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Brokers see increase in first-time buyer investors against resi purchases ‒ analysis

  • 04/07/2019
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Brokers see increase in first-time buyer investors against resi purchases ‒ analysis
The growing number of deals open to first-time landlords has coincided with a spike in first-time buyers opting to purchase a property to let rather than to live in, brokers have said.

According to data from Moneyfacts, there has been a significant growth in the number of buy-to-let deals available for first-time landlords.

It noted that there are now 1,405 such deals to choose from for borrowers, up 11 per cent on the same period last year and a sharp increase on the 1,034 on the market in 2017.

Over the last year, the rates for first-time landlords on two-year deals have grown to an average of 2.97 per cent, compared to 2.83 per cent 12 months ago.

However, rates have dropped from 3.94 per cent to 3.52 per cent on average for five-year fixes.

A jump in first-time buyer landlords

Paul Flavin, managing director of Zing Mortgages, said that his firm has seen a growth in first-time buyers who are looking to invest rather than purchase their own home. 

He explained: “The 25-to-35 age group band who earn a decent income, but are not willing to purchase the £600,000 shoebox close to work, seem to be more keen to remain renting in town and purchasing a future home away from London that they can rent out until they decide they’ve had enough of London life. 

“At which point they can switch to a residential mortgage and enjoy civilised life in the ‘burbs.”

Sebastian Riemann, financial consultant at Libra Financial Planning, said that he had also seen a demand from these sorts of buyers who are unable buy in the area where they want to, so try to get onto the ladder by buying somewhere else that’s cheaper.

He added: “This then assists for when their incomes are higher and they have built up equity in the original purchase to then purchase their own homes a few years later.”

A helping hand for a later purchase rather than a lifetime as a landlord

However, Riemann questioned whether this was viewed as a long-term investment, rather than a way to help them boost their chances of buying the right property later on.

“Personally I haven’t seen many expand into becoming serious investors off the back of these types of purchases however as this is a fairly recent upsurge this may still be a possibility in the future,” he said.

Complicated cases

Nick Sherratt, managing director of Mojo Mortgages, noted that finding the right deal for these borrowers can be complex, as they are often professionals who want to purchase through a special purchase vehicle.

He continued: “The lender rates aren’t the worst of it – they’re higher than average but yields still seem to make these transactions worthwhile. Nevertheless, the fees can be extremely high, often a percentage of the mortgage, easily £5-10,000 on a £400,000 purchase.”

A bid to keep market share

David Sheppard, managing director of Perception Finance, noted that lenders in the buy-to-let market will be looking to maintain market share where possible, and that means “opening up the proposition” to more potential borrowers.

However, he said that without government intervention on some of the barriers that are putting people off buy to let, it’s unlikely to be an area of the market that flourishes, particularly with some of the comments from Labour front benchers “that may be causing some concern to landlords”.

Riemann pointed out that these sorts of products have been around for some time, but with the market “under pressure for various reasons” the options for lenders are limited.

He continued: “They can only bring interest rates so low, and these are ridiculously low for buy to let lending already.The only other viable option is to relax criteria within the regulatory framework.”

Who is keen on buy to let?

Sheppard added that while the buy-to-let market has been encouraged by both the income and capital growth on offer, with property values “flat lining” in some areas the latter is “less of a draw” right now.

“It is only those that are looking at this as an alternative or additional retirement income plan that seem to be interested right now,” he concluded.

Flavin said that many of his buy-to-let clients are those specialising in the sector, who are either diversifying into the HMO market, or moving their property investment sights to more central and northern areas “following a similar trail to the HS2 development”.

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