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Buy-to-let loan sizes jump £20k in one month

Buy-to-let loan sizes jumped by 13 per cent last month, meaning the average maximum loan available to prospective and existing landlords is now £421,053.

In December, this figure stood at £401,053, pointing to a £20,000 increase. This means loans for landlords are at their highest level since August 2020, according to research published by adviser platform Mortgage Broker Tools today (February 28).

The buy-to-let sector remained buoyant last year, despite some reports of landlords exiting their portfolios. Purchase activity reached £18bn, up 83 per cent on 2020, according to UK Finance.

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But while the average maximum loan size available to buy-to-let investors is approaching a two-year high, the spread between the average maximum and minimum loan sizes available to landlords has also “never been wider”, according to Tanya Toumadj, chief executive at Mortgage Broker Tools.

“For investor clients who want to maximise their leverage, it’s vital that brokers are able to easily identify those lenders that will offer larger loan sizes based on their individual circumstances,” she explained.

Legal & General Mortgage Club data also published today found searches for landlords with gifted equity grew by 82 per cent last month. This suggests that those in the buy-to-let market may be benefitting from financial support from family members to boost their borrowing power as the loan sizes available to them continue to increase.

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Richard Merret, head of strategic development at mortgage club SimplyBiz, told FTAdviser the pandemic has shown people “the robustness of houses as an asset”.

In 2021, the price of a typical UK home grew to £254,822, up nearly £24,000 over the year.

Merret also said an interest in holiday letting has increased, due to the tax benefits and the “ease” of arranging it via an app. “Airbnb has made being a holiday-let landlord more accessible,” said Merrett.

A series of regulatory changes to the buy-to-let sector has, however, made it harder to enter the market. So advisers can better understand these regulatory changes – which include a 3 per cent stamp duty surcharge, more stringent affordability tests and reforms to mortgage relief – SimplyBiz has launched a series of virtual academies.

Meanwhile, some investors are now looking to make gains off cryptocurrency rather than off a housing portfolio.

One investor told FTAdviser in December that with property producing average gains anywhere between 5 and 10 per cent a year, he was drawn to the minimum advised return of around 30 per cent to be made from cryptocurrency in just three to six months on less money.

By Ruby Hinchliffe

Source: FT Adviser

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Buy-to-let mortgages reach their 25th birthday

The private rented sector has almost doubled in size since the first buy-to-let mortgage launched 25 years ago this Friday.

In 1996, the Association of Residential Landlords (ARLA) worked with a small group of lenders including Paragon and NatWest to develop a mortgage product specifically tailored to landlords.

Buy-to-let was devised to encourage new investment into a private rented sector (PRS) that had been in long-term decline.

The recession of the early 1990s exposed a lack of options for those for whom home ownership was out of reach, but who couldn’t qualify for diminished social housing provision.

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The PRS had fallen from over 70% of homes post World War I to less than 10% by the late 1980s, fuelled by the growth of social housing, successive policies to encourage home-ownership and a legal landscape that afforded little legal protection to landlords.

The only way a landlord could finance a property portfolio before BTL mortgages were launched was through commercial mortgage terms.

Often offered a low loan-to-value and with high rates, these didn’t always make the most attractive option for investors.

As a result, it is thought that some landlords used standard residential mortgages but in cases where the tenants weren’t declared, the terms of the mortgage would have been breached.

That was until the launch of the first specialist buy-to-let mortgage in 1996.

At the time, John Major was prime minister, Princess Diana and Prince Charles divorced and mad cow disease was causing panic.

That same year the Spice Girls’ debut single, Wannabe, was released and England hosted the European Football Championships, cheered on by fans singing David Baddiel and Frank Skinner’s Three Lions (Football’s Coming Home).

The private rented sector (PRS) has almost doubled in size, expanding from 2.4 million households in 1996 to 4.4 million in England today.

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Now the PRS accounts for 19% of UK households, which is more than the social housing sector, which accounts for 17% of households.

The portion of homes in the sector classed as “decent” under government standards has consistently increased, rising from 53.2% in 2006 to 76.7% last year.

There has been a 272% increase in PRS homes with an energy rating of C or above since 2009 to 1.8 million today.

Paragon managing director for mortgages Richard Rowntree says: “Since being launched as a mortgage product specifically designed for landlords 25 years ago, buy-to-let finance has helped to transform the PRS.

“It is now a vital component of the UK’s housing provision, with renting no longer a last resort.

“The PRS is a tenure of choice as well as need and this is supported by the diversity of those who actively choose rented homes, benefitting from the flexibility they provide.”

Former Arla Propertymark president Robert Jordan says: “We at Arla realised that the housing market was at a low ebb; houses weren’t selling, which meant a lot of people were letting their homes to move to a new property.

“When the housing market picked up those properties sold and there was a need for more rented properties to fill the gap for tenants, but we couldn’t see where we would find more homes to let.

“It became clear that the mortgage options weren’t suitable, so together we designed a product, buy-to-let, that would enable more investors to purchase an investment property and let it under the new Housing Act 1988 regulations.

“Paragon and NatWest were the first two mortgage lenders we approached. Today, private landlords house approximately five million households across the UK at no cost to the exchequer.”

By Leah Milner

Source: Mortgage Strategy

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New Mortgages for Energy Efficient Rental Properties

Paragon Bank has launched a range of buy-to-let mortgages with lower interest rates for energy efficient properties.

The 80% LTV mortgages charge a market-leading 3.99% interest, fixed for five years, exclusively for rental properties which earn an energy performance certificate (EPC) of A to C. The loans can be used for the purchase and remortgages of self-contained properties and houses in multiple occupation (HMO).

The lender hopes the new mortgages will encourage landlords to invest in the energy efficiency of their properties.

