Posts tagged: buy to let
Figures released by the Council of Mortgage Lenders (CML) this week reveal a huge spike in the number of Buy to Let Mortgages taken out in 2011 and although they have yet to reach the boom period of 2007, it’s clear that this is a major growth area for the mortgage industry as a whole.
The findings state that overall, the number of loans agreed leapt by 84,000 with the biggest rise appearing in the last three months of the year when 34,800 buy to let mortgages were agreed. Those figures for the final quarter of 2011 represent a significant increase from 26,300 in the same 2010 period.
By comparing these statistics with 2007, when over 93,000 loans were advanced, the rise is thereby put into some perspective but by the end of the year, this type of funding was worth around 13% of the overall market.
Paul Smee of the CML pointed to a number of factors that have contributed to the increase including a static housing market and an increase in demand for rental properties.
‘These figures do not suggest that buy-to-let is crowding out first-time buyers; more that it is performing a really important role within the overall housing market,’ Mr Smee said.
‘The benefits of the availability of good quality, private rented housing should not be overlooked, especially as there are many households which need the flexibility and mobility that the private rented sector is well-placed to provide.’
Industry experts are now predicting steady growth for an area that is something of a shining light among a depressed market. In addition, some commentators have linked the problems involved in finding first time buyer deals to the increase in buy to let mortgages.
‘The buy-to-let sector is one of the few beneficiaries of the current economic climate,’ said Jonathan Samuels of Dragonfly Property Finance.
‘Buy-to-let is being driven by the weakness of the economy and the continued caution of high street lenders at higher LTVs.
‘Consumers are wary about buying and lenders are wary about lending. The result is soaring demand for rental property, which is pushing yields ever higher’
Overall this may seem to be good news for everybody but there is a suggestion that those who are renting in the private sector may become trapped and at the mercy of greedy landlords. With first time buyer mortgages hard to obtain, rent increases may have to be endured.
Matt Hutchinson of spareroom.co.uk concluded with a warning to landlords.
‘Landlords should weigh up the benefits of retaining reliable tenants against the short-term benefits of hiking rents to take advantage of a booming rental market,’ Mr Hutchinson said.
‘The last thing any landlord wants is rental void periods, and if that means holding off imposing rent rises on current tenants, or even dropping the rent a little, then in the longer term that may be a better course of action.’
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If you’ve just bought an investment property for letting out, the next step is preparing it for let. Of course, the essential part of these preparations is to ensure that the property is habitable, in presentable condition and above all else safe. If you’ve done your homework then you will have chosen a property with good links to transport, in a desirable or safe area, and that doesn’t require major renovations.
Whilst major renovations may be required on some buy to let properties we’ll leave those for another article. Here we’re going to talk about those minor alterations that can really make the difference in a short space of time.
The good news is that it’s easy to makeover a property quickly and on a low budget. We’re not necessarily talking ’60 Minute Makeover’ here, but you definitely don’t want to be spending weeks on getting your property ready for the rental market. After all, it’s an investment and whilst it’s empty you’re not making any money so it’s time to grab a paintbrush and get moving.
Before you start, take a step back and review your property. You should prepare your property as if you were selling it. Renters are as savvy as house buyers and will inspect every room and every flaw especially if they are looking for a long-term rental.
If possible you should remove wallpaper and return each wall back to a plastered finish. When it comes to redecorating between tenancies you’ll find it much easier. Choosing neutral paint colours such as that old faithful ‘magnolia’ is a good move and means you can cover up any blemishes with ease.
Ensure that anything fixed to the wall such as radiators, heaters or kitchen units are fixed to the walls securely and that carpets and flooring are sound. You might want to replace carpets with wooden floors as they are long-lasting and will repel any stains that occur during tenancies. Hardwoods are more expensive, but will last for years and can endure a lot of knocks and scrapes.
Arrange for the heating system to be serviced. Ask your heating engineer when the boiler might need to be replaced. It’s a good idea to budget or be prepared for future expense and if the boiler is particularly old you might want to replace it now rather than face the cost of future repairs.
Finally, it’s time to consider furnishings. If you are letting an unfurnished flat you will probably need to provide white goods such as a fridge freezer and washing machine at the very least. A dishwasher will be a good investment too if you can afford it. Many tenants expect these items to be in place and to be in working order.
