LONDON, UNITED KINGDOM--(Marketwire - Dec. 3, 2012) - Consumer finance champion Know Your Money http://www.knowyourmoney.co.uk is calling for banks to offer the best rates on buy-to-let mortgages at higher loan-to-value ratios, having noted that average deposits are falling short of the premium level.
Buy-to-let mortgages have flooded the news of late, with official figures suggesting that a rise in uptake is bucking the trend of the overall mortgage market. According to the Council of Mortgage Lenders (CML), there was a 19% increase in the value of buy-to-let loan advances over the first nine months of 2012, compared with 4% fall for the total mortgage market.
Know Your Money (KYM) - which provides its audience of 300,000 unique monthly visitors with the information they need to get the best value on consumer finance products - can confirm there is currently a real thirst for landlord mortgages. In both October and November, some 17% of the total uses of Know Your Money's mortgage affordability checker was for buy-to-lets; this compares with around 13% of the current total mortgages issued in the UK across all types, as per the CML's data. Additional information can be found on KYM's mortgage page: http://www.knowyourmoney.co.uk/mortgages.
Many factors in the current economic climate are conspiring together to facilitate this development. The rent that landlords gain through a buy-to-let offers banks the security they crave that the mortgage repayments will be met. Meanwhile, while the investment market remains unpredictable, many consumers see renting property as a more stable long term option than a pension or the stock markets.
However, the average loan-to-value quoted through the mortgage affordability checker was 71%, denoting an average deposit level of 29%. A loan-to-value ratio of 60% - meaning a 40% deposit - is required for the cheapest deals.
And despite the Bank of England base rate remaining at a record low 0.5% in a bid to ease to keep the wheels of lending greased, buy-to-let rates increased by 0.3 per cent in quarter three 2012, according to buy-to-let specialist brokering service TBMC.
Know Your Money co-founder and CEO Jason Tassie said the fact that the buy-to-let mortgage market is on the rise is a positive development, but the rising rates are a cause for concern.
He said: "The buy-to-let market is resurgent at the moment, recovering at a promising pace from the big fall it suffered in the global economic crash of the late 2000s. With conditions remaining tight elsewhere in the mortgage market, it is encouraging that at least one area is seeing growth.
"Increasing numbers of people are seeing leasing as one of the most sustainable opportunities for investments in the current economic climate. However, it is vital that this growth continues to be supported with low rates that make buy-to-let offers affordable. If the banks try to take advantage of the trend by increasing rates in the hope that the market momentum will soak them up, there is a big danger that the buy-to-let market will dry up once more and these green shoots of recovery will be nipped in the bud."
Furthermore, Rassam Fakour-Zaker, editor at Know Your Money, was keen to stress that the opportunities a budding buy-to-let market offers should be open to as large a part of society and not simply a privileged minority, for a balanced and sustainable economic society.
He said: "The fact that our customer data shows that a near 30 per cent average deposit level is very encouraging. But this is still not enough to secure the best rates. Indeed, even the most flexible banks will generally only work to a 75 per cent loan-to-value ratio, with high prices for anyone close to that level.
"Buy-to-lets offer people that can't afford to buy their own homes an opportunity to get on the property ladder by using the rent they receive on a leased property as a security. But if the best deals are reserved only for those with huge deposits then it is only the rich that will benefit."
Know Your Money can also reveal the most popular type of buy-to-let mortgage that potential new landlords seek is fixed rate. With more than 70 per cent of searches, fixed interest rate deals are by far and away the most regularly calculated in the Know Your Money mortgage affordability checker.
The full breakdown of different mortgage types sought in October and November was:
|Fixed rate: 70.1%
Know Your Money's hints and tips for anyone looking to enter the buy-to-let market include:
- Interest only deals can often be attractive with buy-to-lets. You can usually pay down 10 per cent of the outstanding balance each year to make up the full repayment and you'll be covered in the event of a month or two without tenants.
- Mortgage providers will usually ask that a prospective rent return is at least 125% of the monthly mortgage repayment.
- Economists expect house prices to remain relatively stable for the next few years. Therefore, buy-to-lets should be used as a regular income supplement or long term investment, rather than for short-term capital gains.
To be kept up-to-date with the very latest developments in the buy-to-let mortgage market - including leading rates and objective, straight-talking guides - sign up to the Know Your Money weekly general finance e-newsletter and specialist mortgages mailer.
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