The number of properties in the private rental sector with an EPC of A to C has increased 272% over the past decade to 1.8 million. However, around six and ten homes in the sector still are at a grade D or lower.

Energy inefficient properties are expensive for tenants to heat and frequently dangerously cold. A government survey of the country’s housing stock has found that homes below an energy efficiency ratio (EER) of C cost an average of £500 more to heat each year than properties that achieve a C or better. Those high costs leave a disproportionate number of private tenants in fuel poverty—25% in England, compared to 10% across the wider population.

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The most energy inefficient rental properties are on average 2⁰C colder in winter than the most efficient homes, posing risk to tenant health.

Inefficient rentals are also responsible for high levels of carbon emissions. Nationally, energy use in homes account for around 14% of the UK’s greenhouse gas emissions and any pathway to net zero requires investment in insulation, double and triple glazing and low-carbon heating systems in homes.

Under proposed regulations, which the government began consulting on last autumn, all homes in the private rented sector will need a minimum EPC grade of C or better for new tenancies by 2025. All privately rental properties will need to achieve that grade by 2028.

Richard Rowntree, managing director of mortgages at Paragon Bank, said: “Landlords have made great strides in adding more energy efficient homes to the PRS – or upgrading properties to C or above standard—over the past decade. However, more needs to be done as the Government moves towards its net zero carbon target by 2050 and landlords have a key role to play in that.

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“Our new range of products at 80% LTV for homes with an energy rating of C or above will be an incentive for landlords to add energy efficient homes to the sector, benefitting tenants through lower energy bills and the environment through reduced consumption.”

Landlords, along with other homeowners, were extended some help in upgrading their properties with the government’s Green Homes Grant scheme. The initiative offered homeowners up to £5k to cover two-thirds of the cost of energy efficiency upgrades. However, the project was dogged by difficulties and was shuttered prematurely at the end of March, having issued just 28,000 vouchers for work and seen just 5,800 energy efficiency measures installed.

Source: Money Expert

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Majority of landlords waiting for lockdown measures to ease before investing

Over half (59.8%) of BTL landlords are waiting for lockdown measures to ease before investing in properties, according to the National Landlord Index by Accommodation.co.uk.

The research highlights that UK landlords still see the rental market as a safe place to invest especially as the stock market has been so volatile during the pandemic.

This desire from landlords to expand their property portfolios in 2021 is reflected in the demand for buy-to-let mortgages with the index revealing that nearly two-fifths (37.8%) of landlords are planning to apply for one this year.

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As the UK starts to see the benefits the vaccination has on the economy, Accommodation.co.uk says it is “clear” that landlords are optimistic that this recovery will be reflected in house prices long-term.

Aaron Short, founder and chief executive at Accommodation.co.uk, said: “We are always listening to our landlords and tenants to understand the needs of the market and this is why the National Landlord Index remains so important.

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“Understanding how BTL landlords are being impacted by lockdown measures and what their plans are post-pandemic help us to understand the future lettings market. It is great to see landlords looking to expand portfolios and generally positive about the future and this certainly mirrors the growth we have seen at Accommodation.co.uk.

“We have been at the forefront of updating this archaic industry and we believe our award-winning model offers tenants and landlords the best solution in the current market.”

Source: Property Wire

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BTL mortgage availability at pandemic high

The availability of buy-to-let mortgages has remained relatively high during the pandemic, giving landlords cause for optimism, according to Moneyfacts.

Figures from the data provider showed there were 1,976 buy-to-let products available in mid-January, fewer than before the pandemic began but more than the 1,455 available in May.

The provider also suggested lender confidence as the number of deals available in the 80 per cent LTV tier has risen by 26 since December.

Average rates have also increased, with two- and five-year fixed rates standing at 2.92 per cent and 3.29 per cent respectively for all LTV brackets, the highest levels recorded by the provider since November 2019.

But Eleanor Williams, finance expert at Moneyfacts, warned the market has been “volatile” since the start of this year.

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She said: “Lenders have been adjusting their offerings and consequently availability continues to fluctuate – there are now 27 fewer mortgage products on offer than there were just a couple of weeks ago, and so those considering exploring a new BTL mortgage could do well to secure the knowledge and advice of a qualified adviser, to ensure they keep abreast of any relevant changes.”

Buy-to-let mortgage market analysis

PRODUCT NUMBERSJan-20Mar-20May-20Dec-20Jan-2115.1.21
BTL product count – fixed and variable rates2,5832,8971,4551,8182,0031,976
All 80% LTV BTL products – fixed and variable rates2973681974100100
AVERAGE RATESJan-20Mar-20May-20Dec-20Jan-2115.1.21
BTL two-year fixed – all LTVs2.82%2.77%2.51%2.89%2.89%2.92%
BTL five-year fixed – all LTVs3.19%3.24%2.94%3.25%3.27%3.29%
Data shown is as at first working day of month, unless otherwise stated. Source: Moneyfacts.co.uk

The Intermediary Mortgage Lenders Association has meanwhile highlighted the opportunity for remortgage business from landlords who took out five-year deals before the stamp duty surcharge was introduced in 2016.

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The trade association predicted the five-year anniversary of the surcharge would enable demand in the mortgage market to stay strong this year despite the end of the stamp duty holiday.

A survey by Paragon Bank also found that half of buy-to-let brokers said they would focus on five-year remortgage business when the stamp duty holiday ends.

But Kevin Dunn, director at Furnley House, commented that he expected demand to fall.

Mr Dunn said: “Whilst demand has remained strong in this area over the last six months, I expect demand in buy-to-let mortgages to decrease once the stamp duty holiday ends at the end of March, however not quite in the same way it fell off a cliff when the stamp duty surcharge was announced at the beginning of 2016.”

By Chloe Cheung

Source: FT Adviser

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