Current Status of the Buy to Let Mortgage Market
07 Oct 2007 Tell a Friend
According to numerous sources there has been a downturn in the number of people buying investment properties in the UK. The Council for Mortgage Lenders (CML) agrees and warns that the demand for buy to let borrowing is expected to ease.
One specific example of this easement can be seen when taking a look at Landlord Mortgages, or buy to let mortgage. They say that there has been a 25 per cent decrease in the amount of business being carried out by their current clientele.
More bad news for the buy to let market came this week when the Institute of Directors petitioned the government to close a tax loophole that allows investors to deduct interest costs from their rental income. CML says that while the number of outstanding loans is at a record high of 938,500, the actual number of loans that were taken out in the first half of this year is down 3 per cent from the second half of 2006.
Since it is becoming more expensive for lenders to borrow money to the wholesale market, there seems to be a growing trend in the way that lenders are marketing themselves. Instead of trying to compete with low fees and high LTVs, many top lenders are attempting to make themselves look as unattractive as possible with high fees, lower LTVs, and with fewer product offerings. Since they're unable to pull out of the market completely, this is the best course of action for them.
The whole appeal of buy to let mortgages for landlords is that the value of their property is supposed to appreciate. However, the way the market is behaving currently, it isn't certain that property values will in fact increase. Most buy to let borrowers realise that property value appreciation is a long term goal and that it's something that will happen over numerous market cycles. Because most buy to let borrowers are aware of this, the market specialists do not expect this short term downturn in the market to affect the investment property industry or buy to let mortgages too much.
Due to the instability of the current housing market, there is sure to be a steady increase in demand for rentals. This will keep buy to let mortgage holders afloat. Research shows that there is a 2.4 per cent increase in the demand for rentals. Also, it shows that rental yields are holding steady at around 6 per cent. Many landlords plan to increase their portfolios in the near future bringing the average portfolio's worth to around £1.5 million by the summer of 2008.
According to the Association of Residential Letting Agents (Arla), 28 per cent of landlords plan to sell some of their holdings, while 10 percent say that they will sell their holdings completely.