If you are letting out your property in a furnished state then items need to be robust, comfortable, and attractive. With so many rental properties on the market you should make your property as stylish and as homely as possible so that people want to live there and are happy to pay the rent you are asking. This doesn’t mean a trip to the West End shopping for high-end furniture. A trip to Ikea will more than suffice!
As touched on previously you should prepare your property as if you were putting it on the market to sell. Once your preparations are complete make sure it’s presentable, tidy, and clean and that all appliances and other furnishings are in good condition. That way you’ll have a property that people want to live in and one that will take you through many tenancies without any major problems.
Last week at The Big Property List, we looked at the high number of mortgage applications that are currently being turned down and highlighted just how difficult it is to gain any foothold on the property ladder today. As with most things however, bad news for many will result in good news for a few and figures are clearly showing a significant increase in the number of buy to let mortgages currently being granted.
In relatively recent times, buy to let mortgages were seen as a market for specialist lenders only but all that has changed to move in line with the property market itself. When traditional house sales are slow, buyers with money to invest in rental properties step in and this type of purchase becomes more prevalent.
Now it seems the buy to let boom is back, with specialist lenders returning to the market with good rates after identifying the trend for investment properties. As a result, in just over 12 months, the number of mortgages available for this niche market has increased from 295 to 481.
David Hollingsworth from independent broker London and Country said,
“There are definitely more lenders who are back in the market. Skipton stopped any buy-to-let and came back within the past couple of months offering quite good rates.”
“Paragon, a specialist lender in the sector, came back at the end of last year,” he added. “They had been associated with a professional landlord but have launched mortgages which are geared more to ordinary people entering buy-to-let for the first time.”
With the increase in second homes there has been a steady entry into the market of families who buy an additional property as a one off investment. While the professional landlords still remain, there is an increase in the number of investors who are taking advantage of the market to snap up a second property. As that additional purchase is made available for rent, the need for buy to let mortgages has grown.
Times have changed however and the new range of buy to let mortgages are, as rule, more restrictive and whereas a deposit of 10% may have been enough to secure a loan some five years ago, you can expect to have to find around 30 to 35% now. Additionally, there is now an absolute minimum salary requirement of £20,000 which shows a shift away from previous times where buy to let income alone could secure a mortgage.
This is all very well but on the face of it, it seems like good news for the professional landlord, but with the market becoming increasingly difficult for first time buyers, there is a noticeable shift towards renting your home.
With two thirds of mortgage applications being turned down, renting can quickly become the only option. In turn, professional landlords are now being joined by the one off property investors and as a result, an imminent boom in buy to let mortgages seems like a natural progression.
Last week we published an article on buying ex-council property and the savings that can be made, but what about selling your ex-council property?
Selling ex-council property can be a little tricky for a number of reasons. Firstly, it can be difficult for prospective buyers to find the funds to buy ex-council properties. And secondly, first time buyers are thin on the ground right now and this is the market your property will appeal the most to.
Whilst there are many resources online for helping people to buy a new home there seems to be a real shortage to help those trying to sell their home. Here are a few things to bear in mind when selling an ex-council property.
- Ex-council properties are usually priced for a lot less than those built privately. Depending on the location and type of property, your ex-council house could sell for up to 40% less than comparable properties in the same region. However, this is only a rule of thumb and this isn’t always the case.
- Most prospective buyers of ex-council properties are first time buyers, investors or people on a tighter budget. Think about this when trying to sell your property as it’s important to know who your potential buyers are.
- The market is slow right now and will make selling your property that much harder. However, everything depends on your location, the property itself and how many potential buyers you can attract.
- Just like a private house sale, ex-council properties require a valuation. However, ex-council house valuations aren’t always so straightforward as they can be located in estates where the majority of properties are still owned by the council.
If you are just starting out in the house selling process there are many resources available to help you. Just remember that selling an ex-council house requires the same attention as selling a private house. It’s always advisable to hire the services on an estate agent and you’ll find most have invaluable expertise when it comes to selling ex-council houses and flats.
A good agent will steer you through the process ensuring your house is listed and advertised in the best possible light. They can even show prospective buyers around your home if you are unsure of how to do this or you are uncomfortable doing so. The great thing about hiring an estate agent is that they can handle the selling process for you ensuring all the great points of your home are highlighted. An estate agent also has the required knowledge to give your house a fair valuation given the state of your property, the location and other similar properties in the area.
