Recently released data indicates that buy-to-let investors have had an extremely profitable year. According to figures from LSL Property Services, landlords recorded a 12.7% profit on their portfolio, taking rental income and capital gain of the property into consideration.
Profitable
LSL’s findings show that landlords made an average return of £8,233 in rent and £13,066 in capital gain during the last 12 months.[1] It must be noted however that these figures were recorded without taking tax, mortgage repayments or maintenance costs into account. This had led to concern that landlords could get into arrears with mortgage payments, especially if there is a significant rise in rates.
Cuts
Thankfully, good news came recently with a number of leading mortgage lenders cutting the interest rates charged to buy-to-let landlords. This indicates that the market feels that rising interest rates seem to be way off at present.
The biggest cut was made by Leeds Building Society, trimming its two-year fixed interest rates from 3.49% to 3.09%, for those borrowers able to secure a 40% deposit.[1] Virgin Money, Santander and Accord have cut their mortgage rates by a nominal 0.1%.[1]
Landlords however are increasingly looking for longer term rates to secure themselves in case of any variable rises. Skipton Building Society has introduced a seven-year plan, which is the longest available on the market. A fixed rate of 4.6% will be offered until 2021 for investors with a 40% equity or deposit for the property. This will be subject to a fee of £750. For investors with a 25% deposit, rates rise to 5%, with the fee rising substantially to £1,750.[1]
A number of Britain’s private landlords fear that their returns may fall in the face of any interest rate increases. Particularly concerned are new borrowers, who were enticed into the market by low interest rates.
Buy-to-let-charges
Often, buy-to-let mortgages come at an increased price. Arrangement fees and interest rates raise owner-occupier mortgage costs. David Hollingworth, representative of London and Country Mortgages, said that large fees go hand in hand with the payoff of lower rates. Hollingworth said: “It’s more common to get bigger fees in buy-to-let but landlords will be more willing to pay up in order to drive down their interest rate.”[1]
Landlords can also be assisted by the lack of regulation attributed to buy-to-let mortgage applications, making loans more securable than those for homeowners. Hollingworth suggests that buy-to-let mortgage loans “are not subject to the same kind of affordability checks for ordinary buyers.” He goes on to say: “Lenders are also able to look at the property’s rental income, as well as the borrowers salary, when making a decision about a buy-to-let mortgage.”[1]
Hollingworth concludes: “Landlords are still in a healthy position, as the recent rate cuts show that the market is fiercely competitive. As a result, they benefit from rate cuts.”[1]
[1] http://www.landlordexpert.co.uk/2014/09/23/good-news-for-uk-landlords-as-buy-to-let-lenders-cut-mortgage-rates/