Buy-to-let news to Friday, October 27, 2017

Terraced house for sale

The number of buy-to-let mortgages available falls

In an environment of stricter buy-to-let lending, the number of products available on the market has seen a marginal, but significant, fall in the past month.

With the volume of new products increasing by 200 in the past quarter, the decline from 1,725 products in September, to 1,723 this month, represents a potential change of direction, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.

“Indeed, availability stood at just 1,477 a year ago, so the last year has seen a general upwards trend, albeit with some fluctuations along the way. The fact that we've now had the first drop in availability in four months is therefore particularly notable, and suggests that providers are pausing for breath as they take stock of the latest rule changes,” the company stated.

As the number of products on the market shows a small drop, buy-to-let mortgage rates are on the rise.

Moneyfacts’ data indicated that the average buy-to-let mortgage rate in September, was 3.15%, but that has now increased to 3.17%.

The company’s report shows increases for 2-year and 3-year fixed rates, with only the average 5-year fixed rate maintaining its equilibrium.

“Much of these latest increases could be attributed to rising base rate speculation and the resulting jump in SWAPs, in a similar way to how the residential market has been reacting. Our data recently revealed that, while average mortgage rates had hit fresh lows, they certainly weren't going to stay that way, with providers already raising rates in anticipation of a rate rise – and it seems the BTL market is following suit,” Moneyfacts commented.

Andrew Turner, chief executive of Commercial Trust observed that a change in rates was possible,

“It has been intimated that an increase should be expected, based on the upward movement of inflation.

“Just last week it was announced that inflation was at a 5-year high. The Monetary Policy Committee members will inevitably be giving this strong consideration when it comes to the November vote.

“If the base rate increases, the natural likely impact of this is for mortgage rates to follow suit. We have seen many lenders start to increase residential mortgage rates over the last weeks, likely to be in anticipation of strong hints at a base rate rise.

“Whilst a factor of two buy-to-let products dropping off the overall number is not very much, within the context of the huge growth in products until now, it may be indicative of a bigger change.

“My advice to landlords is to have a discussion with their broker now, if they are planning a new investment or to remortgage, as there are currently some great low, long-term fixed rates available which could be advantageous to secure.”

Landlords running higher maintenance cost risks during the winter

Winter could cost landlords in maintenance chargesAs the nights draw in and temperatures start to drop, a report has indicated that 48% of landlords run the risk of costly maintenance bills by failing to carry out necessary pre-winter checks on rented properties.

A study from Upad.co.uk, found that from 4,000 private landlords surveyed, 52% had scheduled checks during the summer months.

73% of landlords who do carry out checks, have undertaken work on their heating boilers, however, only 55% included checks on the pipework and radiators as part of this process.

55% of landlords carry out work clearing drainpipes and guttering, while only 27% check roofs.

The implications of house maintenance issues during the winter months can make for an expensive time, not only for landlords, but for their tenants too.

Under section 11 of the Landlord and Tenant Act 1985, a landlord is responsible for maintaining the structure and exterior of a rented property, encompassing the walls, roof, foundations, drains, guttering and external pipes, windows and external doors.

This also extends to basins, sinks, baths, toilets and their pipework – and in the context of heating, the water and gas pipes, electrical wiring, water tanks, boilers, radiators, gas fires, fitted electric fires or fitted heaters.

Speaking of the research findings, James Davis, CEO and founder of Upad, said:

“Whilst it’s encouraging to see a slight majority of private landlords investing the time and money to carry out certain routine maintenance checks, the fact remains that almost half are failing to do so.

“Those who don’t act in plenty of time, run the risk of any issues escalating and, therefore, costing more to rectify. This is not only a drain on the landlord’s finances, but can also lead to unhappy tenants who may choose to look for alternative accommodation if the disruption becomes too much to live with.”

He added: “Ensuring that things like your boiler, heating system, and external pipes are in good order will not just show your tenants you're on the ball as a landlord, it will reduce the likelihood of maintenance calls through the winters months and potentially identify small issues that can be fixed now before they turn into bigger, and more urgent and expensive, problems later.”

MPs agree tenant rent payments should reflect in credit scores

Government affirms rental payments in credit score conceptMPs met on Monday to debate whether rental payments should be reflected in a tenant’s credit score – and the result was an overwhelming yes.

