UK landlords are enjoying rising rents and cheap mortgages, but the buy to let bubble may burst!

Landlord Expert
By Landlord Expert November 30, 2011 11:26


The number of buy-to-let mortgages has more than doubled since 2008, while average rents have reached a record high of £720 per month, according to LSL Property Services.

Woolwich has become the latest lender to relax criteria for landlords, now offering loans for those with a 25 pc deposit instead of the 40 per cent previously required. Meanwhile, Northern Rock seems particularly keen to attract new business, offering £750 cash back to anyone who takes out a new buy-to-let loan.

Aaron Strutt at broker Trinity Financial says: ‘Banks are being more inventive with their buy-to-let mortgages, as they want to increase lending in this area. The market is getting more competitive which is good news for landlords.’ 


The crucial thing to consider when choosing a buy-to-let mortgage is the fee, as many lenders have low loan rates but high percentage fees that end up being very expensive. 


Northern Rock has a two-year fixed rate at 3.25 per cent, but it comes with a 3.5 per cent arrangement fee and investors will need a 40 per cent deposit. This means someone with a £150,000 mortgage would pay just £406 per month on an interest-only basis, but would have to stump up £5,250 for the fee. Total cost over two years would be £14,994.


A better option with a much lower fee of only £950 is a fixed rate at 3.99 per cent from Godiva, the broker-arm of Coventry BS. You need a 35 per cent deposit and monthly payments would be £499. Total cost would be £12,926. 


But experts warn that buy-to-let should be seen as a long-term investment. Speaking at the Council of Mortgage Lenders annual conference, Andrew Gold, chief operating officer at Mutual One, the building society auditor, said: ‘It’s a case of when, rather than if, first-time buyers will return to the housing market. When they do — the question is whether they will burst the bubble.’ 


In this case, rents may start to fall, perhaps as interest rates are starting to rise, which would erode landlords’ yields. However, the dysfunctional mortgage market and shortage of good private rented properties means that rents are expected to stay high for now. 


David Hollingworth, associate director at broker London & Country, says: ‘Landlords can get a great income at the moment, but with house prices falling in many parts of the country their capital growth is not so certain in the medium term.


‘Also remember the costs involved with buying a property and selling a property, and the fact that your money is tied up. Being a landlord can be time consuming, unless you pay an agent, usually around 10 per cent of your rent, to manage the property for you.’


Landlord Expert
By Landlord Expert November 30, 2011 11:26

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