Is the buy to Let Market Getting Tougher?

by Mark Johnston

Buy to let it seems has bounced back in recent times while the rest of the property market struggles. Mortgage figures show that landlords purchased 20% more homes last year.

This rise in the buy to let market has come over the same period that residential purchases are expected to fall by at least 5%.

However, the recent Bank rate hikes and expensive homes may leave buy to let a tougher prospect than in previous years.

With the average British home now costing around £194,500, according to the Halifax, and some bank rates at 5.75%, potential landlords could face a tougher time than say 3 years ago when the average home cost around £40,000 less and bank rates were around 4.5%

Big players such as Santander and the Leeds building society have already increased their buy to let mortgage rates as the euro zone crisis has pushed up the cost of wholesale borrowing. Leeds building society raised its 2 year fixed rate mortgage from 3.99% to 4.35%.

Arrears are also set to rise in the buy to let market, as more and more landlords face having to deal with tenants who can no longer keep up with their rent payments.

Paul Goverd, managing director of CJ Hole, said “it is no surprise that at a time of economic challenge with rising unemployment that the number of tenants struggling to pay rent will increase with potential knock on effects for landlords”.

The citizens advice bureau has predicted a ‘significant housing crisis’ with arrears with in the next 12 months as housing benefit among the under 35’s has been cut. So for example, if someone is living in a private rented property now and is under 35 their housing benefit is being restricted, therefore in say 8 weeks they could find themselves in significant arrears.

According to recent research the number of tenants in severe financial difficulty has shot up with in the last 3 months.

The growing level of severe tenant arrears has yet to fully filter through in to mortgage payment problems for landlords, but it seems this may change this year.

Experts anticipate that both overall arrears and severe arrears will rise even further and this will then feed in to increased tenant evictions and also hamper a growing number of landlord’s ability to meet their monthly mortgage costs.

Therefore as the recession tightens its grip on the economy many buy to let landlords may find themselves unable to sustain their own mortgage commitments.

Also in February this year the average rent in England and Wales fell to approximately £707 per month, down 1.6% from it speak of £719 in October 2011, according to LSL property services.

Many believe the dip in rents was due to some tenants buying their first homes before the stamp duty holiday ended in March. This meant that there was less demand for rental properties, so therefore landlords had to cut their prices.

However, on a whole demand for rented properties remains high, so the rationale for buy to let remains strong and therefore there is little reason to foresee any major changes for this particular sector.

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