Whilst the discussions held were in the context of private renters looking to buy their own homes, the repercussions could also help landlords to find reliable tenants in the future too.

The political debate took place at Westminster Hall following a petition which had attracted 147,307 signatures.

At the moment credit rating agencies do not factor rent payment history into their calculations, which can result in a tenant with an exemplary track record, finding it hard to obtain a mortgage.

This is an issue that the housing industry has discussed for a number of months, with a recent survey from the Residential Landlords Association (RLA) reporting that 61% of landlords would support tenant rental payments being included in credit checks.

The RLA’s chairman, Alan Ward, commented:

“With many tenants wanting to buy a house of their own, it is absurd rent payment is not routinely included when undertaking credit checks for mortgage applications.

“Moving to such a scheme would help not just tenants, but also landlords by giving them a clearer sense of whether a prospective tenant has historically paid their rent in full and on time.”

Andrew Turner, chief executive at Commercial Trust Limited, said:

“This is a positive step from the government and potentially good news for landlords. Sourcing a good tenant is one of the most important factors to making buy-to-let work.

“If these proposals are adopted for lettings as well as mortgage applications, this will provide another level of reassurance for landlords that they are renting to reliable tenants.”

Re-let numbers rise 10.1% in London as landlords maintain their faith

Landlords re-letting 10.1% up in LondonLondon’s buy-to-let landlords continue to adopt a positive mind-set with a recent report highlighting a 10.1% increase in re-let properties in the year up to August 2017.

The Capital’s landlords have had to endure a tough couple of years financially, with a number of changes to the taxation of buy-to-let – notably the 3% stamp duty levy, gradual phasing out of mortgage interest tax relief and the loss of the wear and tear allowance, all contributing to smaller returns.

However, the report from Knight Frank, paints a positive picture of landlords looking to the longer term with their property investments.

Tim Hyatt, head of Knight Frank’s lettings division, stated:

“Buy to let investors typically hold properties for an average of 16 years and most professional investors will ensure their portfolio is able to weather such storms.”

Noel Flint, head of London residential sales at Knight Frank, added:

“The reason we are not seeing many landlords come to the sales market is because they know there is nowhere else to put their money at the moment and they appreciate that property is a tangible asset that will always be income producing.”

It has been reported that current average gross yields for private rental properties in prime central London are 3.2%, comparing favourably at present to 10-year Government bonds, which are yielding around 1.4%. Of course that is no guide to future performance or comparison, but perhaps partly reflects London landlords’ present mood.

Andrew Turner, chief executive at Commercial Trust Limited, commented:

“It is good to see the positive outlook that many savvy London landlords are taking, looking at the longer term picture rather than just reacting negatively to the recent changes in tax and regulations.

“Despite seeing profit margins reduce, many landlords are still able to obtain a healthy yield from rental income which is outperforming other investment products which have been restricted by the prevailing low interest rates.

“Capital growth is also a strong factor to consider. It is unsurprisingly that landlords in London, in particular, feel reasonably confident of a long term appreciation in the value of their property, given their investment is in the country’s capital and as such its primary business hub.”

Buy-to-Let lenders hike rates as GDP announcement fuels base rate increase

The Office of National Statistics (ONS) announced this morning, Wednesday 25th October, that Gross Domestic Product (GDP) for Quarter 3 2017 has grown 0.4%.

This figure reflects a similar rate of growth as was experienced in Q1 and Q2 this year.

ONS Graph

The overall state of the economy means the announcement was no great surprise, but it does further fuel the likelihood that November’s review of the Bank of England (BoE) Base Rate will result in a vote for an increase.

So what does this mean for mortgage rates? It is widely felt that the Monetary Policy Committee of the BoE would be unlikely to increase the Base Rate significantly, simply because the current state of the economy could not sustain it. However, signals of a rise has provoked a number of buy to let lenders to increase their mortgage interest rates in anticipation.

Today, NatWest announced a 0.20% increase in buy to let and residential mortgage rates and prior to that, on the 17th October, Birmingham Midshires (part of Lloyds Bank Group) announced a 0.15% rate increase across its 2- and 5-year buy to let mortgage and let to buy products. On Wednesday 11th October, Skipton Building Society notified us of an average increases in their buy to let fixed rates of 0.20%.

