Thursday, 7 August 2008

The Truth About Buy-to-Let Mortgages

Figures released by the Bank of England show that the banks provided fewer than 42,000 new mortgages in May down a staggering 64% from May 2007. These are figures for all mortgages, not just Buy-to-Let.

The recent bleak news from major housebuilders like Persimon, Barratt, Taylor-Wimpey, Redrow and others have highlighted the stark fact that whilst there is a demand for homes and a willingness from would-be purchasers to buy there are simply not enough reasonably priced mortgages to satisfy the demand.

The Royal Institution of Chartered Surveyors claimed that transactions in the housing market are at the lowest for 30 years. They blamed the lack of mortgages as a major cause. So what is the truth for Landlords wishing to either raise a mortgage or re-mortgage an existing property?

Major lenders like Paragon and Mortgage Express have effectively stopped lending. Paragon have arrangements for existing borrowers such as a LIBOR plus 1.75% deal but their well documented problems mean they are giving existing borrowers coming off fixed deals very few options. Mortgage Express (part of the troubled Bradford and Bingley) will lend in theory but in practice it’s tempting to argue that they are pricing themselves out of the market. One of their best deals is 6.74% with a 2% arrangement fee – but only on loans of less than 75%. Over 75% the rate jumps to 7.74% complete with the 2% arrangement fee.

Some good news is beginning to filter through. Birmingham Midshires (part of the HBOS group) reduced it’s margins by 0.2% last week and now offers a 6.09% deal with 2% arrangement fee – but only up to 60% loan to value. Mortgage Works (part of the Nationwide) is offering a 5.39% 2 year discount mortgage up to 70% loan to value but with a 3% arrangement fee.

The major banks are all very cautious and the market remains fearful of further fallout from the American Sub-Prime market. The troubles exposed in the delightfully named US lenders Fannie Mae and Freddie Mac are hardly likely to increase confidence, it will just make things worse.

In the midst of all this confusion and uncertainty the recently released Modern UK Housing Market Report showed that UK rents have risen 40% since 2000 and predicts that rents will rise between 10-15% in 2008/9.

At we are seeing rents rising, sometimes quite steeply, as tenant demand continues to increase. The truth seems to be that many lenders have taken the opportunity provided by the Credit Crunch to significantly increase not only their interest rates but especially their charges.

For Landlords with low loan to value borrowing there are a range of options to choose from. Landlords with higher loan to value borrowing should concentrate on cash flow and accept that any switching of mortgages is likely to incur significant costs in arrangement fees. According to industry people we have spoken to in the last few days the expectation is that this situation is unlikely to change significantly before Autumn 2009.

Any Landlord wishing to review their lending should seek advice from specialist Buy-to-Let Advisers. A word of warning though. It is probable that the number of Financial Advisers specialising in Buy-to-Let will drop quickly. We have already seen a number leave the industry and this trend is likely to increase.

In the midst of all this turmoil the Spanish banking group Santander, which owns the Abbey in the UK, launched a £1.3 billion takeover bid for Alliance & Leicester. Clearly someone thinks that the banking sector has a future. Would it be too cynical to believe that whether times are good or bad the banks always seem to do well?

For more information about available mortgages please click Mortgages through or telephone us on 01352 759988. Please note that not all the available deals can be shown on our website because of daily market changes. For immediate assistance and advice please ring us.