The buy-to-let market is expected to remain strong this spring, despite an unsteady housing sector, as interest rates and fees drop, while the cost of deals for owner-occupiers increases.
For first time buyers and owner-occupiers, rates for five-year fixed deals are already rising, but landlords can now get fixes cheaper than six months ago, and for less than anytime during the recession.
Surveys have revealed that property investors are now seeing much greater rewards than experts expected.
The average sum owed by tenants in rent arrears is now at the lowest in three years, says lender BM Solutions, with eight out of ten established investors stating that they earn a living from being a full time landlord.
A number of lenders are now offering buy-to-let loans for the first time, or are coming back to the market after having little faith in it.
The Post Office, TSB, and specialist’s Paragon are joining Santander, Skipton Building Society and Virgin Money in the market.
The Bank of China is even providing buy-to-let loans, including trackers that allow you to pay 3.89% now, if you have a 25% deposit.
Market researcher Moneyfacts says that Nationwide Building Society’s subsidiary The Mortgage Works offer one of the best two-year fixed deals, at 2.49%, although you will need a 40% deposit, and a fee equivalent to 2.5% of the loan.
David Hollingworth, of broker London & Country Mortgages in Bath, says: “These are some of the most competitive buy-to-let rates we have ever seen.”1
Some percentage-based fees can add huge amounts to the cost of a deal, however the money can be counterbalanced by rental income for tax purposes, and one in ten buy-to-let mortgages are now without fees as lenders are competing for business. Investors can also find lower deposit deals.
Last year a 25% deposit was needed to get into the market. However, Mortgage Trust, of Paragon, has two-year deals at 4.1% if you have just a 20% deposit.
Landlord Mortgage’s Lee Grandin says these new lenient terms are allowing existing investors to withdraw equity and purchase more properties.
He says: “Our second-charge schemes are popular with established borrowers who signed up to deals at as little as base rate plus 0.49% before the crunch and don’t want to redeem them even at today’s rates.”1
First time landlords can find two-year fixed rates from the Post Office and Skipton at 3.29% and 3.49% respectively, with a 25% deposit. The Post Office’s fee is £1,495, and Skipton’s is £995.
The Nottingham Building Society offers a three-year fix at 3.49% alongside a £1,999 fee, whereas investors wanting a five-year term can look to Virgin Money for 4.19% with a £1,995 fee and 30% deposit. As ever, the higher deposit you put down, the lower the interest rate.
Before the recession, Moneyfacts claimed that the best five-year fixed rate for buy-to-lets was 5.84% with a 40% deposit. Now, Accord Mortgages, of Yorkshire Building Society, has five-year rates of 3.94%, with Clydesdale, NatWest, and Santander all having deals under 4%.
Lenders such as Accord, Melton Mowbray Building Society, Principality Building Society, Santander and The Mortgage Works, have deals that allow you to begin paying less than 3%. However this will require confidence in interest rates, and buy-to-let still carries risks.
Strict rules mean that investors can still be denied a loan. Lenders base the amount they give on the rent a property should earn, however they may require a landlord to still have a full time job to cover void periods and rate increases.
Successful buy-to-let landlords must research the housing market thoroughly before looking at mortgages.
Fiona Brown has invested in another property, alongside the older house she lets out in Hertfordshire. She “decided that a new home would be more attractive to tenants and cost less to run.”
Fiona, 36, looked into new builds in Cambridge, where it is predicted house prices will rise by 23% in the next five years.
She says: “I chose a two-bedroom flat in the Kaleidoscope development because it’s close to the city centre but surprisingly tranquil, which I thought tenants would like.”
Fiona was correct, as a young professional couple were eager to move into the £387,000 flat, and she hopes they will continue living there in the long term.
“I don’t currently have a pension and I think the property will give me the best nest egg for the future,” she explains.1