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2012 Buy-To-Let Mortgage Numbers Increase By A Third

2012 Buy-To-Let Mortgage Numbers Increase By A Third

There are fresh fears that First-Time Buyers (FTBs) and next time buyers are being forced out of the UK residential property market by Buy-To-Let landlords.

The Council of Mortgage Lenders (CML) said that 32,300 Buy-To-Let mortgage loans were made over the first quarter of 2012, a 32% increase on the first three months of 2011.

Meanwhile, according to chartered surveyors E.serv, the number of residential property mortgages lent to first-time buyers in April 2012 fell to their lowest level for 9 months. The company said that loans made to first-time buyers in April numbered just 11,307, a drop of 5% from March 2012 and the lowest since July 2011.

Mainstream mortgage lenders are increasingly reluctant to accept applications from First-Time Buyers due to low Loan-To-Value (LTV) rates and the size of deposit required. Instead there is a preference to lend to Buy-To-Let landlords, who are less likely to default on mortgage payments because they are able to utilise specialist Rent Guarantee insurance products to keep cashflow constant.

Richard Sexton, business development director at E.serv, said “Mortgage companies have begun to scale back lending to first-time buyers. Buy-to-let landlords are taking the places of first-time buyers as there is an absence of them in the market place because they can’t get loans. The UK housing market would be in a far worst place than it is now if it were not for the return of buy-to-let landlords”.

Chief Executive of Dragonfly Property Finance, Jonathan Samuels, said “There has been a seriously sharp spike in mortgage loan applications for buy-to-let properties in the first four months of 2012. A shortage of rental stock and strong demand from the growing number of tenants forced to rent will keep driving the sector forward. There’s a lot of portfolio building, as investors continue to add properties to give them increased exposure. People are seeing Buy-To-Let as a pretty stable place to be because residential property prices are falling and mortgage lenders still see lending to owner-occupiers as risky. Investors feel that there’s a lot left in the buy-to-let market and are putting their money where their mouth is”.

However there are warnings that buy-to-let landlords will need to know what they’re doing when it comes to best rental practices and should take appropriate measures to protect their rental income, such as thoroughly referencing tenants and ensuring Rent Guarantee insurance is in place. Landlords should also be prepared for Bank of England interest rates to rise anytime within the next 12 months as the UK struggles to escape the grip of recession.

The CML said that although lending to buy-to-let landlords has grown sharply in the last year, it is still at only 30% of 2007 levels.

With average loan-to-values on buy-to-let mortgages at 75% and average minimal rental cover at 125% it is unlikely that Buy-To-Let mortgage lending will recover to the same levels seen in 2007, as 25% deposits will prevent many amateur landlords from buying rental property.

UK Government Housing Minister, Grant Shapps, said: “We do not have to make a choice between first time buyers and buy to let. We need both. And while a third of all mortgages went to first time buyers last year, only 12% went to buy-to-let landlords. But I’m determined to pull out all the stops for those who want to get on the property ladder, which is why in March the Prime Minister and I launched the NewBuy Guarantee scheme which is expected to enable up to 100,000 aspiring homeowners to buy newly built properties with just a fraction of the deposit they would normally need.”

Reluctant landlords making the wrong choices when it comes to insurance

Don't be Confused Over Landlord Insurance

An increasing number of private residential properties are being rented out to tenants because the owners have moved out but found it difficult to sell the property on the open market. The rise in “reluctant” or “accidental” landlords has caused ripples of concern within the UK lettings industry.

In fact, according to the Association of Residential Letting Agents (ARLA), increasing numbers of property vendors are either forced into or choosing to rent out homes they cannot sell in order to avoid financial ruin, in fact 47% of ARLA members experienced movement of this nature in the final quarter of 2011.

ARLA operations manager, Ian Potter said: “Renting a property on a short term basis can be a good option for anyone who has found a buyer for their home, but who have not found the right property to buy themselves. The approach would also suit individuals considering a move to a new area who would like to test the water before committing to anything final”.

Many UK property owners are facing this position as the UK property sales market remains sluggish despite the recent rally in property prices due to the end of the stamp duty holiday. However many property owners are getting it wrong when it comes to getting the right sort of insurance cover.

Property vendors move out of the property and on to pastures new but are unable to sell the property and attempt to get it rented out in order to reduce their financial burden. In doing so new landlords often decide to cut corners and attempt to save money in the wrong areas in a bid to reduce their financial stress, with potentially disastrous consequences if they decide to scrimp on insurance costs and don’t choose specialist landlord insurance, but they only discover that they are not covered when the worst has already happened, compounding their misery.

Legal 4 Landlords spokesman Sim Sekhon said: “When renting out property there are factors that many people don’t take into consideration and even take for granted, such as insurance or making sure the rent will be paid on time, every time. New landlords need to educate themselves on their responsibilities, the demands and expectations of tenants in the current rental market as well as complying with government and safety legislation. It can be a tough world for the inexperienced but the specialist products and services offered by Legal 4 Landlords enable landlords and letting agents to protect their rental assets, including landlord and Buy to let insurance”.

Landlords are advised to check that they have the correct insurance cover for their rental properties and it may also be a requirement of the mortgage company to provide a copy of the policy document.

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