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Sancho Panza

Landlord Loan Rates Dive To New Low

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Telegraph 3/2/14

'The cost of buy-to-let mortgages has been driven to its lowest level ever, according to analysts, who attribute the fall to the swelling number of people renting city properties. The best two-year rate has hit 2.49pc – more than two percentage points lower than in August 2007, before the financial crisis struck. And it's not just rates that are falling: around one in 10 mortgages is available without any arrangement fees.

Lenders are settling for small margins in an effort to attract new customers amid the expansion of Britain's rented sector, brokers said.

A sixth of the population – some 10 million people – now live in accommodation rented from private landlords. This proportion has roughly doubled since 2000, according to Knight Frank, the property group, and more rises are expected.

A survey of clients of specialist buy-to-let mortgage broker Mortgages for Business found 57pc wanted to buy more properties this year.

David Hollingworth of London & Country, another broker, said conditions had rarely been better for landlords.

"The market for buy-to-let lending is extremely competitive and rates are the most competitive they have ever been," he said.

"Bank Rate is still at a record low at 0.5pc and lenders want to attract new business, so they're all pushing their rates down, even for borrowers with less equity in their portfolio."

However, most brokers believe rates could creep up this year, despite the competition. David Whittaker of Mortgages for Business explained that the overall cost of three and five-year fixed rate mortgages was virtually the same now as when money market "swap" rates – against which lenders have traditionally priced their mortgages – were at their lowest in April. Swap rates have risen since then, but mortgage rates have not.

"Ultimately lenders will have to recognise the increasing cost of funds," Mr Whittaker said.

Ray Boulger of John Charcol, another broker, said that although swap rates fell back last week, the trend was unlikely to last long.

There is growing potential for an increase to the Bank of England's Bank Rate sooner than expected, following improvements to the UK economy.

Mr Whittaker said: "It is highly likely that interest rates will rise on medium term fixed-rate mortgages, reflecting the impending rise in Bank Rate. Once Bank Rate starts to move, 20 years in the industry has taught me that it will move faster and higher than anyone expects. Our advice is to consider taking a five-year fixed-rate mortgage to delay the impact of rate rises."

Today's lowest two-year rate of 2.49pc, offered by the Mortgage Works, requires a large deposit of 40pc as its "loan to value" (LTV) is 60pc; it has a 2.5pc fee.

In August 2007 the lowest two-year fixed rate was 5.29pc for loans up to 75pc LTV. That deal was also from the Mortgage Works, which is owned by Nationwide, and came with an identical fee.

Five-year rates have also plummeted. In August 2007 the lowest fix was Cheltenham & Gloucester's 5.84pc deal up to 85pc LTV with a 2.5pc fee. Now the lowest rate is Accord Mortgages' 3.79pc deal up to 75pc LTV with the same fee.

The proportion of products with no lender arrangement fee was 10.8pc in December, up from 7pc in the previous two quarters, according to Mortgages for Business.

Charges are being squeezed to attract new customers, said Mr Hollingworth. He said lenders viewed buy-to-let as lower risk, given record high rents, rising house prices and increasing yields in recent months. Some lenders are also accepting borrowers at 75pc to 85pc LTV.

Many lenders pulled away from the buy-to-let sector when the credit crunch hit, but previous players and new entrants are flocking back as demand from landlords soars.

Specialist buy-to-let lender Paragon, which stopped lending during the crisis, has returned to the market. It recorded a 207pc increase in buy-to-let completions between October and December last year.

Other lenders targeting landlords include Santander, Coventry Building Society, Skipton Building Society, Accord Mortgages – part of Yorkshire Building Society – and Virgin Money. And it's no wonder.

Knight Frank's research shows a reversal in the trend of home ownership, which grew to a peak of 69pc of all households in 2001 but has since fallen to below 65pc. The company said 17pc of the UK's households rented in the private sector, up from around the 8pc level where it had previously stabilised through much of the Nineties.

