more lenders need to get onboard, only a small hand full of providers are offering buy to let mortgages for those with less than a 20% deposit and it’s just not enough.”
The main problem for investors has been the amount of deposit required by lenders, many of whom were asking for upwards of a 35% deposit, making it virtually impossible for landlords to expand their portfolio and protect it with landlord insurance. However, with some lenders now offering a mortgage with an 85% LTV this means that landlords just need to find a more manageable 15% deposit. This is the best value deposit deal on a buy-to-let mortgage since the financial crisis began in 2007, and is great news for anyone looking to become a landlord for the first time.