Is now the right time to get a buy-to-let mortgage?
If that’s true, does this mean that now is the right time to get a buy-to-let mortgage and join the growing ranks of private landlords?
Thousands of ordinary people in the UK have become successful landlords in the last thirty years, most since the buy-to-let explosion of the 1980s. The popularity of low-deposit mortgages secured on the property, but allowing rental income to be taken into account when calculating the affordability of the loan, allowed people with equity stored in their family homes to buy one or more houses to rent out.
As well as the rental income paying off the mortgages, and hopefully a bit more, these first-time landlords owners enjoyed capital growth on the properties too, most using them as savings vehicles for their retirement. Although property prices dropped in the early 1990s and after the 2007 credit crunch, long term investors will still have made capital gains.
The statistics that were being bandied about recently varied, but were all long term indicators showing significant growth in the private rented sector (PRS). The PRS excludes institutional investors such as pension funds and other financial institutions and social landlords such as universities, local authorities and housing associations.
The English Housing Survey released by the government showed that the number of properties in the hands of private landlords had doubled since 2004. Also Price Waterhouse Cooper produced a report back in August 2015 which showed a doubling of the number of rented households since 2001. Those are two different periods but with a significant overlap and both agreeing on a doubling of the number of properties.
A household survey by the Scottish Government in 2014 found that the proportion of people in rented accommodation had also doubled in the previous decade. Additionally the amount of public funds paid out to landlords as housing benefit had doubled during the same period, indicating perhaps that a lot of the growth in the PRS has happened at the bottom end of the housing market.
So, is it time to become a private landlord? Certainly the availability of buy-to-let mortgages from independent mortgage brokers has improved hugely in the last five years. The number of products available and the loan-to-value ratios are nothing like those seen before the credit crunch, but pragmatic investors will see that as a sign of more prudent lending and a practice to be encouraged.
Other statistics shed a different light on the PRS. A few months back “This is Money” quoted a survey saying that the proportion of private landlords who are planning to sell up has doubled. The survey also indicated that the number of private landlords who said that they weren’t looking to increase the size of their portfolio had gone up to 84 per cent – the highest level recorded.
Pessimism at the time might well have been driven by successive perceived attacks on landlords over the last few years by the government. Almost every budget for the last four years had some sort of punitive element aimed at private landlords, increasing tax liabilities and red tape. Despite that, most commentators still believe that there are profits to be made from buy-to-let, as long as new entrants to the market realise that it is a long term proposition.
In short there’s unpredictability surrounding investment in the private rented sector at the moment, but signs that it will deliver over the longer term.
If you want to explore buy-to-let borrowing options in detail, get in contact with independent mortgage broker Fox Davidson, specialising in lending in Bristol, Bath or London, all excellent places to invest in buy-to-let.