Landlords are both taking out more mortgages, with new deals being launched to serve them, and feeling more positive about the next 12 months. Generally this is because their returns have come out of the red and are back in the black
Lending is on the up
Lending in the Buy to Let (B2L) sector grew in the third quarter of this year for the first time in two years, according to data published last week by the Council of Mortgage Lenders (CML).
It totaled £2.1bn over the quarter, 10% higher than in the previous quarter. This latest period also saw the first increase in two years in the physical number of B2L loans advanced, from 21,600 to 23,700.
It is better news, albeit from a very low base compared to 2007 lending levels.
Lending within this sector was up for both purchases and remortgages, with house purchase lending ‘appreciably stronger’ according to the CML – that’s not surprising when many borrowers are reverting to low standard variable rates (SVRs) and deciding to sit tight until rates rise.
With no B2L deals available at over 80% LTV, anybody with less than 20% equity would be unable to remortgage, whether they wanted to or not. Lucky for them that many SVRs are low!
There has also been a continued improvement in the number of arrears in the B2L sector as well which serves somewhat to allay the Doom and Gloom Merchants, principally helped by the current lower rates. According to the CML the number of mortgages with arrears of more than 1.5% of the balance, dropped for the third quarter in a row, falling in from 22,900 to 20,500 representing 1.7% of all outstanding B2L mortgages.
The CML points out that while the recovery in the sector is only modest is does show that B2L is “here to stay”.
Landlords feeling a little more Bullish
The positive stats are supported by happier landlords, with many feeling much more optimistic about the sector in the third quarter of this year.
According to B2L lender Paragon Mortgages who have not been actively lending throughout the Credit Crunch, landlords expect the net value of their portfolios to increase over the next 12 months and have been taking advantage of lower house prices since the first quarter of 2007.
On average they owned 11 properties at the beginning of 2007, which increased to an average of 12 properties by the third quarter of 2009.
Plus they are feeling good about the future with a third of landlords now saying that tenant demand will grow over the next 12 months, and 57% predicting it will remain stable.
Paragon added that it is unlikely that the mainstream mortgage market will recover for a number of years, which is something we have been advising our investor clients for quite a while now, and that this means that large number of people will continue to be excluded from buying, and will need to rent property.
Positive returns at last
Landlords have even more reason to feel cheery following the latest rental index from property company LSL property services. It says that annual property investment returns turned positive in October for the first time since the UK fell into recession.
After taking rental income and the fall in house prices into account, a landlord investing in property in October 2008 would have made an average annual return of 2.4% – the last time the return was positive was way back in July 2007 before all this blew up.
The rental index also showed that tenant arrears have improved – an issue that has been a huge problem for landlords during the recession. By the end of October, arrears had shrunk to 495,000 or 14.6% of UK tenancies, the lowest level since LSL began calculating these figures one year ago.
What about mortgages?
More good news is that the mortgage market is also improving with lenders offering more B2L deals. According to financial information provider Moneyfacts, there were just 179 B2L mortgages in September 2009 and now there are 239 available.
But that’s still a drop of 93% from the peak of the market two years ago, when there were over 3,600 B2L deals on offer from a multitude of lenders, many of whom are no longer anywhere to be seen, and don’t have a business model that could be adapted to the current financial climate..
Maximum LTV ratios are still tight but there are a couple of deals available up to 80% LTV from sister lenders Yorkshire Bank and Clydesdale Bank. For any real choice though landlords still need to find 25% upfront and 30% if they want the more attractive deals that are on offer.
This is a world away from the market two years ago where 85% and 90% mortgages accounted for 65% of the B2L market. Plus lenders are still tightening some criteria, such as restricting the size of portfolios that landlords can have.
But if you want a B2L deal, there are some options around, provided you have that all-important equity of course and we are more than happy to explore the options that are currently available, especially if you are an experienced portfolio landlord. To do so click here to contact CFA
Recent Comments