19 September 2014
The recession and fragile recovery presents an opportunity to landlords. But it may be a double-edged sword...
The state of the economy is hardly something to sing and dance about, but there is one group that may feel like they
Are they really benefiting from the misery being heaped on the rest of us?
Every cloud has a silver lining
Over the last year rental demand has shot through the roof, with Government figures showing that nearly 300,000 extra households moved into privately rented accommodation in England alone.
Tenant demand hit record levels at the end of 2010 - and it remains high this year.
As a result rental income has also rocketed. Almost a third of landlords (32%) have already raised their rents this year, according to a survey published by Paragon Mortgages this week.
And, according to LSL Property Services, rents rose by 0.2% in February to £684, an annual increase of 3.9%
Clearly this is great news for landlords and it has come about as a direct result of three things.
Firstly the wider economic problems are making it far less likely that potential buyers will want to commit to a property purchase, instead continuing to rent.
After all, the latest unemployment figures show a rise to 2.54 million - the highest level since 1994 - with one in five of those under 25s without work. They are hardly going to be queuing up to commit themselves to mortgage right now.
Secondly, spiralling inflation (at 4.4% in February) is squeezing household budgets and making everyone feel less well off. Whether or not you think your job is under threat, you may have concerns over your finances and the rising cost of living. It's enough to put any aspiring first-time buyer off purchasing a property, meaning many will need to rent for longer.
Thirdly, even if you do want to get a mortgage, the strict lending criteria imposed by lenders means that it might be simply beyond your means.
After all, most mortgages require at least 10% upfront as a deposit, which is tricky for many first-time buyers to raise, not least those in pricey London and the South East. As a result, many willing first-time buyers are simply unable to get onto the ladder, unless they have wealthy and generous parents to give them a leg up.
Together all of these factors are a boon for landlords, who are enjoying unprecedented rental demand. And there is another factor that is helping landlords.
Like all borrowers, buy-to-let investors are benefitting from the record low Base Rate at 0.5%. Many are on extremely low long-term variable mortgage rates and are finding that they have surplus rental income each month.
It means that lots of landlords can overpay their mortgage and reduce their outstanding debts. Of course, low interest rates won't last forever, and they don't just benefit landlords, but they are another example of how the recession has been kind to property investors.
Not all good news
The fragile economy does give landlords a few headaches too, not least because their own living costs have risen, and probably the costs of maintaining their properties.
Their biggest concern though is the looming worry over tenant rental arrears, as unemployment and inflation bite.
Many tenants will find themselves unable to meet their monthly rental obligations this year and this has a direct effect on landlords' ability to meet their own buy-to-let mortgage repayments.
According to LSL Property Services, tenant finances continued to deteriorate in February, with 12.6% of all UK rent unpaid or late by the end of February, an increase from 11% in January. This unpaid rent totalled £296 million across the UK.
Landlords must tackle this problem now - talk to your tenants to ensure they know they can come to you at the first sign of a problem, rather than ignoring the issue until they can't pay.
You could also take out rental guarantee insurance which covers your rent if your tenants are unable to pay. It could certainly be a savvy investment this year.
Finally you could switch all or part of your portfolio to a fixed-rate mortgage to protect yourself against rising interest rates, which many landlords are vulnerable to.
Below are some of the best buy-to-let mortgages on the market right now - including both variable and fixed rates:
|LENDER||TYPE OF DEAL||RATE||FEE||MAX LTV|
|Principality BS||2-year tracker||3.19% (Base + 2.69)||2.5%||60%|
|Platform||2-year tracker||3.69% (Base + 3.19)||£2,635||60%|
|Bank of China UK||Term tracker||3.88 (Base + 3.38)||£1,895 up to £500,000||75% up to £150,000
70% over £150,000 to £500,000
|The Mortgage Works||2-year tracker||3.99% (Base + 3.49)||2.5%||75%|
|Halifax||2-year tracker||4.09% (Base + 3.59)||£995||60%|
|Platform||2-year tracker||4.19% (Base + 3.69)||£2,635||70%|
|Leeds BS||2-year discount||4.29%||£999||70%|
|NatWest||2-year tracker||4.49% (Base + 3.99)||£1,999||75%|
|Nottingham BS||2-year tracker||4.59% (Base + 4.09)||£995||75%|
|Yorkshire Bank||Offset term variable||4.99%||£999||80%|
15 fantastic fixed rates
|LENDER||TYPE OF DEAL||RATE||FEE||MAX LTV|
|The Mortgage Works||2-year fix||3.99%||3.5%||65%|
|BM Solutions||2-year fix||3.99%||3%||60%|
|The Mortgage Works||2-year fix||4.19%||3.5%||75%|
|Post Office||2-year fix||4.29%||2.5%||65%|
|Coventry BS||2-year fix||4.49%||£1,249||60%|
|The Mortgage Works||2-year fix||4.69%||2.5%||75%|
|BM Solutions||2-year fix||4.80%||2.5%||75%|
|The Mortgage Works||2-year fix||4.99%||3.5%||80%|
|Post Office||3-year fix||4.99%||2.5%||75%|
|Nottingham BS||2-year fix||4.99%||£1,495||75%|
|Leeds BS||5-year fix||5.69%||£1,549||60%|
|The Mortgage Works||5-year fix||5.79%||3.5%||75%|
|Kensington Mortgages||2-year fix||5.99%||2.5%||85%|
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker, before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.