Buy-to-letwatch – Ying Tan – April 2012

After a second consecutive quarter of negative growth, the economy is technically in recession.

How will the buy-to-let market fare in the months ahead? Will it maintain its place as the golden boy in the housing market or will its prospects be dimmed?

In recent years, tight lending restrictions and a shortage of rental properties have seen private sector rents hitting record levels, contributing to a buoyant buy-to-let sector.

But some analysts now believe that with a double dip recession, rent defaults are more likely, resulting in a rise in landlord costs and a drop in income. The knock-on effect would deter first-time landlords from entering the market and incentivise professionals to divest portfolios, thus dampening buy-to-let.

But I doubt this scenario will materialise. A recent survey of property investors by BDRC Continental for Platform Mortgages and the National Landlords Association gives me some comfort.

It shows the private rented sector is growing and forecasts that by 2015, one in six households will be rental. A double dip recession may fuel the growth as prospective home owners choose to rent, preferring the flexibility during times of uncertainty.

Economic uncertainty also encourages resourcefulness in finding additional income, and the study shows that a growing number of women – 39% – are becoming professional landlords. Many are full-time mothers, attracted by the flexible working hours.

Another growing group of investors are pensioners, who are also becoming landlords to supplement their income. They see property as providing a better return than cash deposits and less risky than equity investments.

The study also contradicts popular opinion that most landlords are fly-by night types who have jumped on the bandwagon in the past few years. It shows that the average landlord has been in the business for 16.5 years and holds a portfolio of 10.8 properties.

Interestingly, this means the average landlord falls outside the criteria of many lenders that cap lending to a portfolio size of 10 properties. But this is an area of discussion for another day.

Finally, the study shows that landlords find value in informed and timely advice, with 40% choosing their lender based on intermediary advice.

Only 34% of landlords chose the lender because they had the lowest rate. For buy-to-let mortgages, using a broker is not just an option, but a necessity.
With HSBC looking to triple its buy-to-let business and Tesco Bank still undecided if it will use brokers, maybe both should take note of this study.

With continued demand for rental propertiesand more diverse investors, the double dip will again show the resilience of the buy-to-let market, given its counter-cyclical characteristics.

The past week has seen some downward pricing by Godiva Mortgages by 0.3% and The Mortgage Works and BM Solutions, which have also sharpened rates.

It was also refreshing to see Keystone re-enter the market and I congratulate my fellow Buy-to-letwatch columnist, David Whittaker, managing director of Mortgages for Business, for filling a gap in the houses in multiple occupancy and limited company markets, which currently have little on offer.