With the greater property and mortgage market in the midst of the biggest upheaval since the Great Depression many are wondering what happened to buy to let. Several years ago buying property to rent out was more of an obsession than a pastime. Now it seems that all has gone on the buy to let front, but many are questioning whether it is in as much turmoil as the rest of the property market.
Buying an investment property seemed like a sure fire way to increase your wealth in the early part of the new millennium. Property prices were skyrocketing and lenders were offering anyone with a name and address a buy to let mortgage. Over the last year or so the situation has completed an about face and now it is more difficult than ever before to secure a buy to let mortgage, even on a quality property.
This is largely because the majority of mortgage products have been pulled from the market as lenders reassess their thinking and attempt to solve the issue that they are simply running out of money to lend. Mortgages on owner occupied properties have disappeared en masse as have buy to let products for residential properties that are rented out to tenants. While is may seem, at first glance, that the buy to let industry is in crisis, this may not actually be the case.
According to some of the UK’s largest mortgage intermediaries the buy to let market is still healthy bit the focus has shifted from amateurs to professionals. Lenders no longer offer buy to let mortgages to anyone with identification but are still willing to lend to experienced landlords. People who already own an investment property portfolio which contains a healthy amount of equity are having little trouble obtaining finance for new property purchases or remortgages for existing buy to lets.
The lenders’ willingness to continue lending money to experienced landlords is down to risk. This type of borrower offers a lower risk to mortgage lenders and because they already have collateral in their portfolios lenders have access to funds if things go wrong and they are forced to repossess some properties.
Amateur investors with little money for a deposit, however, are not as fortunate. The situation in which aspiring landlords could obtain properties to rent out with tiny deposits, or builder paid deposits, is finished. Lenders now like to see some commitment from landlords by way of large deposits and also like to build in a buffer to minimise their overall risk.
Mortgage brokers are reporting that the buy to let industry is therefore not in crisis. It is merely experiencing a correction, and many would argue that it is a correction that is long overdue. Property is not supposed to be bought and sold as easily as shared on the stock exchange. Although investment properties can be financed to a high level by mortgage lenders, it is appropriate for would be investors to contribute a significant portion of the funds required to buy the properties.
This helps to ensure that people do their due diligence before buying a property to rent out and think carefully before entering the market at all. The maximum loan to values on buy to let mortgages that lenders are willing to give investors is therefore an excellent tool for stopping the industry from overheating. |
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