People wanting to buy properties to rent may find it impossible to arrange a mortgage, the latest figures from analysts Moneyfacts suggest. Moneyfacts reports that 93% of buy-to-let mortgage products have been withdrawn in the last 18 months.
Bigger deposits
Any new landlord must now provide at least 20% deposits for purchases, after the last 85% loan-to-value mortgage on buy-to-let was withdrawn. This had been provided by the Post Office, under its arrangement with the Bank of Ireland.
Until the current economic crisis, most buy-to-let mortgages had been for 85% or 90% loans-to-value. But Moneyfacts warns that even 80% loan-to-value mortgage products for buy-to-let are being withdrawn. Most new landlords must put up at least 30% of the purchase price, it found. Even existing borrowers with buy-to-let mortgages are being transferred to more expensive terms.
Landlords will pay more
Michelle Slade, an analyst at Moneyfacts, says: "Falling house prices have caused the equity in many landlords' portfolios to reduce, but with no deals available for less than a 20% deposit, many have no option but to move onto the lender's standard variable rate (SVR) at the end of their existing deal. For some this may be no great hardship, but some lenders have not passed on cuts to their BTL SVRs as they have to their residential version.
"Despite a 4% drop in bank base rate since last year, landlords have seen little impact with the average fixed rate dropping just 0.03%. Tracker mortgages have come down but the average margin above base has increased to an astonishing 3.18%. BTL lenders have also tightened criteria, restricting the size of portfolios that landlords can have, both in number of properties and maximum total advance. The Mortgage Works has become the first lender to introduce a collar to its pay rate calculation, meaning borrowers will have to earn bigger rental incomes: not an easy feat in these difficult times."
Contrasting picture
A contrasting view of the buy-to-let market has been put forward by the representative group for the sector, the Association of Residential Letting Agents. ARLA says that the downturn has reinforced the commitment of buy-to-let landlords to hold properties for the long-term, looking for income rather than capital appreciation. But, it says, landlords remain committed to the sector.
The proportion of buy-to-let landlords that do not intend to sell in the next year has jumped from 77% to 88%, according to a survey conducted for ARLA. On average, landlords now expect to own their properties for 16.3 years.
Low loan-to-value
ARLA's survey also illustrates that while some new buy-to-let landlords do rely on high loan-to-value mortgages, this is not the majority position within the market. Despite falling property values, the average loan-to-value for investment landlords is 56%. Only a third of buy-to-let landlords believe their loans-to-value are greater than 76%.
Average returns in the buy-to-let sector remain adequate, based on ARLA's figures. It reports an average rate of return on a buy-to-let investment over the past five years of 10.59% on outright cash purchases and a surprisingly higher 21.54% return on mortgage-backed acquisitions. However, there are indications that returns are slowing, with a possible reverse of immigration from the Baltic States and other parts of the European Union.
Ian Potter, head of operations at ARLA, says: "Again and again, these independent surveys show that buy-to-let landlords are helping to guarantee the growth of the private rented sector and these are the people who provide the housing solution for those hit by the current recession and into the future."