Buy-To-Let Lenders Facing Criticism From Landlords

Last year was rewarding for many landlords and buy-to-let mortgage holders, with strong tenant demand and high rents providing good gains for many. The cultural shift in the UK towards renting appears likely to continue throughout 2013, according to Belvoir Lettings. Their chief executive officer, Dorian Gonsalves, said, “The private rental sector is likely to remain a popular choice for 2013, with demand for rental property unlikely to slow and newly formed households continuing to choose the rental market as opposed to buying.”

Tenant finances were a little shaky for much of 2012, although the last quarter saw a fall in tenants in severe arrears and a fall in unemployment, leaving many feeling positive about this year.

“For 2013, it is likely that unemployment will not rise so much that it will cause too many tenants or landlords a problem during the year; however it is unlikely to fall so much that it gives enough confidence to consumers to decide to buy versus rent.”

Landlords, on the whole, appear to agree with this assessment, with 55% of landlords and buy-to-let investors planning to add to their property portfolios this year, according to new research by buy-to-let mortgage specialists Mortgages For Business.

A sure sign that market confidence is high is the finding that just 6% say they are planning on reducing their portfolio over the next six months. This is the same as was found six months ago.

The strong performance in the buy-to-let mortgage market in 2012 shows no sign of weakening this year, encouraging investors to expand their portfolios further. Buy-to-let mortgage holders are currently experiencing strong yields on vanilla buy-to-let properties, with gross yields at a comfortable 6.7%. Of those who intend to expand their portfolio in 2013, almost nine in ten plan on investing in vanilla buy-to-let property.

David Whittaker, managing director at Mortgages For Business, said, “Tenant demand for residential property is ballooning thanks to the lack of mortgages available to first-time buyers.

“Every month more and more would-be buyers are being forced to rent, and this is pushing up demand to astronomical levels, producing very attractive gross yields for landlords as a result.

“The first half of 2013 will see a spate of purchasing and remortgaging as landlords try to put themselves in a position to take full advantage of a buy to let sector which is in very good health.”

Although vanilla buy-to-let properties have proven most popular yet again, it was found that investors are increasingly attracted to complex buy-to-let properties. Of those planning on investing in the next half year, just over a quarter (26%) said they would invest in Houses in Multiple Occupation (HMOs), while 16% will be buying Multi-Unit Freehold Blocks (MUFBs).

Further evidence of landlord confidence was revealed by LSL Property Services, who found that nearly four in ten (39%) landlords plan on increasing rents this year, with one in ten anticipating rises of more than 5%.

David Brown, commercial director of LSL Property Services, said, “Fierce tenant competition in 2012 enabled many landlords to raise their asking prices when letting their properties, preventing inflation from eating into their rental income – and this is likely to continue in the next 12 months.”

However, Mortgages For Business have also found that landlords are highly critical of lenders, wishing that they would do more to help them receive the finance they need.

It was found that over three-quarters (76%) of investors feel that buy-to-let mortgage investors should be doing more to help them get finance. The key area highlighted by the research that landlords feel could be improved upon is the lending criteria. 45% said that the criteria should be eased, with measures such as giving preference to landlords with more experience and increased lending for complex property types suggested as ways to improve.

Landlords and investors were also critical of buy-to-let mortgage rates, with 27% saying rates are too high and should be brought closer to the level seen in residential mortgages.

Two-thirds of landlords planning on expanding their portfolio in 2013 say they will need to refinance in order to do so. 43% of landlords will be looking to remortgage in the first half of the year. Although 45% don’t plan on purchasing further property in the first half of the year, a quarter of them still intend to remortgage.

Due to a lack of equity and the difficulty in securing a mortgage with an LTV of more than 75%, 11% of landlords who want to expand their portfolio over the next six months will not be able to refinance.

However, Mortgages For Business found that there is not much incentive for lenders to ease their criteria, as the high demand for buy-to-let mortgages more than meets their lending targets.

What they also found from their research is that nearly four in ten (39%) of investors rely entirely on rental income, showing how the rapid growth in the private rented sector has led to a massive increase in professional property investors who make their living on rent alone. This does not work well for them in securing a buy-to-let mortgage, as most buy-to-let lenders stipulate that landlords must have an additional income of £20,000 to £25,000 in order to get finance.

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