Conversely, from 11th October, The Mortgage Works reduced a selection of their 5-year fixed rate buy to let products.

Other lenders are introducing and removing products all the time and we are still seeing some fantastic deals coming through.

Naturally, we are monitoring the ebb and flow of deals as they come in, and as many of you reading this will know, our chief executive, Andrew Turner, issues bulletins on a weekly basis. If you are keen to monitor the state of play in the marketplace, please do subscribe to Andrew’s newsletter.

The natural concern is that any increase in the Base Rate, on Thursday 2nd November, could increase the chances of subsequent increases. One could argue that, until the economy settles, we are unlikely to see significant upward movement in the Base Rate; but if you are concerned about your mortgage position, call our team or enquire online and discuss the available options, we’d naturally be happy to help.

September sees slowing down in private rent increases

Rent increases slowed down in SeptemberThe recent momentum in private rent increases slowed down in September, according to new data.

The past few months have seen letting agents regularly reporting growing numbers of landlords who have increased the amount that tenants pay to rent properties each month.

Whilst the number continues to grow, the rate fell from August to September, with 27% of letting agents recording rent rises, as opposed to 35% in August, according to research from the Association of Residential Letting Agents (ARLA).

Despite the momentum shift in the volume of landlords hiking rents, the overall picture for 2017 has been one of increases, and the latest data still reflects a higher percentage than the corresponding month in 2016 (24%).

In the meantime, the demand for private rental property shows little sign of subsiding, with the latest data showing a 10% month on month increase, although the volume of homes available remains the same.

Commenting on the data, David Cox, ARLA’s chief executive, said:

“Last week’s consumer price index (CPI) showed that inflation rose to 2.8% in September, up from 2.7% in August. As the cost of living increases, the last thing tenants need is for their rents to rise.

“While it’s great that month on month we’re finally seeing a decrease in the number of landlords hiking costs, we need to look at the bigger picture. There are still more than a quarter of tenants experiencing rent hikes every month and that’s too high,” he added.

Young professionals renting in London due to pricesPrices continue to influence rental choice for London’s young professionals

High property prices and ease of commute are two of the main reasons why young professionals are choosing to rent in prime central London, new research has discovered.

Affordability remains a huge factor in the decision not to buy, resulting in many of those surveyed renting in bigger properties through shared tenancies.

These arrangements are considered to be better value for money, but also mean that young people have better access to transport and live closer to their places of work, helping to facilitate an easier lifestyle, whilst they save to buy their own home.

The report from Cluttons, in conjunction with the Consumer Data Research Centre and University College London, also highlighted how the rising cost of living is also affecting spending power and exacerbating the challenges that young people in London face, as they try to get a firm footing on the property ladder.

The findings indicate that these are some of the main reasons for population density in parts of London, a factor helped by the high volume of London Underground stations.

“We’ve all heard the anecdotal evidence of people being priced out of central London locations towards suburban locations, but we wanted to put some substance behind the claims and the results have been startling," said Faisal Durrani, head of research at Cluttons. 

“The most fascinating finding from the research has been that high house prices are both a pull and push factor for Londoners looking to move around the city. We were able to demonstrate through modelling that when you consider house prices in isolation, areas with high house prices effectively deter residential migrants."

The research revealed that East Dulwich, Greenwich, Canada Water, Maida Vale and Hammersmith were the top five areas most likely to attract residential migrants, as a result of greater affordability.

Andrew Turner, chief executive at Commercial Trust Limited, said:

“The findings of this report make for interesting reading as they go some way to understanding the mind set of young professionals, looking to buy a home but having to rely on renting property for several years.

“This data underlines the continued need for rental property in prime central London, which offers private landlords a rental market in some of London’s most exclusive locations.

“Many buy-to-let lenders also offer greater flexibility over property type and location in London, which gives landlords more options when it comes to identifying a potential purchase.”

Got a burning buy-to-let question? Ask us!

Ask Commercial Trust a questionHave you got a question about buy-to-let mortgages? Commercial Trust welcomes your questions and we’ll publish an answer each week.


Just email us at: ask@commercialtrust.co.uk

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

Top