House prices are set to plunge by between 20 and 25 per cent by the end of next year, according to specialist investment strategy adviser CheckRisk. I think this prediction is far too pessimistic but it helps to highlight the continuing move towards renting rather than buying.
Research from letting agency network LSL Property Services shows the average monthly rent in England and Wales was £684 in February – a 0.2 per cent rise on the previous month and 3.9 per cent higher than a year ago.
The most recent residential lettings survey from the RICS shows 40 per cent more chartered surveyors reported rent rises opposed to falls in the three months to January – the highest positive reading in the survey’s history.
The outlook looks bright for buy-to-let investors which means an opportunity for brokers.
Before the credit crunch, BTL lenders generally required a 15 per cent deposit but now the typical minimum is 20 per cent, with those entering for the first-time generally needing to raise 25 per cent.
In terms of affordability, the amount you can borrow for a BTL hinges predominantly on the rental income percentage and lenders require between 120 per cent and 130 per cent, compared with as little as 100 per cent previously.
This demonstrates a return to what was an extremely sensible market, where the risk was relatively low and provided good opportunity for investors and good margin for lenders. If we take out the extreme criteria which crept in, BTL has survived well and we have seen our percentage of BTL business grow month on month. An important part of that was because TMW put the market back on track by taking the brave first steps to increase the LTV on BTL back up to 80 per cent and others then followed suit.
Although BTL lenders have tightened their criteria, rising rents make it easier for landlords to meet these demands.
Brokers need to be proactive and it comes back to the skills we used well before the credit crunch. Brokers are well placed to be a valuable asset to landlords by doing their homework and positioning themselves as experts.
Sally Laker is managing director of Mortgage Intelligence and Mortgage Next