By region, the change is more diverse, with the most expensive areas, such as major cities and the South East, registering a larger leap in the proportion of private tenants.

Regional_Growth_2810282c.jpg

In London the proportion of households renting privately has more than doubled from below 10pc in 2001 to more than 20pc in 2011, the latest year for which data is presented.

It is not just demand for rental properties driving landlords to expand their portfolios. As house prices rise, more investors have spotted the potential for capital appreciation.

The Office for Budget Responsibility, adviser to the Chancellor, predicts that house prices will rise by 27pc by 2018.

Buy-to-let best buys

When comparing buy-to-let mortgages always factor in lenders' fees and added benefits.

Broker London & Country has identified the best deals currently available, taking account of both rate and other charges:

Two-year fix Leeds Building Society offers 2.79pc (up to 60pc loan-to-value), with £199 fee. Skipton Building Society offers 3.58pc (75pc LTV) with £995 fee. Both include free valuation and legal work for remortgages.

Three-year fix Nottingham Building Society offers 3.49pc (75pc LTV), with £1,999 fee. Remortgage customers receive free valuation and legal work.

Five-year fix Santander offers 3.99pc (60pc LTV), with £1,495 fee. Free valuation and £250 cashback included. Yorkshire Bank offers 4.99pc, (80pc LTV), with £999 fee.

Two-year tracker Principality's 1.99pc deal, up to 60pc LTV, with 2.5pc fee. Comes with £99 booking fee, plus a free valuation and free legal work for remortgages.'

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Borrow-to-let would be more accurate. But then I guess you'd have to re-phrases the term "homeowner" to mortgage-holder too :P

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Got to say that with these massive fees these deals are much less impressive than they first look if you care to spend 10 seconds thinking about it. Real cost of that 2.5% fix is 3.75% over the two years - then you get bumped onto their SVR in 2016. Also, these ultra low 2 year fixes on offer today seem very similar to those notorious teaser rates of the subprime era in the USA, except this time the bank is pretty safe because they have a 40% equity buffer when the SHTF.

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Got to say that with these massive fees these deals are much less impressive than they first look if you care to spend 10 seconds thinking about it.

That's why they're for landlords

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For 7 years now I've been predicting they'll get caught out.

The amateur BTL barons I know have minted it for every one of those years. I'm almost resigned to it going on for another 7, despite every relevant statistic indicating that in a sane world it can't go on any longer.

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It is worth adding, that one model these amateur BTL barons I know are using is to source the deposit component from an 'investor'.

They basically offer to do the whole management of the assets and take the rent risk - in return the investor pays the 40% deposit - and gets an ownership share of the limited company holding the property and a % of the income.

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For 7 years now I've been predicting they'll get caught out.

The amateur BTL barons I know have minted it for every one of those years. I'm almost resigned to it going on for another 7, despite every relevant statistic indicating that in a sane world it can't go on any longer.

The government wanted to replace public sector renting (council houses) with public sector renting (BTL) because it cost too much to maintain the properties and dealt with anti social tenants etc. the government now pays the landlords via housing benefits.

The next stages to BTL will be:

> licensing them all,

> Strict health and safety standards

> Strict environmental standards (From 2018 f & G ratings are illegal)

> More taxes - easy target.

> More regulation, gives non jobs to local councils. (nose pollution)

I can guarantee in 7 years, the last thing you will want to be is a debt-to-rent landlord. It has to look like any idiot can do it in order to entice everyone into it so they can be conned.

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Got to say that with these massive fees these deals are much less impressive than they first look if you care to spend 10 seconds thinking about it. Real cost of that 2.5% fix is 3.75% over the two years - then you get bumped onto their SVR in 2016. Also, these ultra low 2 year fixes on offer today seem very similar to those notorious teaser rates of the subprime era in the USA, except this time the bank is pretty safe because they have a 40% equity buffer when the SHTF.

I wonder how many actually realise that, the interest rate is low but the fee makes up for it.

However in today's society 10 seconds is a long time to conce....

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