Title:
Happy Birthday
Buy To let
Word Count:
574
Summary:
This summer marks
the tenth anniversary of the buy-to-let mortgage. In July 1996 Mortgage Express
(part of the Bradford & Bingley group) were the first to trial a dedicated
buy-to-let mortgage product. However could the growth in this sector herald the
decline of the first time buyer.
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Article Body:
This summer marks
the Tenth anniversary of the buy-to-let mortgage. In July 1996 Mortgage Express
(part of the Bradford & Bingley group) were the first to trial a dedicated
buy-to-let mortgage product, and currently has a market share of approximately
20 per cent.
Buy-to-let mortgages evolved after new legislation within The Housing Act gave
landlords more power to evict tenants who were not keeping up with their rent.
In September 1996, the Association of Residential Letting Agents (ARLA)
launched these loans via a panel of lenders, and hence the buy-to-let mortgage
arrived in the UK property marketplace.
Relaxation of criteria reflects the realisation that buy-to-let is not as risky
as lenders first thought. There are now around 70 lenders offering the
buy-to-let product however albeit that around 50 per cent of all buy to let
loans are written by the 6 members of the ARLA panel:Paragon, GMAC, Mortgage
Express, Birmingham Midshires, NatWest and The Mortgage Business.
A risk analysis of buy-to-let versus residential shows residential loans have a
higher risk profile. Latest figures from the Council of Mortgage Lenders showed
that 0.68 per cent of buy-to-let mortgages had been in arrears for more than
three months, compared with 0.97 per cent of normal loans.
High house prices and a growing population have meant that more people are now
renting for longer, fuelling the demand for rental property. Amateur and novice
landlords alike who have enjoyed success after dipping their toe into the water
with one or two properties now have the confidence to further increase their
portfolios.
Over the past decade the sector has enjoyed exceptional growth, to now
represent approx. 8 per cent of total housing stock in the UK. The first
mortgage deals were inflexible, commercial style products with high interest
rates, up to 4 per cent over Bank of England base rate, and low loan to values
up to a maximum of 75 per cent. Historically, rental cover had to equal 130 per
cent of the mortgage to protect both the lender and the landlord against voids
and the higher risk.
Landlords now benefit from an average loan to value of 85 per cent, and rental
cover now averaging 125 per cent of the mortgage payment. Although lending is
available to 90 per cent and rental cover at 100 per cent.
Recent research revealed that 83 per cent of landlords plan to increase or
maintain their portfolios in the next six months, showing that the appetite for
investment remains. The average property portfolio has increased from three per
landlord in 1996 to seven this year.
Buy-to-let lending has grown from £3.1 billion in 1999 to £24.5 billion during
2005 and the market alone is worth over £73 billion and still growing. The
fragility of world stock markets and the pensions crisis has ensured that more
and more investors are turning to bricks and mortar to secure their
future.
Whilst the increasing student, single person and migrant population will
continue to support the rental sector, growth in rented households is predicted
to be around 3 per cent over the next ten years. However the downside is for
first time buyers, who are often vying for similar properties as buy-to-let
investors, despite government assurances of support the growth in the buy to
let market could well herald the decline of the first-time buyer.
With rising property prices and diminishing rental yields First Mortgage Trust
have designed a buy-to-let rental calculator that takes some of the guesswork
out of the initial process. The calculator can be viewed at
http://www.mortgage-loan-uk.net/buy_to_let_mortgage_calculator.htm