Happy Birthday Buy To let
This summer marks the Tenth anniversary of the buy-to-let mortgage. In July 1996 Mortgage Express (part of the Bradford & Bingley group) were the first to trial a dedicated buy-to-let mortgage product, and currently has a market share of approximately 20 per cent. Buy-to-let mortgages evolved after new legislation within The Housing Act gave landlords more power to evict tenants who were not keeping up with their rent. In September 1996, the Association of Residential Letting Agents (ARLA) launched these loans via a panel of lenders, and hence the buy-to-let mortgage arrived in the UK property marketplace. Relaxation of criteria reflects the realisation that buy-to-let is not as risky as lenders first thought. There are now around 70 lenders offering the buy-to-let product however albeit that around 50 per cent of all buy to let loans are written by the 6 members of the ARLA panel:Paragon, GMAC, Mortgage Express, Birmingham Midshires, NatWest and The Mortgage Business.
A risk analysis of buy-to-let versus residential shows residential loans have a higher risk profile. Latest figures from the Council of Mortgage Lenders showed that 0.68 per cent of buy-to-let mortgages had been in arrears for more than three months, compared with 0.97 per cent of normal loans. High house prices and a growing population have meant that more people are now renting for longer, fuelling the demand for rental property.
Amateur and novice landlords alike who have enjoyed success after dipping their toe into the water with one or two properties now have the confidence to further increase their portfolios. Over the past decade the sector has enjoyed exceptional growth, to now represent approx. 8 per cent of total housing stock in the UK. The first mortgage deals were inflexible, commercial style products with high interest rates, up to 4 per cent over Bank of England base rate, and low loan to values up to a maximum of 75 per cent. Historically, rental cover had to equal 130 per cent of the mortgage to protect both the lender and the landlord against voids and the higher risk. Landlords now benefit from an average loan to value of 85 per cent, and rental cover now averaging 125 per cent of the mortgage payment. Although lending is available to 90 per cent and rental cover at 100 per cent. Recent research revealed that 83 per cent of landlords plan to increase or maintain their portfolios in the next six months, showing that the appetite for investment remains. The average property portfolio has increased from three per landlord in 1996 to seven this year. Buy-to-let lending has grown from £3.
1 billion in 1999 to £24.5 billion during 2005 and the market alone is worth over £73 billion and still growing. The fragility of world stock markets and the pensions crisis has ensured that more and more investors are turning to bricks and mortar to secure their future. Whilst the increasing student, single person and migrant population will continue to support the rental sector, growth in rented households is predicted to be around 3 per cent over the next ten years. However the downside is for first time buyers, who are often vying for similar properties as buy-to-let investors, despite government assurances of support the growth in the buy to let market could well herald the decline of the first-time buyer. With rising property prices and diminishing rental yields First Mortgage Trust have designed a buy-to-let rental calculator that takes some of the guesswork out of the initial process. The calculator can be viewed at http://www.mortgage-loan-uk.net/buy to let mortgage calculator.htm.
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