In common with all other mortgage sectors the last year in the buy-to-let market has witnessed significant growth, yet the current situation was far from certain a year ago.
John Heron, managing director of Paragon Mortgages, comments: ‘This time last year we would have been talking about worries for the market, whether it had peaked or was due to fall, but in the first three months of this year we have seen an increase in tenant demand, across the back of a less certain economic environment and affordability issues in the owner occupied market.’
The market has certainly but subtly changed over the last year. While Heron cites a drop off in the number of speculative buy-to-let lenders about, such as those buying under the buy-to-let banner in order to buy off plan and sell on for profit in a few months, others note a change in the type of mortgage landlords are seeking.
David Copland, sales and marketing director at Pink Home Loans, believes there are better products on the market now compared to last year. ‘Landlords are looking to fix over a longer term in the buy-to-let market than in the residential market, and there are five year fixed rates at below 5% at the moment. People are also looking more at flexible products for paying back a loan earlier, putting the whole of the rental income into the flexible account, and once there is enough deposit drawing down for the deposit on another property,’ he says.
The market has seen several new entrants over the past year and several others consolidating their position, however few have had any significant impact on the market. Heron says: ‘As far as new entrants are concerned there is really only a handful of lenders who have a serious market share. Here the most notable change over the last year has been the progress made by some of the erstwhile commodity lenders, notably BM Solutions, who have made a lot of progress on the basis of price competition.’
However, in common with other sectors, the big market at the moment is remortgaging. Those who bought or remortgaged three years ago ought to be looking at the market as rates and margins have been reduced and there is likely to be a better deal out there.
The products themselves have not really changed over the year. We have not seen an extension of loan to value in the face of dropping rents in certain parts of the country and most lenders are still using 125%-130% as a rental/repayment ratio. Heron comments: ‘Rents have pretty much stabilised over the last couple of months; this is not a problem that is getting any worse.’
However Copland has seen a shift in the way landlords look at returns recently. He says: ‘People are going into this market for their retirement provision. To that end many landlords are quite happy if the rent just covers the mortgage and they gain from the capital appreciation.’
In short, buy to let has had a good year and the signs are all there for another. Jeff Knight, residential mortgage marketing manager at Sun Bank, sums up: ‘I have always maintained that the buy-to-let market will always be a great market for those who know what they are doing, and treat it as a long term investment.’