Buy To Let Mortgages. Boom Time Returns.
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Buy-To-Let Mortgages: The Boom Returns
Summary
The buy-to-let market is experiencing a resurgence following last year's dip in confidence. Fears of rising interest rates and collapsing property values have subsided, leading to an upswing in landlord activity. With rental yields climbing, landlords are eagerly acquiring new properties and refinancing on better terms.
In the last quarter of the previous year, rental incomes rose by 3.3% on average. Rental yields, which represent income as a percentage of a property's value, increased slightly from 6.42% to 6.45%. According to the Council of Mortgage Lenders (CML), the value of new buy-to-let mortgages surged by 47% in the latter half of 2005, with a 39% increase in the number of these mortgages.
The trend is expected to continue throughout 2006. The market will be driven by steady house price increases, strong tenant demand?"particularly from first-time buyers priced out of homeownership?"and a variety of attractive buy-to-let deals.
Market Dynamics
Mortgage lenders are optimistic as well. Statistics indicate that buy-to-let mortgages are now less risky than homeowner mortgages. The CML reports that arrears are lower for buy-to-let mortgages and are improving over time, while homeowner mortgage arrears are worsening.
This has prompted lenders to ease lending criteria and actively promote buy-to-let options. Previously, landlords needed rental income to exceed mortgage payments by 30%. Now, due to improved risk profiles and the fast rise of house prices compared to rental yields, lenders are often satisfied with a 25% margin. Some lenders, like Northern Rock, even accept cases where the rental income matches the mortgage payment.
Simultaneously, lenders are increasing the percentage of the property's value they are willing to finance. While 75% used to be the standard maximum, it now averages closer to 85%, with Northern Rock offering up to 87% and GMAC extending to 89%.
Attractive Interest Rates
Interest rates for buy-to-let mortgages have also decreased. The Mortgage Trust offers a three-year fixed rate at 4.75%, while the West Bromwich Building Society provides a two-year fixed rate at 4.79%, each with a 1.5% arrangement fee. For landlords prioritizing cash flow, paying a larger arrangement fee to secure a lower interest rate may be beneficial, as this affects the rental income/mortgage payment calculation.
Key Considerations
For those interested in the buy-to-let boom, thorough research is crucial. Analyze local rental markets, including rental rates, property price trends, and vacancy levels. Pay particular attention to city centers, where an oversupply of new flats and apartments could be a concern. Some lenders are wary of overpriced city center properties and are adjusting lending ratios back to 75%.
Always budget for potential vacancies. If your area becomes oversaturated with rental properties, you might face prolonged vacancies or pressure to lower rental prices. Careful planning and informed decision-making are essential to success in the buy-to-let market.
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