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Given current house price trends, would it be reasonable for lenders to promote the buy-to-let market in the EU?

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  • 21/05/2003
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Tony Jones, Pink Home Loans There is no reason why lenders should not actively seek to enter th...

Tony Jones,

Pink Home Loans

There is no reason why lenders should not actively seek to enter this area of the mortgage market, as there are many opportunities abroad for buy-to- let investors. However, from the investor’s point of view, I would recommend that any foreign buy-to-let property should be approached with caution.

Ideally, it should be part of a wide portfolio of investments and seen as a long-term proposition. Countries which are popular with British buyers, such as Spain, are currently experiencing a dramatic rise in property prices, so it could be tempting to rush into making a decision, but future trends regarding house prices and rental yields are not clear. So, research into the lettings and property market is vital.

Investors should not consider a foreign buy to let without seeking independent legal advice and it is recommended to employ reputable solicitors, surveyors and letting agents.

John Heron,

Paragon

Recent indicators would suggest that the housing market as a whole is cooling somewhat. Prices, especially in London and the South East are softening and transaction levels are down. In particular first-time buyer activity is at a historically low level representing just 31% of loans for house purchase in the first quarter of this year.

This has coincided with some strong signals from the private rented sector with the RICS, ARLA and Paragon’s own surveys indicating improved rental demand and a marked stabilisation of rental returns and values. Professional landlords in particular are viewing the nervousness in the owner occupied sector as a signal to snap up better value properties and capitalise on the increase in demand as potential first-time buyers and people between homes delay their buying decisions. As ever, there are opportunities in the domestic market for experienced, well-researched and pro-active property investors.

Brian Thorn,

The Wriglesworth Consultancy

Buying a property overseas appears to be the flavour of the moment. With house prices so high lots of borrowers are sitting on a lot of equity, they have paid off their mortgages and are looking for a place in the sun.

A likely scenario is that lenders will lend euros against the equity of the property in the UK rather than the property abroad. If UK lenders lend in foreign markets they have to come to terms with different regulatory and statutory requirements. Most will not be confident enough to do this while ensuring they have got the security they need.

No one has got into this market at the moment, but I can see that if it was bought and then let out when the buyer was not living in it, it would make sense if the loan could still be paid back in euros.

As a business proposition I think it is more the province of local lenders, by this I mean those lenders with a presence overseas. It is a viable but a limited opportunity.

Andrew Drummond,

Cobalt Capital

The London property market is certainly weak (I cannot comment for outside of London) and I feel it will remain weak certainly for the remainder of the year.

I do not believe that UK buyers will buy property overseas for pure buy-to -let investment purposes. Therefore I do not feel that there is a ‘pure’ buy- to-let market as such to be developed overseas. The principal reason is that the average buyer will not have access to the research in terms of prices, rental yields, likely voids, demand, management fees etc. Hence buyers will not be making informed investment decisions.

I feel that the market consists of UK buyers who themselves wish to occupy an overseas property for anything between four weeks to six months per annum and then let the property to either fellow UK holiday makers or local residents for the remainder. The rental income will assist in servicing the mortgage but I would stress that this is a contribution to financing the acquisition rather than a standalone investment aimed at creating surplus rental income.

Sally Laker,

Mortgage Intelligence

Despite property prices remaining unchanged in April, gross mortgage lending in March was 10% higher than in February and remortgages accounted for over 70% of all loans approved in March.

Many of these remortgages have been for buy-to-let properties and this has led to a demand for shorter term fixed rates of two years or less, or base rate trackers with little or no redemption penalties. This enables the borrower to draw down more capital on a regular basis and build a substantial portfolio.

Demand has also increased for a place in the sun that can double as a holiday home and then be let for the rest of the year. While there are a number of lenders that will use the foreign property as security, most would generally prefer borrowers to utilise the equity in their main residential property. Some lenders are relatively new players in the UK buy-to-let market, and therefore would be cautious of rushing into foreign transactions.


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