Is buy-to-let coming of age?
Brian Murphy, head of lending at Mortgage Advice Bureau
For some, flexibility is what gives renting its appeal; for others, it is a practical and realistic option in a housing market where average purchase deposits have risen by over £6,000 in the last 12 months. Therefore it is no surprise to learn that buy-to-let market performed better in 2012 than for four years previously, according to the Council of Mortgage Lenders (CML) – leaving brokers poised for a new wave of interest from lenders in attracting both intentional and ‘accidental’ landlords.
Letting out an existing property rather than selling it is certainly appealing in the current climate, as there is plenty of demand for rented accommodation. A varied mix of social trends – including longer life expectancy, greater mobility, a fluctuating job market, more single person households and the rise in divorce and separation – each have a role to play in this, while many parents who bought properties for children while they studied at university are continuing to rent them out after their student days have passed.
Whatever the reason for a homeowner becoming a landlord, lenders are certainly more relaxed when it comes to buy-to-let. Indeed we have seen a number positioning themselves to exploit this as a key growth area offering a safe investment with a relatively good – and reliable – return. Although the national unemployment statistics remain a concern, housing repossessions are lower than they were 18 months ago, and servicing housing debt is becoming easier for borrowers as rates continue to fall.
Borrowers are still typically looking at a 25% deposit in this area, although some lenders show a willingness to offer 80% loan to values (LTVs). Certain products are also more flexible, for example, taking into account the ratio of a landlord’s rental income to property prices, providing added security for lenders that payments will continue if rental income should fall.
Questions have been asked about whether the growing number of landlords spells bad news for first-time buyers, but Government-backed schemes such as NewBuy and FirstBuy offer alternative ways for aspiring homeowners to negotiate the demands of raising a deposit and satisfying lenders’ credit criteria for house purchases. It is a sign of the times – and a positive one at that – that demand for rental properties is on the rise and renting is increasingly seen as a viable lifestyle choice, not a second best solution.