Investing in the Bristol property market.
The latest house price reports from Hometrack show Bristol as top of the ladder with annual inflation of 14% year on year. Coupled with rental yields still around 4 to 5% in most areas and Bristol starts to look like a very attractive proposition.
The buy to let market in Bristol is very strong so investing in the Bristol property market would look to be a wise investment. In Clifton, Redland and the surrounding areas such as Hotwells there is a large student population. Student property produces higher yields due to the fact that the properties are let per room with often 5 or 6 bedrooms being rented out, especially in the larger Clifton properties. For landlords that like to invest in properties that are let to students there are plenty of options in the mortgage market with new specialist lenders such as Pepper, Fleet and Axis that offer specialist lending for multi-let rooms or properties held in a limited company name.
Outside of the student areas there are strong markets in all of the lower postcodes including Bedminster & Brislington South of the river and Bishopston and Eastville North of the river. Property in these areas continue to attract open day events with offers being made in excess of the asking price. A typical 2 bedroom property in Bedminster will sell for around £250,000 plus and with rental income of around £1,000 per month for a family let this gives an annual gross return of 4.8%. On this typical property as an independent broker we can approach a comprehensive rage of mortgage lenders and would expect to be able to achieve a loan to value of 80% at rates below 4%. At lower loan to values the rates fall to as low as 2%.
The greater Bristol areas have also recorded double digit growth and we are seeing lots of Bristol landlords now turning their attention to areas such as Weston-Super-Mare where property prices are not as high as Bristol and rental yields are that little bit higher. We expect the ripple to continue this year with property prices continuing to increase from BS1 outwards but slowing into next year.
One point of note for the buy to let market is the Prudential Regulation Authority directive on buy to let mortgage finance which will be enforced shortly.
The main points from the directive will be; Affordability, Stress tests for rental calculations and extra underwriting for portfolio landlords.
- Affordability: Lenders have to assess the overall indebtedness of the applicant rather than just looking at the subject property in the buy to let application. Lenders will look at personal income as well as rent.
- Rental calculations: these are used by lenders to get to the loan amount. For many years lenders were working off of annual rent / 125% / 5% to get to the loan amount. That is no longer the norm. TMW for example now work off of annual rent /145% / 5.5%. A few lenders such as Aldermore and Precise and a handful of others will work off of 125% at pay rate (currently around 3.99%) but the PRA is likely to put an end to that, we shall see.
- Portfolio Landlords: If you have 4 or more buy to lets but only show £15,000 taxable income then a lender will have to consider whether lending to you is the right thing to do given that in the event of rental voids would you be able to make the mortgage payments.
With the above changes to how lenders assess buy to let and the changes to the stamp duty and income tax buy to let will become more focused and less of a whim. At Fox Davidson we are still seeing clients buying property to invest in because as you can see from the Bristol property market showing annual capital growth of 14% and income yields of 4%, bricks and mortar still out performs most other investments. You just need to ensure you are getting the right advice from quality professionals such mortgage brokers, solicitors and accountants.
If you are looking to invest in the Bristol property market and need mortgage advice from a local broker that can offer advice on the finance as well as providing advice on the Bristol property market, then do drop us an email or call us on 01179 897950.