Buy-to-let news to Friday, February 2nd, 2018

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Northern cities showing strongest buy to let growth

Prevailing economic conditions have seen an evolution in cities such as Birmingham and Manchester, where house prices are rising as a result of high demand from buyers.

Investment in infrastructure, industry and housing, is resulting in ongoing socio-economic regeneration of city centres, creating jobs, population expansion and buying and rental demand.

One of the consequences has been a notable reduction in the gap between asking and achieved prices in many of the key northern cities.

Graham Davidson, managing director of buy-to-let specialist, Sequre Property Investment, said:

“As expected, key northern cities are dominating UK growth.

“Manchester and Liverpool have remained among the strongest contenders with other cities such as Nottingham and Birmingham also among the top areas for property growth.

“For buy to let investors, these [northern cities] are the cities to be looking at over the next 12 months.”

Whilst the north is presently offering healthy returns for buy to let landlords, cities in southern England – and particularly in London, have seen property price discounts from the original asking price.

Data indicates that the average discount in the Capital now stands at 4%, whereas in 2014 it was just 0.5%. In some parts of inner London discounting has reached 10%.

Low gearing boost for buy to let

Gearing boost for buy to letA new report has given a boost to the buy to let industry as levels of gearing reached all-time low levels during the final quarter of 2017.

Paragon’s latest PRS report revealed that the average gearing of investment property portfolios was 35% loan-to-value during that period, which equalled the lowest level recorded in over 15 years.

The lender indicated that recent legislative changes to the buy to let market had seen landlords more reticent to apply for buy to let mortgages on higher loan to values.

Whilst changes have been introduced, notably by the Prudential Regulation Authority, to inject an element of caution into buy to let lending, Paragon’s report suggests that landlords have adopted a pragmatic approach to borrowing:

“Contrary to the view held by some, there is strong evidence over an extended period that gearing levels have consistently been at prudent, sustainable levels in the buy-to-let sector, with a peak of 43% LTV across all types of landlord in the last 15 years. Since that peak in 2012, gearing has been on a downward trend.

“In response to Government tax relief changes and increased stamp duty imposed in the last two years, landlords are clearly less willing to take higher loan-to-value mortgages and borrow more. Meanwhile, regulatory changes and more stringent rules on affordability criteria, though welcomed by Paragon and other lenders, have constrained the market in its ability to finance buy-to-let lending,” commented John Heron, Managing Director – Mortgages, commented.

“Given current low levels of gearing, landlord sensitivity to increased mortgage interest rates is much lower than might be expected, which is good news for the buy-to-let sector,” he continued.

Gearing, in the context of mortgages, refers to the loan to value ratio of an investment. If an investor spreads their cash across multiple properties and borrows the rest at a high loan to value, they can secure multiple channels of income from rent. This could be seen as being more highly geared. Alternatively, all cash could be put into one property at a lower loan to value. This could be seen as lower gearing. However, with this strategy there would only be one source of rent.

There are risks associated with borrowing larger sums of money and with the risk that the properties could decrease in value that must be considered.

The report also underlined that landlords remain confident of coping with rising mortgage interest rates in the future, with 51% indicating that rising rates would not be a factor in any decision to sell a property.

Of those that suggested rates would be an issue, a resounding 88% felt they would not need to sell unless base rates reached 5% (the current Bank of England base rate is 0.50%).

Stability was another conclusion to come out of the data, with Paragon reporting that landlords own on average 13 properties, for the third successive month.

Portfolio values averaged £1.65 million in Q4 of 2017, in-line with sustained continued growth since 2004, when the average value was £1.3 million.

The report concluded on an upbeat note, with Heron stating:

“In summary, the buy-to-let sector appears to be performing well and key indicators show evidence of resilience and long-term sustainability. As ever we must remain cautious, with more challenging times ahead for landlords, but we can take confidence going into 2018 as landlords continue to meet these challenges.”

Letting agent code of conduct takes effect in Scotland

Letting agent code of conduct commences in ScotlandNew rules regarding letting agent standards, have come into effect in Scotland, with the introduction of the Register of Letting Agents.

The Register, operated by Scottish Ministers, is a list of letting agents who have been endorsed as suitable to do the job, having met minimum training levels. Its aim is to raise standards whilst giving landlords and tenants more legal rights to challenge poor practices.

Letting agents have until October 1st, 2018, to join the register, whilst key individuals in agencies will have to undergo a minimum level of training. Any agencies failing to attain the required standards could be struck off.

It will also be a criminal offence to carry out letting agency work from September, without being on the register. Those convicted of this crime could be fined up to £50,000, face up to 6 months’ imprisonment, or both.

The Scottish Government has defined letting agency work as carrying out work for a private landlord “who wants to let their property out to a tenant”; or “managing a property (including collecting rent, inspecting the property and arranging for repairs and maintenance) which either is currently or is planned to be rented out to a tenant”.

Landlords and tenants will be able to use the code to challenge poor practice and can enforce this through the new First-tier Tribunal for Scotland (Housing and Property Chamber).

“We are committed to ensuring the highest quality private rented sector, which empowers tenants. These reforms, and the need for the sector to meet key standards and expectations, are an important step in achieving our ambitions,” commented Housing Minister Kevin Stewart.

“Many letting agents already do a great deal to improve standards and inspire confidence amongst landlords and tenants. The introduction of the code means a level playing field for all and ensures clarity on rights, responsibilities and expectations,” he pointed out.

“The reforms we have introduced in private renting are the biggest changes for a generation and will deliver significant improvements, benefiting tenants and landlords,” he added.

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Rate roundup

Rates round-upBelow are the top 3 buy to let mortgage deals, by lowest initial rate, for fixed, tracker and variable products.

This table updates twice daily with the latest deals from a diverse range of specialist and high street lenders. Call our team to discuss any deal or click through for the full range.

Rate Product Monthly cost LTV Lender fee APR
1.37% then 4.99% Fixed for 26 months Fixed for 26 months £114 60% £2,239 4.69% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.49% then 5.00% Tracker for 24 months Tracker for 24 months £124 60% £2,178 4.76% Enquire
1.71% then 4.99% Fixed for 26 months Fixed for 26 months £142 70% £2,239 4.75% Enquire
1.50% then 5.19% Variable for 24 months Variable for 24 months £125 75% £295 4.78% Enquire
1.89% then 5.00% Tracker for 24 months Tracker for 24 months £157 70% £2,178 4.82% Enquire
2.94% then 4.99% Fixed for 24 months Fixed for 24 months £245 80% £1,825 4.94% Enquire
2.89% then 5.19% Variable for 24 months Variable for 24 months £240 80% £295 4.98% Enquire
3.90% then 5.50% Tracker for 24 months Tracker for 24 months £325 80% £500 5.43% Enquire
4.59% then 6.58% Fixed for 24 months Fixed for 24 months £382 85% £3,110 6.73% Enquire
4.64% then 6.58% Variable for 24 months Variable for 24 months £386 85% £3,110 6.74% Enquire

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.