BTL Market Update for April

Andy Young at Property Hawk Mortgages says:

For professional landlords, the buy-to-let sector presents opportunities to expand their property portfolios and grow their businesses, with the majority seeing it as a medium to long term investment. In order for these opportunities to be realised, it is vital that buy-to-let investors have access to suitable finance solutions for purchasing and remortgaging rental properties.

2012 was a year of growth for the buy-to-let mortgage market with a total of 16.6bn of new lending according to figures from the Council of Mortgage Lenders. 2013 is likely to be another strong year experiencing further growth, perhaps to around £18bn.

It is possible that some new lenders will enter the buy-to-let mortgage market in 2013, bringing more competition and greater product innovation. Also, the Government Funding for Lending scheme could give banks and building societies further scope to provide more buy-to-let mortgages as their total overall level of lending increases.

Buy-to-let mortgages continue to perform strongly, with many lenders reporting arrears figures lower than for residential mortgages. Given this positive picture and the fact that lenders are demonstrating such a keen appetite for buy-to-let, I wonder if there will also be a change in the perception of risk associated with buy-to-let lending, and whether this will result in a further lowering of rates to levels comparative to residential mortgages?

There has been an increase in competition in the marketplace, particularly in the 75% loan-to-value (LTV) lending bracket where the bulk of Property Hawk Mortgages’ buy-to-let business is being written – the average LTV for offers received during Q4 2012 was 73.11%. There are also more products available up to 80% LTV allowing landlords to employ higher gearing in their property investments.

Kent Reliance is still the only lender currently offering up to 85% LTV buy-to-let rates, but we may see some other lenders competing at this level of lending during 2013, especially as it can generate better margins for them.

The buy-to-let sector is diverse, with a wide range of different property investment opportunities for landlords. One potentially lucrative option is Houses in Multiple Occupation (HMO), where there is the possibility to generate high rental yields by charging rent to multiple tenants in a single property.

Student lets, which are often HMOs, can have particularly high rental potential. Property Hawk Mortgages’ Property Investor Profile (Q4 2012) showed that student lets had an average rental yield of 9.33% compared with the overall average of 6.91%.

Paragon Mortgages and Kent Reliance are the go-to lenders for HMO properties and student lets, although a few other lenders will consider them within certain limitations such as the number of tenants. Kent Reliance has also recently launched a number of products specifically for large loans over £1 million.

Another area of opportunity is for rental accommodation that requires light refurbishment works, where it is possible to increase the value of the property and its desirability, as well as recouping the money spent on improvements after completion of the works. However, there are only two lenders currently offering products specifically designed for light refurbishments.

TMW has one product which is available up to 70% LTV and has a maximum retention of £25,000. Saffron Building Society is also offering a light refurbishment product, via selected brokers only, which is available up to 75% of both the initial purchase price and the end value, with no limit on the drawn-down once the works have been completed.

Popular buy-to-let mortgages in April:

85% LTV
Kent Reliance (standard range) – 4.89% 2 year discount up to 85% LTV with a 2.50% completion fee and no ERC (6.80% APR)

75% LTV
Mortgage Trust (limited edition) - 2.99% 2 year LIBOR tracker up to 75% LTV with 2.50% completion fee and free valuation (5.30% APR)

65% LTV
Skipton Building Society – 3.79% fixed rate until 31/05/2016 up to 65% LTV with £995 completion fee with free valuation and free legals for remortgages (properties valued up to £500,000) (5.60% APR)

60% LTV
Hinckley & Rugby BS – 2.85% 2 year fixed rate up to 60% LTV with a £1950 completion fee and no early repayment charges (5.10% APR)

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