This summer marks the Tenth anniversary of the buy-to-let
mortgage. In July 1996 Mortgage Express (part of the Bradford
& Bingley group) were the first to trial a dedicated
buy-to-let mortgage product, and currently has a market
share of approximately 20 per cent.
Buy-to-let mortgages evolved after new legislation within
The Housing Act gave landlords more power to evict tenants
who were not keeping up with their rent. In September
1996, the Association of Residential Letting Agents (ARLA)
launched these loans via a panel of lenders, and hence
the buy-to-let mortgage arrived in the UK property marketplace.
Relaxation of criteria reflects the realisation that
buy-to-let is not as risky as lenders first thought. There
are now around 70 lenders offering the buy-to-let product
however albeit that around 50 per cent of all buy to let
loans are written by the 6 members of the ARLA panel:Paragon,
GMAC, Mortgage Express, Birmingham Midshires, NatWest
and The Mortgage Business.
A risk analysis of buy-to-let versus residential shows
residential loans have a higher risk profile. Latest figures
from the Council of Mortgage Lenders showed that 0.68
per cent of buy-to-let mortgages had been in arrears for
more than three months, compared with 0.97 per cent of
normal loans.
High house prices and a growing population have meant
that more people are now renting for longer, fuelling
the demand for rental property. Amateur and novice landlords
alike who have enjoyed success after dipping their toe
into the water with one or two properties now have the
confidence to further increase their portfolios.
Over the past decade the sector has enjoyed exceptional
growth, to now represent approx. 8 per cent of total housing
stock in the UK. The first mortgage deals were inflexible,
commercial style products with high interest rates, up
to 4 per cent over Bank of England base rate, and low
loan to values up to a maximum of 75 per cent. Historically,
rental cover had to equal 130 per cent of the mortgage
to protect both the lender and the landlord against voids
and the higher risk.
Landlords now benefit from an average loan to value of
85 per cent, and rental cover now averaging 125 per cent
of the mortgage payment. Although lending is available
to 90 per cent and rental cover at 100 per cent.
Recent research revealed that 83 per cent of landlords
plan to increase or maintain their portfolios in the next
six months, showing that the appetite for investment remains.
The average property portfolio has increased from three
per landlord in 1996 to seven this year.
Buy-to-let lending has grown from £3.1 billion
in 1999 to £24.5 billion during 2005 and the market
alone is worth over £73 billion and still growing.
The fragility of world stock markets and the pensions
crisis has ensured that more and more investors are turning
to bricks and mortar to secure their future.
Whilst the increasing student, single person and migrant
population will continue to support the rental sector,
growth in rented households is predicted to be around
3 per cent over the next ten years. However the downside
is for first time buyers, who are often vying for similar
properties as buy-to-let investors, despite government
assurances of support the growth in the buy to let market
could well herald the decline of the first-time buyer.
With rising property prices and diminishing rental yields
First Mortgage Trust have designed a buy-to-let rental
calculator that takes some of the guesswork out of the
initial process which can be found under the calculator
section at their website.
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