While the overall mortgage market has slowed in the wake of recent interest rate rises, buy-to-let mortgage lending has surged. This is a clear indication that buy-to-let property investing has returned to favour following a recent period of uncertainty. There are several reasons why the property investment market has picked up pace despite the steady increases in the cost of maintaining buy-to-let mortgages.
The first reason can be attributed to low affordability of property ownership and the heavily reduced ability for potential first-time-buyers to get on to the property ladder. A growing number of potential first-time-buyers are being priced out of the property market as they are unable to provide the funds necessary to pay for a deposit and fees, such as stamp duty. House prices have increased drastically over the last few years while wage levels have remained fairly static. This has lead to a situation in which young workers who rent property while trying to save enough money to buy a property are fighting a losing battle.
Another reason for the upsurge in buy-to-let mortgage applications is that the rental income collected by property investors has risen sharply. Experienced buy-to-let property owners who already collect rent on a monthly basis have noticed that market rate for rent has increased to a record level. This has, in turn, resulted in cashed-up investors snapping up even more properties to offer up for rent.
By combining the two factors together it is easy to see why experienced landlords are keen to buy more property. With rents at an all-time high, and a surge in the overall number of people forced to remain as tenants because they cannot afford to buy property, landlords look set to make healthy gains over the next few years.
Despite this, landlords do need to be aware that the mortgage market is currently undergoing a period of uncertainty, and this may eventually affect buy-to-let mortgages. Interest rates, fees and charges, and other lending criteria are still relatively relaxed, despite the commotion in the sub-prime mortgage market in the US. This may not last, however, and UK mortgage lenders may begin to tighten the criteria on their buy-to-let mortgage products.
If this does occur, it is likely the changes will affect sub-prime borrowers and won't have heavy implications on experienced landlords with good credit histories and healthy buy-to-let property portfolios. However while experienced landlords with existing and profitable portfolios may be largely unaffected, it is likely that the market will retract for amateur investors who do not have a healthy track record.
Lenders will need to continue to approve buy-to-let mortgages in order to make money but their lending criteria will tighten for relatively inexperienced investors. Property investing is a business after all so lenders will be more likely to choose to secure their mortgage funds against properties owned by investors who have been successful in the industry for a long period of time.
While no one can safely predict what will happen in the future, for now it seems that buy-to-let investing is not experiencing the same downturn as the owner-occupied residential property market.
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