In a week of mixed news for the Buy to Let Mortgage industry Brokers can feel confident that customers still trust them to deliver professional advice and access to the mortgage market. Across the UK 58% (source: Council of Mortgage Lenders) of all mortgages were distributed via intermediaries. This position is likely to strengthen further – particularly in specialist areas as a number of broker only lenders return to market as funding becomes available. It also highlights the importance consulting a broker will have to consumers as well as doing their own research on the internet as some products will only come to light during a professional consultation.On top of that news the market for Buy to Let lending has grown significantly when we compare Q1 2010 to Q1 2011. This is despite the continuation of tight funding and most buy to let lenders being unwilling to advance more than 75% LTV and looking for comfortable rental coverage (typically 125%). For the first time since the credit crunch settled in landlords are finding access to funding significantly improving and many are taking the opportunity to grow their portfolios and move into specialist areas such as HMO Mortgages.
There was however a surprising increase in arrears reported by the Council of Mortgage Lenders on Buy to Let Mortgages. This is ahead of any rises in interest rates and with rental demand at levels few landlords have previously experienced – which is of course why this is both worrying and concerning. As rates rise and conditions deteriorate slightly in the demand side of the equation as the government cuts bite home we are likely to see more landlords struggle.
The good news in all of this is that we are seeing not just a short term change in home ownership but some significant changes in how this generation see their future. Many still covet the idea of home ownership but also the flexibility of private rented accommodation in their 20’s and 30’s. This shift is somewhat new to the UK and is leading to significant shortages and rent spikes in some areas. In the medium term the private rented sector will need to grow at a fairly steady pace to meet this demand and avoid huge strain on housing.
With this pressure for change and demand comes a huge opportunity for property development and for private landlords to expand their portfolios often through professional buy to let mortgages and similar finance arrangements. The arrears picture is a warning to landlords that not only must they be careful to pick areas with sustainable demand, jobs growth (or at least stability) but they must ensure their finance arrangements are structured to withstand the upcoming changes to both rates and to the strength of the economy.
A combination of the sovereign debt crises in the EU and the government cuts here in the UK mean there are notable risks to demand, interest rates and the economy as a whole. This means that despite the huge demand and opportunity, becoming a Buy to Let landlord is far from risk free and requires that a great deal of thought is put into location, financial security and the lending products chosen.