Buy to Let in UK

publication date: Oct 1, 2010
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Buy to Let in UK

What’s the latest news on buy to let in the UK? Kate Faulkner, one of the UK’s top property experts reviews the UK’s buy to let market conditions.

Buy to let in the UK boomed from the 1990s, according to the CML for the following reasons:-

  • Deregulation of the private rental sector via assured shorthold tenancy agreement bought in the via the Housing Act of 1988
  • Introduction of Buy to Let mortgages from 1996
  • Loss of confidence in conventional pension funds

Meanwhile, the demand for renting privately from the buy to let UK community has grown due to an increase in divorce, students, migrant workers, a sinking of the social rented sector and issues with younger people being able to afford to purchase property.

Buy to let in the UK has now reached around 1.2 million mortgages. There is no doubt that the demand for rental properties and the appetite for current landlords to continue to invest in the buy to let market continues to grow.

The bad news for the Buy to Let market in the UK, is whether you are an existing landlord or new to the UK buy to let market, finding a specialist mortgage is increasingly difficult. Lenders are keeping their exposure to the property market via mortgages as low as possible while pushing up rates to increase their profitability and shore up their balance sheets. Higher interest rates make it tougher for buy to let investors to make their numbers stack up.

Recently, Lloyds Bank have declared “From 25 September, Buy to Let property portfolios will be limited to a maximum of three properties, or £2m worth of lending (whichever is exceeded first), across Lloyds Banking Group”. This could potentially affect one in ten of their consumers and mean that access to buy to let mortgages becomes even more difficult to secure.

From a purchasing perspective, the news is bright for buy to let investors, as the property market currently seems to have hit a wall, which is likely to create more desperate sellers at least between now and Christmas. The last time this happened was back in the last quarter of 2008, since then there has been little stock and deals have been incredibly difficult to find. This situation should now improve.

From a running perspective the news on buy to let in the UK is diverse. For professional landlords that have bought well, have 25% plus equity in their homes and particularly are on repayment mortgages are doing well. Currently many are on very low interest rates, so are either paying more of the mortgage off, being able to invest in more properties or renovate their current.

For landlords stuck in a rut having tried to ‘become a property millionaire’ overnight through ‘no money down’ deals or supposed ‘below market value’ deals which were anything but, most own new builds in city centre flats that are likely to take five years or more to recover. Meanwhile they are probably only just covering their costs following a 10-20% fall in rents through 2008 and 2009, or have to put money into their portfolio to keep it going. Some will be OK while interest rates remain low, others are likely to be in situation where they are going to have to face selling up, possibly with big debts as they can’t remortgage due to equity being lower than 25% LTV.

The good news though for buy to let in the UK is rents. They have to rise. Currently many landlords aren’t putting rents up, even if they can, as they are keen to retain tenants and appreciate that times are hard for everyone. As a result, rent rises of 5-10% are likely to happen over the next few years, compensating landlords for a lack of capital growth, with the benefit of increased yields.

Need help with analysing your current buy to let portfolio or do you need help with what and where to buy from a buy to let perspective? Then why not request our FREE Buy to Let checklist or purchase our Buy to Let Pack which includes access to our buy to let costing sheets, practical help and over 75 things you need to do to successfully buy and run a buy to let house portfolio.

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