March saw a 75% increase in first-time buyer mortgage applications, as buyers looked to beat the deadline to qualify for Stamp Duty relief. But in reality, the plight of those yet to get on the property ladder is fuelling the outstanding performer in the housing market: buy to let.
The desire to own bricks and mortar is famously strong in the UK, but belt tightening, economic fragility and bank and mortgage lenders’ stricter lending practices have created an obstacle to home ownership that potential first-time buyers have struggled to overcome. They are therefore being forced to rent for longer and with students, recent graduates and young adults who have just flown their parental nest swelling the number of renters, the market has become very competitive. Thanks to intense demand, Landlords have been able to charge record rents at a time where borrowing remains cheap to those who qualify for it.
Long Term Demand
With rents in some areas higher than their pre-crash peak, existing investors, their coffers swollen by their hard-pressed tenants, have entered the market with increasing enthusiasm. Their optimism, and that of the buy-to-let lenders, has been further fuelled by the promise of long-term rental demand. High rents, along with inflation, will limit potential buyers’ ability to save for the larger deposits being routinely demanded by lenders, and continued economic problems at home and abroad mean the banks are unlikely to change their outlook soon. In addition, house building remains limited, meaning there is no imminent flood of dwellings to lower prices and ease competition among tenants.
With the Bank of England expected to keep its base rate at 0.5% for the foreseeable future, money will remain cheap for those the banks are prepared to lend to. Figures released in February 2012 showed the number of buy-to-let mortgage packages on the market had grown by 100 to 486 in the course of a year while, at the same time, the average rate fell to 4.79%.
What should prospective Landlords know?
The majority of rental deals take the place of six-month or twelve-month Assured Shorthold Tenancies (ASTs), which allows Landlords to charge a market rent, get their property back after six months with two-months’ notice, and evict their tenants if they do not pay rent. Landlords are required to make external and structural repairs, ensure gas and fire safety and carry the cost of remedying problems with heating and sanitary installations. Tenants will be responsible for contents’ insurance but Landlords will require Landlords Insurance to qualify for a mortgage and will often have to meet specific demands made by freeholders when buying leasehold property, as is likely in urban areas like London.