Buy-To-Let round up

Here is a round-up of the latest news in the Buy-To-Let market, with news on vacant properties, rental yields and a new range of innovative products from various providers. It is still a burgeoning market with competition increasing.

It seems that some buy-to-let landlords are happy to leave their properties empty in order to benefit from the gain in capital value over a period of time. However, they could feel a backlash from the government’s proposals to grant councils new powers to hit such investors with new fines. Yvette Cooper, the Housing Minister, said that the government is looking for ways to solve the nation’s housing shortage and preventing a waste of capacity would be one way. She said: “Better use also needs to be made of empty homes – including those left empty long-term by investors and speculators. Councils do already have powers to take action and we will look at the potential for additional incentives for them to do so.” Most experts do not think this is a wide spread problem as most landlords need to collect rent to help cover outgoings such as the BTL mortgage. It doesn’t sound like a property speculation designed to make much money.

Landlord Mortgages has reported that rental yields are continuing to fall across the UK. England’s rental yields fell from 5.82% in quarter one 2007 to 5.42% in quarter two. Although also going down, Scotland’s yields fared better, slipping from 5.99% in quarter one to 5.85% in quarter two. London saw the biggest fall, from 5.96% in quarter one to 5.38% in quarter two. It looks like the falling yields have been due to increasing house prices without associated increases in rent, especially true in London where house prices have continued to soar with rents being left behind. It is not a sign of a weakening buy-to-let market; indeed lettings agencies have seen fair growth. It is expected that landlords will gradually increase rents to bring them back into line with property values and rental yields will therefore pick up as a result. This could take another 18 months or so to happen, but the rental market is reaching a point where oversupply may also have a detrimental effect on rental income. Better investments can be found in smaller towns.

Wave, the intermediary mortgage provider, which used to be known as Freedom Lending, has launched a multi-property buy-to-let product for mortgages which enables intermediaries to submit applications for up to five properties. The product will take both rental income and earned income into account, and offer self cert and full status deals. Fixed rates for two and three years start at 6.03%, with trackers starting at 6.33%. Individual loans are available up to £1m with 75% loan-to-value (LTV). Wave have produced the product in response to a growing demand for BTL products covering multiple properties. With rising interest rates and falling rental yields products looking at both rental and earned income have become popular, so Wave seem to have the market covered.

Unity Homeloans has a BTL product which aims to give professional investors buying opportunities from distressed house sales. It is designed for investors who want to act quickly when properties have to be sold quickly, usually for financial reasons. There is an emphasis of underwriting over credit scoring. The range has four lines: Prime 75 allows for 75% rental coverage for up to five properties at 6.14%; Prime 100 allows for 100% rental coverage for up to 20 properties at 6.04%; Near-Prime allows borrowing up to £2m for those with two discharged IVAs at 6.75%; and Light allows borrowing up to £500,000 for people with CCJs up to £2,000 and a rate of 7.19%. There is little doubt that the current market gives buying opportunities for investors, and these products give a buyer a chance to sacrifice rental income if they can secure a competitive price.

There is a three-year BTL product from Astra, available through Premier Mortgage Services. The product has an initial one-year fixed rate of 5.69%, followed by a tracker at Base rate plus 0.74% for the following two years, and then to Base Rate plus 0.95% for the remainder. The product gives 90% LTV, free valuation, an arrangement fee of £595 and has an early repayment charge of 5% in the first three years. The product is said to give the benefit of a secure first year and the possibility of reasonable rates in the future if the Base rate should fall in 2008 and beyond, as most hope it will.

BTL mortgage providers are becoming more inventive in what they’re offering up and BTL investors now have a wide range to choose from. Those relying on base rates coming down might not prove very popular in the current climate where the talk is still of further rises rather than future falls.