Developers and Landlords Walk Tightrope on Buy to Let; PERSONAL FINANCE
Byline: By John Cranage Personal Finance Editor
The impact the credit crunch is having on buy to-let (BTL) landlords is highlighted by research that shows that the amount of rent they need to charge to stay above water has risen by nearly a fifth while the number of investment mortgages available has plummeted.
As one market analyst commented this week: "Developers, landlords and tenants are walking a tightrope."
According to price comparison website moneysupermarket.com, mortgage products available for BTL borrowers have slumped by 93 per cent in the last year - from 4,384 to 307 - while interest rates on those still available have steepened.
The average rate for 75 per cent loan-to value BTL products has increased by 0.35 percentage points to 7.33 per cent in the past year, and by 0.63 points to 7.46 per cent for 85 per cent LTV products.
The increases mean that landlords will have to increase rents or fund the shortfall themselves.
On a pounds 100,000 interest-only mortgage, for example, the monthly rent needed to cover the interest on the mortgage has increased from pounds 569 to pounds 622.
The rise is compounded by the fact that, on average, lenders now insist the rental income is 19 per cent greater than the monthly mortgage repayments, up from 13 per cent a year ago. It means, in effect, landlords will need to increase rent by 15 per cent to keep up with these two changes.
Louise Cuming, head of mortgages at moneysupermarket.com, said: "These are worrying times for tenants, landlords and developers.
With the cost of living spiraling out of control, tenants are unlikely to be willing to wear increased rental demands.
"Those landlords wishing to remortgage buy-to-let properties will find it difficult, with lenders demanding sizeable deposits or charging higher rates.
"This could force landlords to re-evaluate whether it is worthwhile staying in the sector in the current climate. With property prices falling though, there may well be many landlords having to sell their investment at a loss.
"And, all the while, developers suffer while the bottom falls out of the buy to let market."
So, how can landords survive the credit crunch?
The 20,000-strong National Landlords Association (NLA) is offering advice that it claims will not only help to survive the yearlong credit crunch but even benefit from leaner times.
Indeed, many professional landlords are benefiting from increased demand for their rental properties and, in many areas, rising rent, the organisation claimed.
However, what it calls "doom-mongering headlines" about the housing market have understandably led to some becoming increasingly concerned about their financial situation Its tips are
Research, research, research. Thoroughly research the rental market in your area to make sure you are charging the right level of rent and not pricing yourself out of the market. Even during periods of high demand, it's always better to charge slightly below market rent. It is also important to market your property effectively and remember that different tenants are looking for different things in a rental property.
Students will be looking for different things to young families.
Make your mortgage work for you. If you are struggling with mortgage repayments, or your circumstances change, talk to your lender and try to arrange a new repayment plan. If you are coming to the end of a deal, search the market for a mortgage which best suits your needs.
If you are a professional portfolio landlord and you don't find what you're looking for with the traditional buy-to-let lenders, it may be worth exploring commercial finance opportunities. Check out www.nlamortgages.co.uk for the latest deals. …