Buy to Let Mortgages: The state of the industry

October 7, 2015

Purchasing a property for investment with a buy-to-let mortgage, is an attractive prospect for many Londoners. With a high demand for housing, due to a spike in population and a lack of public housing, landlords are never short of high quality tenants queuing up to cover their mortgage payments. Indeed London accounts for 24% of the UK’s buy to let market.

Potential worries eased

Three years ago it was felt that interest-only mortgages could be a “ticking time bomb”. In fact at at the end of last year, the stock of outstanding interest-only mortgages still stood at some 1.9 million loans, with a further 460,000 on a part interest-only, part repayment basis.

Last year only 1% of first-time buyers borrowed on an interest-only loan.  This is down to the the “natural attrition” of interest-only mortgages.

The equity position of the remaining interest-only stock also improved last year. Part of this was down to house price inflation which, according to the Office for National Statistics, ran at nearly 10% nationally.

Lenders are communicating well with respondents. According to figures, 86% of loanees say that they were given a repayment strategy by their banks or building societies.

Repayment rates of buy to let mortgages are encouraging. For the remaining one-third that have not repaid within a short period, lenders are working through a range of solutions with borrowers to manage down their loan. Over half of those borrowers that have not repaid have since agreed a move to a capital repayment basis.

Factors affecting buy-to-let growth

Buy-to-let has grown from around 9% of all lending for house purchase in 2010 to account for 14% of this activity today. However, buy-to-let accounted for 17% of house purchase lending in 2007.

The strong growth of buy-to-let – and recovery of the private rented sector – is the result of a range of factors, including increasing numbers of young people in higher education, an influx of foreign residents, a reduction in social housing, tightening affordability pressures on would-be owner-occupiers, and a lack of sufficient pension provisions. Within the lending sector, there has also been improved credit availability and increased competition between firms.

There are currently around 1,100 buy-to-let mortgage products, the highest number since April 2008. Although there are many socio-economic factors supporting further strong growth in the private rented sector, the medium- to longer-term prospects for buy-to-let have suddenly become less certain. They are likely to be affected further by the tax changes announced by the chancellor in his summer Budget, as well as regulatory developments.

Here at Waltham Estates, we can offer much in the way of advice and support as you undergo your journey to property owner, through a buy to let mortgage. We are ARLA accredited and also hold full membership of industry bodies such as NAEA, TPO and LRS meaning that our services come with industry backing and approval. Call us today for more support and information.

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