Property investment is still as popular as ever

The number of buy-to-let landlords investing in the UK property market looks set to rocket in future, a new report suggests. According to research by Mintel, one million homeowners say they are planning to invest in the buy-to-let market within the next three years.

If this does indeed occur, reports suggest that the number of landlords in the rental market will double by the year 2010. The research company also predicts a rise over just over 50 per cent in the buy-to-let market by 2011.

Paul Davies, Mintel senior financial analyst commented: “It is clear that these days, buyto- let is no longer the exclusive domain of professional portfolio landlords.

“Increasingly, property owners are seeing the benefits of investing in bricks and mortar and often regard the second homes market as a good alternative means of saving for retirement.

“As long as these trends continue, future growth in this market should be guaranteed.”

Repossession Risk Review

The Council of Mortgage Lenders (CML) recently published its biannual Repossession Risk Review.

While mortgage arrears in general continued to fall there was a noticeable upward trend during 2006 in arrears within the buy-to-let market. At the end of the first half of 2006 0.69% of buy-to-let mortgages were more than three months in arrears as compared with 0.98% of home-buyer mortgages. It now seems likely that the rapid growth in buy-tolet mortgages, the number of which has tripled since 2002.

It is probable that the percentage of buy-to-let mortgages showing more than three months in arrears will outstrip the home-buyer percentage during 2007 Coupled with the increase in mortgage arrears was a sharp increase in repossessions during 2006 which increased by over 64% over the 2005 figure. The rate of increase slowed slightly during the second half of the year but in the context of the overall rise this is hardly a positive sign.

Agents will need to ensure that they talk seriously with their clients about the dangers of mortgage arrears and make certain that new landlords understand the potential expenses associated with letting property.

Tenants who are evicted by mortgage companies frequently blame the letting agent they took the property from and are unlikely to rent again with the same agency. Although Agents cannot be held liable for a landlord’s failure to pay the mortgage the resulting problems is bad for their reputation and that of the profession.

A copy of the review can be found on the CML website at www.cml.org.uk/cml/media/ mcomm/repossion (from PainSmith Legal Update)

East Anglia and Wales doing well as property hotspots

East Anglia and Wales are the leading buy-to-let property investment hotspots, a new study has revealed.

Buy-to-let mortgage specialist Paragon says that in Wales rents, yields and total returns are outperforming that of almost all English regions.

In the last three months rents are up 33 per cent in the principality, and buy-to-let property prices have risen 18 per cent, Paragon finds.

This puts Wales in second position in terms of total returns, behind East Anglia, the regions generating 25.6 and 29 per cent returns respectively. But Wales was the top performing region in terms of yield.

“Rents are rising strongly in Wales, but so are property values, although to a slightly lesser extent,” commented John Heron, Paragon Mortgages managing director.

He continued: “With a positive economic backdrop underpinning growth in tenant demand, it is not surprising that Wales is the top performer (in England and Wales) in terms of yield, and the only region to generate average rental yields in excess of eight per cent.”

Paul Rockett, managing director of Cardiff-based company TBMC added: “Following the successful redevelopment of Cardiff, from the Bay area outwards, we’re now seeing regeneration spread to other towns in south Wales, such as Swansea and Newport.

“Many international companies have moved into the Principality and this creates additional demand for homes, particularly for rented accommodation among younger workers who can’t or don’t want to buy for the time being, or foreign employees who may be here on a short term contract.”

According to calculations from Paragon, a landlord who invested in a buy-to-let property in Wales this time last year will have achieved almost twice the national average total return.

Paragon: Buy-to-let annual investment returns by region
East Anglia 29.0%
Wales 25.6%
North 23.9%
South-east 18.1%
South-west 13.9%
Greater London 8.8%
Yorkshire 7.6%
West Midlands 6.3%
North-west 5.1%
East Midlands 2.6%

Buy to Let funding - more opportunities for investors

While the newspapers paint a slightly negative picture of Buy to Let the market continues to offer enticing funding opportunities for investors.

Bank of Ireland has increased its ceiling on the amount of loans it will advance to any one landlord from £2.5m to £20m. The bank says this is aimed at the professional landlord with five properties or more.

Others such as Edeus will lend up to £10m, and Mortgage Express, part of Bradford & Bingley, has lifted its lending limit on property portfolios from £2m to £5m per customer. Woolwich will allow borrowers to build a portfolio up to £5m with loans on individual properties of up to £2.5m.

Lending rules are slackening because banks are facing greater competition – 20 new lenders have entered the mortgage market since 2004, many offering buy-to-let. Borrowers took out a record 330,300 buy-to-let loans worth £38.4bn last year, up 57 per cent on 2005. Data from the Council of Mortgage Lenders show there were 849,000 outstanding buy-to-let mortgages worth £94.8bn at the end of 2006.

Many lenders have also broken previous rules that they would lend only if gross rent covered mortgage interest payments by 130 per cent. This aims to buffer landlords against periods when the property is unlet and to cover costs such as maintenance.

Lenders are now offering loans to landlords with only 100 per cent gross rental cover. Others like Cheltenham & Gloucester, part of Lloyds TSB, are prepared to lend on salary rather than on rental cover.