Buy to Let Mortgages in the UK by leader6


									Buy to Let Mortgages in the UK
Writing an article on the state of the Buy To Let (BTL) sector in late August 08 for a September the 1st deadline is always a challenge as many
property professionals take an extended holiday break (your Editor included) in July and August. And of course summer 2008 has seen home owners,
landlords and lenders all take a collective back seat as they wait for outcome of the ill-judged Treasury leak about potential changes to Stamp Duty.

Arguably many BTL properties fall below the £125,000 threshold, so would not be impacted, but the sale of some of these properties may be held up
as buyers moving up the property ladder await any reduction in Stamp Duty on higher value properties. The potential impact of this political gaff should
not be underestimated since it came at just the moment when investors and lenders were finding common ground and activity was starting to pick up.

Putting that problem to one side for the moment there are good reasons to believe that the BTL sector is weathering the storm:

   * Tenant Demand

    Evidence of good rental growth across the UK can be found not only in the latest RICS Lettings Survey with a headline of "Lettings market shines
bright in housing gloom" but also in Paragon's Buy To Let Index for July where yields across the UK are 6.4% with average growth in the last year of
9.3%. Additional demand is being driven by the reduced availability of mortgages at 100% or above for first time buyers who will need to rent until they
can save up the necessary deposit and with higher interest rates being charged on borrowing at thee 95% level , it may be more expensive to pay a
mortgage than rent for the time being.
   * Mortgage Availability

    One year on from the credit crunch, the BTL sector has fewer lenders with tighter credit criteria and risk based pricing encouraging landlords to
invest more capital in return for better interest rates. Pricing as low as 5.09% for a 2 year fix at 60% loan to value with higher pricing is applied by
those lenders still willing to lend to 85% but with increasing dependency on retail deposits to fund new lending the cost is reflected with rates more in
the range 6.5% to 7.5%.
   * Mortgage Funding

    Current funding is based on the known performance of the existing BTL mortgage book and the recently released CML figures look relatively
benign with only 1.1% of loans in arrears over 90 days compared to the broader market figure of 1.33% but still up from 0.73% at the end of 2007. Any
significant deterioration would cause lenders to re-trench further at a time when BTL landlords are probably the best hope for the property market
absorbing the CML predicted 28,000 repossessions in the second half of the year.
   * Preferred Property Sectors

    The new homes sector had always been popular with investors in a rising market - where there was no property chain and the opportunity to buy
off plan with completion up to eighteen months away held out the prospect of capital appreciation for little risk in the early years of the new millennium.
By early 2007 some developers were creating artificial incentives to lure in investors leading to concerns over the true value of developments where
upwards of 40% of the units were sold to investors. This has led to rental problems and geographical concentration risk and lenders have placed a
75% LTV restriction and full transparency on the component parts of the transaction. This is bound to impact the house building sector and the results
of Taylor Wimpey on 27 August announcing a 96% fall in pre-tax profits and exceptional items of a further £1.5Bn must reflect some of these issues.
Effectively the development of sites has mostly ceased as builders concentrate on selling existing stock before developing subsequent phases. Whilst
house prices have eased there are not sufficiently large volumes of properties being sold to suggest a collapse of the broader market.
   * Market Confidence

    Paragon's July Trends Review reveals that investor sentiment towards acquiring further property remains strong with twice as many landlords
looking to add properties than intending to sell. This is driven by a belief that they can secure a lower price as well as being high tenant demand being
a key factor for 39.3% of them.
   * Feel good Factor

    There is one additional confidence element that impacts the whole country and that is the somewhat unexpected "feel good factor" that has been
created by the well deserved success of Team GB in Bejing. Not only has it dominated the headlines and pushed away the doom and gloom headlines
on the property market and economy at large but has created a genuine interest in London 2012. When France won the Football World Cup in 2006
the GDP growth in the next quarter was 0.5% above the predicted rate. The benefit to the UK may last sufficiently long enough for other potential
positive measures to show through such as a Base Rate reduction of 0.25% in early November or, heaven forbid, the Government untangling the
Stamp Duty fiasco with a stepped aligned on price bands and a raising of the "zero" band to £250,000 - is that too much to hope for ?
About the Author
Micheal Aglony works with - buy to let mortgage specialists.


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