Of course, supply and demand for ex-council properties varies, but if your property is well priced you may find you sell your home quite quickly.
This is especially true in London and other major cities. Here there is always high demand from buy to let investors and in major cities there is already a market so you should be able to find lots of resources to help you sell your ex-council property.
It’s Budget time and many of us will be frantically scouring the budget news for proposals, price hikes and changes that will affect the property business.
House prices could be set for a boost by a multi-million pound stream of buy-to-let investment by institutions, including the biggest insurer in Britain, prompted by an often-overlooked clause in the Budget.
Whilst a lot of attention has been paid to the £250m of new loans made available to help 10,000 first time buyers, less attention has been focused on the reforms to stamp duty for people looking to ‘bulk buy’ residential properties. Not getting excited yet? Wait until you see some of the figures.
If the Budget proposals pass into law, the tax bills for institutional investors and other buy to let landlords could be slashed by 80%. Anybody purchasing a property portfolio of let’s say 100 homes worth an average of £200,000 each following the 6th April would attract a Stamp Duty charge of 5% of the 20m deal value or £1m.
However, Chancellor George Osborne is proposing a change to the way these taxes are calculated. The proposal means the rate applied will be based on the average value of the properties concerned and not their total value. If we use the example given above, because the average price paid for the properties was £200,000, the rate of Duty falls to 1% resulting in a tax bill of £200,000. That’s some drop!
James Moss, a director at Curzon Investment Property, said “This will be a huge boost in the private rented sector as it will allow pension funds to buy homes in bulk without any unfair spikes in Stamp Duty.”
That’s an understatement! When you consider the sums of money that insurance companies and other institutional investors have under their management, any increase in this allocation to residential properties could have a dramatic effect on UK house prices.
Aviva, the biggest insurer in Britain today, has confirmed they are considering setting up a £1bn residential property fund so they can take full advantage of the proposed tax break and other big names are very likely to follow suit. Some market analysis has suggested that many properties still remain overpriced, but figures show that the rental market has held up despite the recession.
No matter how you look at it, bricks and mortar are still attractive for many institutional and individual investors. The next few months look set to be interesting and the result on the housing market could be dramatic although don’t expect these changes to occur over night.
If you are thinking of buying a property at auction it’s a great time to do so. There are a huge amount of opportunities on the market right now and more and more people are turning to auctions in order to sell a property quickly or snap up a bargain. The slow market and increasing number of houses being repossessed has resulted in a dramatic surge in auction sales and it’s good know the advantages as well as the risks involved with buying a property this way.
Where to Look
You can find out about local and national auctions through estate agents, newspapers, and our online property auctions directory. Many auctions are also advertised by the roadside so look out for signs advertising local auctions. If you are buying in a new area it is a good idea to do some research before you decide which auctions to attend. There is plenty of information online that can assist you so that you don’t make any hasty decisions.
On the Day of Auction
Before you head off to the auction house, it’s a good idea to call up to make sure any property you are interested in bidding on has not already been sold or has been withdrawn. You should also ensure you have your deposit to hand – many auction houses accept cash or cheques, but it’s best to check beforehand. You will normally need 2 forms of identification in order to register.
Once you have been issued with your bidding number you’re ready to get started. If you are interested in a particular lot it’s important to stay calm once bidding commences. You should already have a maximum price that you are prepared to pay for the property and make sure you stick to this figure. Many people get carried away by the bidding process and have bid well over the odds as a result. It’s a good idea to gauge interest in the property before you start bidding yourself.
All lots up for auction will have a reserve price which is the minimum price the sells is prepared to accept on a property. This figure is not disclosed, but if bidding doesn’t reach this figure the property owner may well decide not to sell on the day for anything less. However, the guide price (that is the price the property is expected to sell for) should give you a rough idea of what the reserve price may be and hopefully this figure is in line with what you are prepared to pay. Otherwise you may be in for some touch negotiations with the buyer or lose out on the property completely.
Tips for Bidding at Auction
Buying or selling a property at auction has a host of benefits and is becoming more and more popular across the UK. As long as you stick to the golden rules below you should find the process enjoyable and very rewarding.
