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Harris on Mortgages

Buy to let has been back in the news for all the wrong reasons. The Government’s crackdown on buy-to-let property schemes, which promise huge gains to novice investors, has hit the headlines.

The High Court recently wound up four companies after comp- laints from investors who lost tens of thousands of pounds after being promised they would be helped to build up a portfolio of properties worth 1m within a year. Although big profits over a relatively short period of time were possible a couple of years ago (although 1m from a standing start is some leap), that is not the case now.

Not all property syndicates are fly-by-night operations but the exposure of a handful of dodgy outfits charging thousands of pounds for seminars that promise to make attendees into property millionaires has led to calls to regulate the industry.

Beyond the sensationalist headlines is a very different story, however. There is a wealth of excellent information available for those with access to the internet. The personal finance pages of national and regional newspapers publish the best deals and give tips covering all aspects of property investment from finding the right property to being aware of your legal obligations.

Good independent brokers specialising in buy to let can provide advice to clients without outlandish and unachievable promises. The responsible broker will stress to clients, particularly novice ones, that buy to let is not a get-rich-quick scheme but that the prospects for investment returns over the long term are encouraging.

This is certainly what we are seeing in the current climate. Stories of a bubble about to burst, lengthening void periods and falling rental yields may have persuaded inexperienced landlords to offload their investment properties but, in our experience, savvy landlords continue to reap the benefits. Yes, market conditions have toughened but, by remortgaging and maximising the rental return from their properties, those prepared to hang on in there are reaping the rewards.

Data released over the past couple of weeks supports this. Despite stories to the contrary, the market is maintaining itself. What’s more, with changes to the pension rules next April allowing investors to put buy-to-let properties into self-invested personal pensions for the first time, the market is set to receive a further boost.

Scare stories of the danger of higher loan to values encouraging landlords to take on more debt than their rental income can cover are also proving unfounded. Research from Mortgage Trust reveals that 63 per cent of landlords are not increasing their LTV limits, preferring to keep their borrowing at 85 per cent of property value or less.

Lenders are also doing their bit to support the market by becoming increasingly innovative. GMAC is offering a choice of rental cover options across its variable product range, with borrowers able to choose a rental assessment of 100, 110 or 125 per cent of the monthly mortgage interest. Even if landlords opt for the lower assessment, the rate remains the same, all that changes is the arrangement fee.

SPF is also being innovative by offering a semi-exclusive 2.95 per cent fix until September 30, which then switches to the dollar three-month Libor plus 1.89 per cent for five years. After this, the rate switches to the UK three-month Libor plus 1 per cent for the remaining term.

We continue to be extremely busy on buy to let, with exp-erienced landlords taking advantage of the fall in prices in some areas to increase their portfolios. Others are consolidating and remortgaging. The buy-to-let market is maturing after a period of strong growth and while this will not keep the headline writers busy, I see it as a most encouraging trend.

Mark Harris is managing director of Savills Private Finance

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