Buy to Let Market Overview

Investing in buy to let property has become big business in the UK but with interest rates rising and rents falling, the market is changing fast.

In the wake of credit crunch mortgage rates have risen and property investors are finding that rental income alone is not always enough to meet the costs of mortgage repayments and property maintenance costs. As such many buy to let investors are struggling to make an adequate a return on their investments.

New Build Crisis
The current financial climate has seen lenders tightening criteria, especially on new build city centre developments which have recently swamped the UK property market. With some lenders refusing to lend on new builds altogether and others insisting on large deposits, it is becoming increasingly difficult to borrow the required amount of money.

Many experts believe these properties were overvalued from the offset, and the market is getting weaker still as rents and property prices are pushed down due to the sheer number of similar properties available. Many novice buy to let investors have been badly burnt by investing in such properties.

In response to this there are a variety of incentives on offer which aim to kick start the market. Mosaic Mortgages have a bank of lenders that will allow an element of builder deposit paid schemes (usually up to 5%) meaning the investor only needs to put down a 10% deposit.

In addition, Mosaic Mortgages can offer off plan purchase schemes which only require a 5% deposit on the assumption that the maximum loan available on completion will be 85% of open market value.
For example, if the open market value of a property is £125k and the developer is offering a 15% discount on off plan purchase, then the net purchase price is £106,250. As such an investor would only need £5,312.50 as deposit (5% of net price). When the property is completed and the open market value is £125k, there is already equity in the property so there is no need for a further deposit.

New Types of Property Investment
Increased mortgages rates and dwindling rental incomes has led to some investors moving into a new kind of property investment in an attempt to keep profits up. ‘Sell to Rent’ investment involves investors seeking out vendors who will accept a greatly reduced price for their property as they are in desperate need to move quickly, for example those whose homes are being repossessed. The former owners are then offered the chance to be tenants in their old home. The theory here is that as long as the property is purchased for a minimum price the rent should always cover the mortgage, thus ensuring a return on investment.

In this scenario Mosaic Mortgages can help you achieve what is effectively a 100% buy to let mortgage. Mosaic Mortgages have a range of lenders who will bridge the initial purchase at undervalue, typically a maximum of 75% of open market value, but not in excess of 100% of purchase price. They can then engage a buy to let lender who will do a day one remortgage to refinance at 85% of open market value. This can be particularly useful if the property needs refurbishment, as it enables the investor to recover any monies spent on the property at remortgage stage.

A Buyers Market?
But it’s not all doom and gloom in the buy to let market. Some experts believe that for the first time in many years buy to let investors have a great opportunity to increase their portfolio due to the weakening of the housing market.

In recent years rising property prices and mortgage rates have made further investment difficult and many buy to let investors have been remortgaging simply to manage costs, but these new opportunities have led to investors releasing equity in order to expand their property portfolios.

Mosaic Mortgages are constantly adapting to meet the demands of the buy to let market. Mosaic mortgages have access to every type of scheme available the can help any buy to let investor find the best deal. For advice on buy to let mortgages and to find out more about our competitive mortgage products please click here.

This entry was posted on Friday, February 6th, 2009 at 4:39 pm and is filed under Landlords. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.