Buy-let mortgage market reaches historic high
Prospective landlords have been given a boost following announcements from numerous market analysts that the overall costs of acquiring a buy-let mortgage have reached historically low levels.
The current low overall costs for landlords have been attributed to soaring demand for rented property in the UK, which has amplified the merits of buying to let exponentially.
The result of this has been a series of low rate mortgages that are actually better than the offerings present on the market prior to the start of the recession back in 2007. The current lowest two rate fixed deal is set at just 2.49%, which is over 2% lower than it was six years ago. Moreover, handling fees are falling substantially with some providers not even charging them to applicants at all.
It is thought that the competitive offerings are a pragmatic and reactionary move from Britainís mortgage providers who are likely looking to draw new clientele in from Britainís rapidly expanding rental market. It has been estimated that over ten million individualís current rent property in the UK which is over twice the number of people who did back at the start of the millennium.
Lenders are settling for small margins in an effort to attract new customers amid the expansion of Britain's rented sector, brokers said.
A sixth of the population ñ some 10 million people ñ now live in accommodation rented from private landlords. This proportion has roughly doubled since 2000, according to Knight Frank, the property group, and more rises are expected.
David Hollingworth of London & Country, one of the UKís most prominent brokers have identified there has never been a better time for an aspiring landlord to enter into the rental property market.
"The market for buy-let lending is extremely competitive and rates are the most competitive they have ever been," he said.
"Bank Rate is still at a record low at 0.5pc and lenders want to attract new business, so they're all pushing their rates down, even for borrowers with less equity in their portfolio."
Despite the apparent upturn in the complexion of buy-let mortgage offerings on the market, a handful of brokers have downplayed the value they represent. David Whittaker of Mortgages for Business argued that the current rates are not better than the swap rate mortgage deals displayed back in April and that on actual terms there had been little change in recent times.
Many other market analysts have argued that whilst rates are exceedingly competitive at present that they would likely rise in the near future due to inevitable interest rate rises.
Bank of England governor has pledged to keep rates low for the foreseeable future, but with unemployment falling at a staggering pace and economic growth on the rise; it is likely that they will rise sooner rather than later, probably in 2015.
When this happens, those who currently enjoy low monthly mortgage repayments due to low interest rates will have to pay substantially more each month, which could be potentially problematic down the line. Those who only pay interest each month will be the worst affected, whilst those on variable deals will also have to prepare themselves for the worst.
Mr Whittaker has urged people to commit to a long term fixed deal in order to protect themselves from the impending price rises whilst also giving them ample time to acclimatise to the change and restructure their finances accordingly.
Mr Whittaker said: "It is highly likely that interest rates will raise on medium term fixed-rate mortgages, reflecting the impending rise in Bank Rate. Once Bank Rate starts to move, 20 years in the industry has taught me that it will move faster and higher than anyone expects. Our advice is to consider taking a five-year fixed-rate mortgage to delay the impact of rate rises."
Despite Mr Whittakerís understandable caution, Mr Hollingworth has argued that there has never been a better time for aspiring landlords to enter into the market, as lenders were actively looking to tailor their offerings to attract more customers.
This is because providers perceive buy-let distribution as relatively low risk, and considering that the number of people renting is soaring, it could represent a lucrative opportunity for many.
The reality of this notion has been clearly represented by buy-let distributor Paragon, which has witnessed a 206% rise in their buy-let acquisitions in the 14 months between October 2012 and December 2013.
Furthermore, data from Knightís Frank indicated that the number of people who actually own a house today has fallen to around 63%, which is far below the 69% seen over a decade ago. Conversely, the number of people renting has rise n by 17% in the same time, clearly display the potential for landlords if they get their area and property acquisition right.
Moreover, with property prices only heading in one direction at the moment, it can be argued that Mr Hollingworth is entirely right to say that there has never been a better time for landlords to capitalise on the complexion of the rental market.
With interest rates set to rise sooner rather than later, and landlords set to be faced with higher monthly mortgage costs in the near future, the news that there are so many cheap fixed rate deals on the market at the moment is unduly positive. The reality is that the higher monthly costs for landlords will be passed on to tenants, who are typically less financially prepared to cope with the transition. If the market continues to make it financially attainable for a landlord to purchase a series of new property and then make them available to prospective tenants at a lower cost, then the positive effects of the low rate offerings at the moment could be felt for years to come.
Particularly in the capital where prices are rising all the time and ëbubble likeí symptoms have been cited, giving landlords the cheapest possible deals at the moment should help rent charges stay in reach of many tenants finances and could have the knock on effect of stabilising the drastically inflated housing costs in London, at least for now.
Buy-Let mortgages to look out for
If you are someone who is looking to acquire a buy-let mortgage in the near future, then the following are the most attractive and beneficial deals on the market at the moment, though keep an eye out at all times and use comparison sites on a regular basis so you can ascertain what the most competitive offering is at your time of acquisition.
Leeds Building Societies, 2 year fixed rate deal- Highly competitive interest rate of 2.79% with a substantially small processing charge of £199. Mortgages of up to 60% loan to value are available with this deal, so you will have to have quite a lot of money set aside to cover the rest, though you can rest assured that your are receiving a brilliant rate so that your payments arenít high, and donít have to part with thousands through handling charges. The mortgage comes with a free valuation service as well as all administrative work done for you when it comes to remortgaging later on down the line.
Principalityís, two year tracker rate mortgage- An excellent interest rate of 1.99% though you will have to pay a 2.5% handling fee to the provider. Mortgages of up to 60% loan to value are available and all valuation and administrative work with remortgaging will be done for free on your behalf. However, there is also a booking charge of £99, whilst you should be aware that because it is a tracker mortgage, you could see your rate rise in the near future should the base rate of the Bank of England rise. You can however use the current low rate as a forum to overpay now, so that when rates rise, you will be in a financially superior position that you would be otherwise.
Santander 5 year fixed deal- Interest rate is slightly higher at 3.49% but users benefit from being fixed in for five years rather than two. This may be more beneficial than first thought, as interest rates will probably rise in 2015, meaning that by 2017 they would have steadily crept up and by 2020 they would be substantially higher than they are now. Fixing for five years at a slightly higher rate will ensure you have enough time to make the transition to higher mortgage payments, whilst also enabling you to pass on an aspect of the savings to your tenants. The handling fee is £1495 though the valuation process is uncharged and you are entitled to £250 cash back. However, you will need to be financially secure to make this viable as it is only 60% loan to value maximum.
Nottingham Building Society 3 year fixed- For a mid range fix you can acquire a 3.49% offering from Nottingham Building Society. The handling fee is higher at 1999, though you can acquire higher loan to value mortgages which might be better suited to you depending on your future motives and circumstances. The valuation and administrative work in the remortgage procedure is included, though this is not applied to those who have no desire to remortgage.
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