'My property is going to be my pension:' Buy-to-let landlords snap up homes as mortgage rates keep falling
03-25-2014
'My property is going to be my pension:' Buy-to-let landlords snap up homes as mortgage rates keep falling
By Neil Simpson, Financial Mail On Sunday
Buy-to-let mortgages are set to defy gravity this spring – with interest rates and fees falling while the cost of deals for ordinary buyers rises.
Rates for first-time buyers and owner-occupiers wanting five-year fixes are already creeping up, but landlords can get fixes cheaper than six months ago and less than at any time since the credit crunch hit.
The remarkable turnaround comes as surveys reveal that property investors are in far better health than most experts predicted.
Boost: Fiona Brown has a buy-to-let flat in Cambridge, where prices are tipped to rise
The average amount owed by tenants in arrears is at a three-year low, according to lender BM Solutions, with a record eight out of ten established landlords saying they make a full-time living from property.
A host of lenders are offering buy-to-let loans for the first time, or are returning to the market after several years away.
The Post Office, TSB and specialist lender Paragon are joining the likes of Santander, Skipton Building Society and Virgin Money. They are all determined to carve out a big slice of the market.
Even Bank of China is offering buy-to-let loans, including trackers where you pay 3.89 per cent now if you have a 25 per cent deposit.
Researcher Moneyfacts says the best two-year fixes include 2.49 per cent from Nationwide Building Society subsidiary The Mortgage Works, though you need a 40 per cent deposit and will pay a fee equivalent to 2.5 per cent of your loan.
‘These are some of the most competitive buy-to-let rates we have ever seen,’ says David Hollingworth of broker London & Country Mortgages in Bath, Somerset.
While some percentage-based fees can add hugely to the cost of a deal, the money can be offset against rental income for tax purposes, and one in ten buy-to-let loans now comes fee-free as lenders fight for business. Lower deposit deals are another piece of good news for investors.
Last year you needed a 25 per cent deposit to get in the game. Now Paragon offshoot Mortgage Trust has two-year fixes at 4.1 per cent if you have just a 20 per cent deposit. Lee Grandin of broker Landlord Mortgages in Eversley, Hampshire, says new flexibility is enabling existing investors to withdraw equity and buy more properties as well.
‘Our second-charge schemes are popular with established borrowers who signed up to deals at as little as base rate plus 0.49 per cent before the crunch and don’t want to redeem them even at today’s rates,’ he says.
Good choice: Fiona Brown bought a two-bedroom flat in the Kaleidoscope development in Cambridge
First-time landlords with 25 per cent deposits and cash for high fees are guided towards two-year fixes from the likes of the Post Office and Skipton at 3.29 or 3.49 per cent respectively – the Post Office fee is £1,495 while Skipton’s is £995.
Nottingham Building Society has a three-year fix at 3.49 per cent with a £1,999 fee while new investors wanting a five-year fix can get 4.19 per cent from Virgin Money as long as they pay a £1,995 fee and put down a 30 per cent deposit. As usual the more you can put down as a deposit, the lower the interest rate will be.
Before the credit crunch, Moneyfacts says the best five-year fix for investors with 40 per cent deposits was 5.84 per cent. Now Accord Mortgages – part of Yorkshire Building Society – has five-year fixes at 3.94 per cent, while several lenders including Clydesdale, NatWest and Santander also have deals under 4 per cent.
If you are prepared to gamble that interest rates will stay low for some time then you can cut your initial outgoings even more with a variable rate deal or a tracker.
Players such as Accord, Melton Mowbray Building Society, Principality Building Society, Santander and The Mortgage Works have deals where you start off paying less than 3 per cent today. But buy-to-let remains risky. Bad tenants are still around, surprise bills still come in and what seem to be eminently rentable homes still lie empty.
Even if you accept all these risks, tough rules mean you may still get refused a loan. While lenders base the amount they offer on the rent a home should attract, they might still expect you to be in a full-time job – and to have enough spare income to cover void periods and rate rises.
'I think the property will give me the best nest egg for the future'
The right mortgage will not be much help if you buy the wrong property, which is why successful buy-to-letters do their homework.
Second-time investor Fiona Brown, of Market Deeping, Lincolnshire, researched her latest buy. ‘I rent out an older property in Hertfordshire but decided that a new home would be more attractive to tenants and cost less to run,’ she says.
Fiona, 36, who is director of a motor sports engineering business, targeted new builds in central Cambridge, where prices are tipped to rise 23 per cent in the next five years.
‘I chose a two-bedroom flat in the Kaleidoscope development because it’s close to the city centre but surprisingly tranquil, which I thought tenants would like,’ she says.
She was right. A young professional couple snapped up the tenancy to her £387,000 flat the moment she offered it, and she is hoping they will stay for the long term.
‘I don’t currently have a pension and I think the property will give me the best nest egg for the future,’ she says.