- Always research the property you are interested in fully
- Make sure you have your finances in order and the required deposit (usually 10%)
- Get to the auction house early to register and take stock of the environment
- When bidding commences, don’t get carried away – remember your budget!
- Bidding can be intimidating so try to stay calm and focused
More information on property auctions in the UK can be found in the resources section on The Big Property
No so long ago, buy-to-let was viewed as a pretty sure bet by those with money to invest; with the potential to make big long term profits, and a good interim income, they presented an attractive way to invest your money. But with current economic volatility, and the fluctuation in housing prices, it’s no surprise that some landlords are now rethinking their portfolios.
Digging into our own data (here at Simply Business) we can see that when we compare the average market value of those properties insured with us in 2008 vs 2010 there is a drop of 6%. This is particularly significant when you consider that prior to 2008 we’d seen prices appreciate year on year.
I guess the question on many landlord’s lips is – are we going to turn the corner and see property prices begin to recover? Or, is now the time to sell that buy to let? If you too are in this position it’s important not to act hastily – there are many things to consider when making the decision about whether or not to sell your buy-to-let property.
First and foremost you need to remind yourself of what your original investment aims were when you bought your buy-to-let. For the majority of landlords this kind of property is a long term, high-yield investment, as opposed to an investment for short-term capital appreciation. And if you fall into this category then it’s important to keep the long term in sight.
During the spring of 2010 thousands of owners off-loaded their buy-to-lets because of fears that the new government was going to raise Capital Gains Tax to 40 or 50%. In the end the increase (and only for those who fell into the high-tax bracket) was to 28%. This just goes to show that having a knee-jerk reaction in the world of property investment can be costly.
Similarly, to panic sell a property because there is a dip in market prices can end up being a mistake. Many landlords feel that if they fall into negative equity they should get rid of their buy-to-let. But this is really the worst time to sell. Prices rise and fall but over the longer term they tend to follow a significant upward trend. And the truth is that negative equity is only a problem if you sell, or find yourself in a position where you are forced to sell.
A long period of vacancy may also tempt landlords to sell their property. If this is the case for you, but you’re currently in negative equity it is important to note that there are other options open to you. It’s always worth doing a bit of research into other rental properties in your area. It can take only a small amount of money, and a little effort, to bring your property up to a standard where it will be easier to let.
But if you’ve reached a point where you’re ready to sell simply follow the usual property rules. It’s well known that between March and July is the best time of year to put your property on the market. And keep your eye on house prices and changes in tax and interest rates. The last thing you want is to be selling in a buyers’ market. But just as house prices fall, they also spike. If you see a number of houses under offer in your area it could be a prime time to catch the buyers who’ve missed out. However, if your neighbours have saturated the market with for sale signs that don’t seem to be going anywhere then it’s probably a good idea to hold off.
Overall, the most important thing to remember when you want to make a profit out of selling your buy-to-let is to not panic because of short term problems. Take the time to think through all of the issues at hand. And always remind yourself – making a high profit on the property market is a long term investment.
For many who spent the tail end of last year trying to predict this year it must have seemed a doddle compared to forecasting now. Suddenly the press, and even me, are beginning to sense that although the year may be a dreadful dirge, it does look as if prices in London will end the year higher than they started. This is not saying a whole lot but from where I’m sitting there are occasional deals being done that simply beggar belief, whereas if you wander out of London, particularly in a Northerly direction, the stories are of a very different nature as the press are keen to let us know.
Sadly all commentators agree that volumes will be a victim this year, and many fear this malaise will continue into next year which is depressing. But hang on a minute next year is Olympic year isn’t it? We’re all supposed to feel good about that, and I’ve even registered for tickets as any self respecting Londoner should, but will it be enough to dispel the fog.
One thing everyone forecast, and the auspices loom good, is that rental numbers will increase in London next year because of the 2012 Olympics being here. With perhaps the worst area for sales currently being small flats, no demand from first time buyers still, it’s very likely, and beginning to be the case, that buy to let investors are beginning to lick their lips and dive in. I sat in a meeting with some heavyweight agents yesterday and all the ones I spoke to said if they had money they’d be buying investment property now. The fact that they can’t shows the general level of nervousness and lack of income in the estate agency game at the moment, but perhaps whilst many top end agents gloat about how many £5m plus properties are selling those who deal at the bottom end might just be about to get their own timely boost.
