David Whittaker, managing director, Mortgages for Business
Despite the icy start to 2010 there is evidence of a thaw in the range and availability of buy-to-let products. January blew in improving LTVs while some two to three-year fixed rate deals are proving attractive to investors.
The launch of innovative products such as our refurbishment mortgage in early February provided a ray of sunshine among the steely clouds of winter.
But does this mean amateur or new buy-to-let investors should rush out and start buying rental properties? It never has been – nor should ever be – mortgage products that decide whether properties should be bought. Buy-to-let is a long-term investment decision and the only difference a mortgage makes is that it allows investors to leverage their capital base more highly.
But are the conditions right for investors to get busy in the market? Predictions about property price growth in 2010 are as varied as those about where the Bank of England base rate will be by the end of the year.
While a higher cost of funds hits cash flow it also suggests inflation. This bodes well for increases in rent and capital values in the medium term.
Increases in rent and capital values can be expected in the medium term
But the kicker is whether investors borrow money on a variable rate now recognising that the base rate could rise significantly in two years or pay what appears to be a premium at the outset for a fixed rate, thereby protecting their cash flow into 2011.
Significant influences on the property market include the continuing shortage of stock as big building firms struggle to reopen construction sites that have been mothballed for 12 months or more. Meanwhile, smaller builders face an even bigger problem finding funding to get houses started.
The gradual improvement in residential mortgage availability and higher LTVs are not making things much better for first-time buyers. Recent university graduates are taking longer to find jobs, while being saddled with big student debts.
In the wider market bonuses and pay rises are distant memories for most so finding deposits of between 10% and 15% is a big issue for first-timers. Many are forced to rent for a long time while they build up cash from monthly pay cheques that are less substantial than they would have been two years ago.
Of course, buy-to-let mortgage products with better pricing are welcome and add to a general feeling of growing confidence. But if any investor decides on a property purchase purely on the basis of being able to borrow the maximum amount of money they can on a mortgage it is clear they have already lost sight of the fundamental basis of investment. There are far more important factors to consider.