Summary
Buy-to-let mortgages are booming again. What's changed and what, as a new landlord, do you need to look out for?
Buy to Let Mortgages. Boom time returns.
Author: Michael Challiner
After last years crisis of confidence the buy-to-let
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In the final three months of last year, rental incomes increased by an average of 3.3%. At the same time the rental yield, income as a percentage of the property's value, edged up from 6.42% to 6.45%. The latest report from the Council of Mortgage Lenders (CML) also shows that the value of new buy-to-let mortgages increase by 47% in the second half of 2005 over the preceding six months whilst the number of these mortgages rose by 39%.
Indeed, we expect the boom to extend throughout 2006. It will be powered by the steady increases in house prices, a healthy demand from tenants, especially the first time buyers who remain priced out off the property ladder and a glut of cheaper buy to let deals.
Mortgage lenders are happy as well! Industry figures show that buy-to-let mortgages are now a safer bet for them than homeowner mortgages. According to the CML, percentage of arrears in buy-to-let mortgage is now lower than that for homeowner mortgages - and the arrears trend for buy-to-let is improving whist for homeowners it's getting worse.
Not surprisingly, the mortgage lenders have responded by relaxing some of their lending criteria and aggressively promoting buy-to-let again.
In the past, buy-to-let lenders have required monthly rental income to exceed mortgage payments by 30% – so if a mortgage was costing £750 per month, the rental income needed to exceed £975. But now several lenders have relaxed this criteria. The reason's not just the improved risk profile. Over the last six or seven years, house prices have risen faster than rental income yields, making it increasingly difficult for landlords to meet the +30% criteria. So now the lending average is closer to +25% although Northern Rock and a few others are happy to lend where the income simply equals the mortgage payment.