Political and economic uncertainty has affected the housing market for several months now, but recent news has shown a possible change that could affect buy to let mortgages in the not-so-distant future.
Demand for rental property remains strong, and while yields have fallen, there is still money to be made in the buy-to-let sector. In this blog we take a deeper look into the buy-to-let opportunities, as well as other factors affecting the property market. Is this the perfect time to become a landlord? Open House Estate Agents think so…
What is a Buy-to-Let Mortgage?
A buy-to-let mortgage works a little bit differently to a residential mortgage. A few things you need to know straight away:
- They often involve bigger deposit
- You’ll experience higher fees
- As well as fees, you’ll have higher rates of interest
Buy-to-let mortgages are usually offered on an interest-only basis, which means the amount you’ve borrowed as a mortgage will only be cleared at the end of the term.
Most residential mortgages are capital and interest loans, where your monthly payments cover the interest and a portion of the debt, and the value of the loan plus interest is gradually paid back over the deal period.
Leicester Landlords with a buy-to-let mortgage can usually expect their monthly mortgage payments to be covered by the rent they receive. Our property services ensure a smooth tenancy for both landlord and tenants involved.
As a lender, this type of mortgage can be seen as a higher risk and there may be uncertainty of repayments.
Average Buy-to-Let Purchase Price
The average purchase price for a buy-to-let property from 2016 – 2018 was £183,278, compared to £272,425.00 for a residential purchase property.
This may suggest that potential landlords are looking for less expensive properties because they need to find a bigger deposit to get a buy-to-let loan.
The type of property they’re looking to buy might also be cheaper if they’re looking for more flexible accommodation that’s attractive to people looking to rent.
How Rates Pose New Opportunities to Landlords
Latest figures show the average 40%-deposit tracker mortgage is 3% cheaper than it was three months ago, and a 30%-deposit tracker deal is 2% cheaper than in March. As a Landlord, if you take out a £150,000 mortgage, you would save £234 a year with a 40% deposit and £144 a year with a 30% deposit.
In a time where rates are almost at a historic low, landlords are exposed to new opportunities. Particularly if landlords looking to review their existing portfolios and consider remortgaging to a lower, fixed rate buy to let mortgage.
The lowest mortgage rates aren’t necessarily going to be available to everyone. Lenders will always assess each application based on what the landlord can afford, and how high-risk it appears as a borrower.
House Prices Posing Opportunity
It has been widely reported that house price growth has stagnated, and this is no different when it comes to the Leicester market. However many buyers and sellers are holding fire to await the outcome of Brexit.
Compared to last year, house prices are still down, however there has been recent spikes. Some reports show a 12% monthly rise in southern-based landlord registrations in March 2019. This may be echoed across other UK regions and could be a sign they are on the up.
Which experts say ‘Recent price drops in some regions mean that it’s becoming more of a buyers’ market, so you might be able to get a good deal. Besides, buying a property should generally be regarded as a long-term investment and, even if there is a short-term price drop, house prices will probably stabilise in the future.
Tenant Fees Are More Enticing
The Tenant Fees Act 2019 came into effect on June 1st and has already had a significant impact on the landlord market.
At OpenHouse Estate Agents, we have kept our pricing structure exactly the same. Meaning that Leicester landlords aren’t facing harsher fees. Recent news shows that the tenant fees ban is set to cost letting agents across the UK nearly £200m a year, and landlords £300m. Our aim as a local estate agent is to make as little disruption as possible to our landlords and make the process as easy as possible.
Tenant Demand Continues to Grow
Whilst the property market is full of constant change and sometimes uncertainty, tenant demand continues to remain untouched. Those unable to buy new homes are continuing to seek private rental accommodation.
Reports show demand increased by 7% during May and June 2019, seven times the normal uplift in tenants looking for property at this time of year.
Window of Opportunity… But How Long For?
With soaring tenant demand and historically low interest rates, now seems the perfect time to take hold of this property market opportunity. Competitive deals are available now and could change at any point.
Are you a local property investor or first time landlord looking to take the plunge? Our property experts at Open House Leicester are asking, what are you waiting for? Get in touch today to discuss how our services for landlords can help you. We are open six days a week, meaning you have more time to contact us!