Data issued by the Council of Mortgage Lenders has pointed to a slight thawing in the availability of funding for buy-to-let investors. Mortgages granted in the second quarter were up 13 per cent on the first quarter and 15 per cent higher than in the corresponding quarter of 2009.
The report also highlights that buy-to-let repossessions have stabilised which, as with the residential market, I suspect is more down to lower servicing costs by virtue of a historically low base rate than any seismic improvement in market fundamentals. The speculative investor has largely left the party and it is the well financed, well researched long-term landlords that predominantly remain.
It is true that the availability of mortgage finance for the buy-to-lettor has improved significantly over the last 12 months, loan-to-value criteria has shifted from 65 per cent maximum through to 75 per cent, with a handful of lenders now offering 80 per cent LTV products, albeit the pricing remains expensive by historical standards.
Savills’ own research tells us that tenant demand is strong and yields are hardening. So should the professional landlord now be looking to add stock to their portfolio or continue to use surplus rental income to pay down borrowing? My view is that, for the seasoned investor, both are true.
With buy-to-let reversionary rates typically 2 per cent above base rate, swathes of our clients are enjoying pay rates on a par with the most competitive residential products for new borrowers. While servicing costs remain low, it makes sense to use your surplus rental income to reduce your mortgage liability.
On the other hand, with the house price indices going into reverse, there could be some very attractive opportunities to add stock to your portfolio. There is mortgage product innovation emerging too, for example, there are ways to release equity from your portfolio to help fund new purchases without losing the benefit of the attractive reversionary terms from your existing lender.
It certainly is an interesting time for the experienced landlord and there are opportunities for those who want to be active. However, assessing their investment goals and appetite for risk are more crucial than ever and I would always recommend they seek professional advice in this regard.
Finally, my trusted colleague and friend Simon Jones is leaving the mortgage industry. Simon has been with Savills Private Finance for over 10 years and has made a considerable contribution to our development. His career in financial services spans over 30 years and he will be missed, particularly for his direct, no-nonsense approach.
Those wanting to keep in touch can email him at simontjones @hotmail.co.uk where he will be picking up occasional emails in between dives off the Indonesian coast as he pursues a new career as a diving instructor.
Mark Harris is managing director of Savills Private Finance