Signs of life in the buy-to-let sector
After a torrid two years, there are signs of life in the buy-to-let sector. Rents are rising again - fastest in prime central London where there is growing demand from City employees - and the mortgage freeze is thawing.
Arguably now is a good time to enter (or re-enter) the market. Average rental returns, or “yields”, are nudging five per cent and compare favourably with the much lower savings rates offered by banks, while those who buy sensibly at this stage in the “property cycle” - at or close to the bottom of the market - can expect decent capital growth over the medium- to long-term.
Another positive is that mortgage rates are lower than they were two years ago. But you will need a hefty cash deposit.
The number of lenders offering deals is still more than two-thirds down since the start of the credit crunch. At the peak of the boom in April 2007, 3,662 mortgage products were available, and 65 per cent of these required a deposit of 10 or 15 per cent, which enticed a horde of speculators. Today, there are fewer than 250 buy-to-let mortgage deals to choose from, according to online comparison service Moneyfacts.
The minimum deposit required is 25 per cent, and to get one of the better rates you will have to put down 40 per cent. Principality Building Society is offering 3.49 per cent on a 60 per cent loan-to-value basis. NatWest has a 4.99 per cent deal, with a £1,999 fee and maximum loan-to-value of 75 per cent. As a cushion, lenders routinely want rent to cover 125 per cent of mortgage repayments.
Strict criteria are no bad thing. It means buyers have to take a more conservative approach, cherry pick properties with higher yields and stay with their investment for a longer period. Having to put in more of your own money can actually increase the return you get because you pay less in mortgage costs.
Would-be landlords who cannot raise a big enough mortgage to buy direct have another option: they can invest indirectly through a property fund, where the entry price is much lower, typically £20,000- £500,000.
Property funds have mushroomed during the last two years, with predatory managers trying to take advantage of the price crash.
Arguably now is a good time to enter (or re-enter) the market. Average rental returns, or “yields”, are nudging five per cent and compare favourably with the much lower savings rates offered by banks, while those who buy sensibly at this stage in the “property cycle” - at or close to the bottom of the market - can expect decent capital growth over the medium- to long-term.
Another positive is that mortgage rates are lower than they were two years ago. But you will need a hefty cash deposit.
The number of lenders offering deals is still more than two-thirds down since the start of the credit crunch. At the peak of the boom in April 2007, 3,662 mortgage products were available, and 65 per cent of these required a deposit of 10 or 15 per cent, which enticed a horde of speculators. Today, there are fewer than 250 buy-to-let mortgage deals to choose from, according to online comparison service Moneyfacts.
The minimum deposit required is 25 per cent, and to get one of the better rates you will have to put down 40 per cent. Principality Building Society is offering 3.49 per cent on a 60 per cent loan-to-value basis. NatWest has a 4.99 per cent deal, with a £1,999 fee and maximum loan-to-value of 75 per cent. As a cushion, lenders routinely want rent to cover 125 per cent of mortgage repayments.
Strict criteria are no bad thing. It means buyers have to take a more conservative approach, cherry pick properties with higher yields and stay with their investment for a longer period. Having to put in more of your own money can actually increase the return you get because you pay less in mortgage costs.
Would-be landlords who cannot raise a big enough mortgage to buy direct have another option: they can invest indirectly through a property fund, where the entry price is much lower, typically £20,000- £500,000.
Property funds have mushroomed during the last two years, with predatory managers trying to take advantage of the price crash.
