Buy to Let - Key Challenges for Landlords

Buy to Let - Key Challenges for Landlords

Introduction

As long ago as 1997, a change in the law made it easier for a private landlord to regain possession of his, or her, property, if need be. This, in turn, prompted many mortgage lenders to make competitive mortgage loans available to private landlords, and so began the buy to let phenomena, as we know it today. Housing prices in the United Kingdom rose by more than 200% between 1996, and 2007, and while prices were still rising by 10% per annum during 2007, the rate of increase was slowing, in many parts of the country, even prior to the so-called "credit crunch".

Buy to Let Market

The credit crunch, or banking crisis – highlighted by the demise of Northern Rock, for example – has curtailed the buy to let activity of many property investors, and forced several smaller specialist mortgage lenders out of the market completely. Buy to let mortgage products, on the whole, have started to become less, and less, available in recent months – 2/3 of such products have disappeared – and new landlords are struggling to enter the market. Indeed, a recent report from RICS ("Royal Institution of Chartered Surveyors") revealed that more property agents reported a fall, rather than a rise, in the number of landlord instructions for the first time in 10 years.

Buy to let investment is certainly a more challenging proposition than it has been in recent years, but all is not "doom and gloom". The number of buy to let mortgage products available from mortgage lenders is not a direct indication of the total amount of money that is available to lend, and while interest rates of 1.5%, or so, above the base lending rate, are not as competitive as previously, they are still far from catastrophic.

Similarly, 125%, and other high LTV ("Loan To Value") mortgage products are difficult, or impossible, to obtain by first-time buyers with little, or no, deposit, and this is stimulating demand for rental property by tenants.

On the other hand, interest rates are currently low, and falling, and buy to let mortgage products with 85% LTV are still available from major high street lenders. If property prices continue to fall, for a while, the likelihood is that residential buyers will stay out of the market until prices stabilise, and start to rise again; this presents an opportunity for existing, or would-be, buy to let investors to strengthen their position, in the interim. Therefore, if you are considering becoming a landlord in Sussex, for example, you can expect demand for rental properties – and, in turn, rental yields – to increase.