There have been some confusing messages about buy-to-let in recent months.
Some say hundreds of thousands of landlords will desert the sector after the Chancellor announced hefty tax changes, while others suggest investors have built up sufficient financial buffers to weather the storm.
So what is actually happening and is there need for landlords to change their strategies? Here, we bust some of the myths that have emerged by researching the hard facts.
Figures published by the industry body, the Council of Mortgage Lenders, shows the average value of a property that landlords borrow - known as a loan to value ratio - is comparable to those who buy their own home.
The figures are particularly conservative when compared with first-time buyers who on average borrow 78 per cent of a property’s value compared to 70 per cent for buy-to-let borrowers.
CML data suggests three quarters of new buy-to-let loans are issued on interest-only terms. However, the percentage is lower in areas where investors are less likely to rely on capital growth for their returns.
For example in Northern Ireland, the figure is 56 per cent and in Scotland it is 65 per cent, according to the CML. This suggests that - in some areas at least - landlords are paying down their debt while interest rates remain at historic lows.
Lenders don’t want borrowers to get into trouble once the Bank of England begins to raise interest rates and so they have already started to factor this possibility into their lending decisions.
They are ensuring that the rent achievable on a property more than sufficiently covers a landlord’s mortgage payments. Or they simply won’t lend landlords the money.
In addition, many investors have taken out fixed rate deals, which helps to safeguard against future interest rates. Not only do CML figures show that a total of 84 per cent of new buy-to-let lending is issued at fixed rates, but two-thirds of these are fixed for at least two years.
The CML suggests that while it is difficult to find information on whether buy-to-let borrowers are experienced or not, it makes an estimate based on transactional data, suggesting that at least 75 per cent of new buy-to-let lending is going to borrowers who already have at least one other buy-to-let mortgage property with that lender.
This means a significant number of borrowers have experience of the sector and will know the importance of ensuring the numbers stack up before venturing any further into the buy-to-let world.
What BTL myths have you heard recently? Let us know in the comments below.
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22 June 2020 • 9-minute read
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