Ed Mead is a regular contributor to The Big Property List blog. An Estate Agent for over 30 years, he has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph. He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.
For the first time since I’ve been at Douglas & Gordon we made more money last month from lettings than we did from sales.
Given that we are a medium sized company that’s not as trite as it sounds. Renting seems to have finally lost it’s stigma and even seems to be where sensible people reckon they should be when property values appear to be on the way down.
Those who work in lettings have often felt, because of the lack of crash bang months, that the drip drip [albeit constant] nature of their income means they’re the poor cousins.
But with buy to let borrowing on the agenda again and with all the publicity surrounding Council tenants suddenly they’re front page news. About time I reckon. Having rented for over 20 years and been dead pleased with it, many commentators were amazed and quick to point out how I was missing out on the market. I politely replied that I had been investing in something slightly old fashioned and possibly more rewarding. It’s called your own company.
Such is the obsession with property (thank heavens as I’m an estate agent after all) that investing in something that actually yields jobs AND a return seems to have become a lost art. With 70% of the world’s wealth now tied up with property it’s hardly surprising.
Perhaps with standard investments yielding derisory returns entrepreneurs might start to see the light of day again, but with residential rents looking set to rise sharply, capital values stagnant at best, and borrowing costs as low as they’ve ever been I would think buy to let might just become the investment of choice for a few years to come.
Ed Mead is a regular contributor to The Big Property List blog. He has been an estate agent for over 30 years, and has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph. He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.
The upside of the credit crunch fuelled recession has been, for many British families, lower mortgage repayments on loans. Despite the media’s love for doom and gloom these lucky souls have been going about their business not believing their luck. The mortgages in question are those calculated at the lenders’ standard variable rate (which may or may not be tied to the bank of England Base rate) or tracker mortgages (About 1,500 C&G customers on tracker mortgage at 1.01% below Bank base rate have been paying no interest at all on their home loans since March 2009! according to Citywire).
Historically low interest rates have meant that some homeowners have actually found an extra few hundred pounds in their bank account each month as a result of the Bank of England’s efforts to buoy the housing market and avoid an even greater disaster of a recession.
Those who have a mortage with a lender who ties their variable rate to the BoE base rate have been the happiest, or those with tracker mortgages.
However some banks (such as Standard Life) have an arbitrary standard variable rate that they set themselves. (Remember that kid that wouldn’t let you play with his ball unless you agreed to his version of the rules?)
Some of these lenders whose SVR is not tied to the bank’s rate are starting to hit many UK homeowners with a rate rises in an efforet to recoup losses made elsewhere reports citywire this week.
Our own Professional Landlord recently sold a house due to his mortgage company (Standard Life) keeping their SVR for low LTV customers at 6.67% despite the base rate sitting at 0.5%. A remortgage deal for an existing customer? Why no sir, those are reserved for our special new customers only sir.
In fact Buy-To-Let investors tend to fare worst in these circumstances and are seen as fair game by lenders as their interests are also commercial. Or so the argument goes.
A quick and dirty list of Lenders’ SVRs shows some disparity:
Marsden building society 5.95%
Mansfield building society5.59%
Ipswich, Scottish and Cambridge building societies and Accord Mortgages, most of which are well over 5%.
Skipton SVR 4.95%
Norwich & Peterborough 4.85%.
Santander SVR 4.24%
Nationwide Building Society SVR 3.99%
HSBC SVR 3.94%
First Direct SVR 3.69%
Halifax standard variable rate (SVR) 3.5%
Barclays SVR 2.49% (via the Woolwich)
Most analysts agree that the BoE base rate will rise from 0.5% this year, but moderately and towards the end of the year – into 2011 looks a bit far out from here to say but again moderate increases are expected.
So what can we learn from this? If you’re remortgaging or getting a mortgage then tracker deals inherently are a gamble of sorts and you could get lucky like those C&G customers above, or you could get unlucky and we could enter a period of high inflation – or something in between. If you are taking a new fixed rate deal then look carefully at how the lenders’ SVR is calculated – is it the arbitrary judgement of the boardroom or is it contractually tied to the BoE base rate?