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LettingFocus

Unbiased buy to let, property investment and letting coaching, mentoring, advice and seminars for landlords from top selling property author and media commentator.

Landlords, Rents and Buy to Let Mortgage Loans by LettingFocus.

Richard S, one of the regular attendees at my landlords networking meetings, highlighted the dangers of landlords who have borrowed too much relative to the value of their properties.
Particularly at risk are those investors with high loans to value and who have a special mortgage rate deal (usually a low fixed or discounted rate for a period) which will soon end.

HOUSE PRICES

His opinion is that there is every chance that house prices will remain static, at best, for the foreseeable future.
I’m a bit more positive. I think house price growth will be slow but steady just as long as mortgage financing (high deposit requirements, high margins over base and high fees) remains restricted.
However, I think nil or negative price growth is likely in oversupplied and under populated parts of the country, especially areas which have been hit by significant job losses.
Once mortgage availability becomes better - lower fees, lower deposit requirements and lower margins over base - then house prices will tick up again at a more rapid rate.
This should happen when The Lloyds Group (HBOS and C&G) and Nationwide finally have some real competition in buy to let lending.

BASE RATES LIKELY TO RISE


But right now, the only way for the Bank of England Base rate is steady or up.
So what should investors do?
Well, all investors should be now taking a good look at the sensitivity of their portfolios to interest rate rises.
In other words, they should work out what would happen if the base rate went up from 0.5% to 3% or even 5%?
Even if the base rates does not go up, all investors should know what will happen if and when their mortgage rate comes off any special deal and back onto the lender’s reversionary rate.
Could they survive?
How strained would their portfolio be?
If they are at risk, they should start working on risk strategies right now rather that wait for the rate to rise.
My advice right now, given the real risks the economy faces, is to not go above 65% loan to value across your whole buy to let portfolio - even if you are on trackers linked to base rates – and ideally you should stay under 55%.

BUY TO LET MORTGAGE RATES FOR NEW MORTGAGES

Buy to Let Mortgage financing for new mortgages or remortgages is not getting easier.
Indeed, 2 years after the credit crunch started it is actually getting even harder (even though some residential mortgage rates have now eased a bit.)
For example, for a 75% loan to value mortgage, before Xmas the best rate was from C&G, part of the Lloyds Banking Group.
Natch, like all mortgages these days, it came with a thumping “product fee” but its reversionary rate was 2% over Bank of England Base rate.
The reversionary base of the same mortgage, if you took it out today, is 4.34% over base and it is not guaranteed to track the base rate either.
In effect, with this mortgage over the long term, you will now be paying more than double what you would do pre-Xmas.
It is exactly the same with other lenders which is why people in search of buy to let mortgage financing are finding it very hard right now.

CAN YOU RAISE RENTS TO HELP CASH FLOW?

There is one very good silver lining though.
If mortgage finance remains hard to get AND interest rates rise, first time buyers and other non-landlords will also struggle to get mortgages – which will push even more people into renting.
This will, in turn, increase demand for rented accommodation and push up rents.
So, one possible way out of rising interest rates for lanldords could be to increase rents to offset their rising loan costs.
Whether you can do this or not will depend on the area you have bought into and the strength of tenant demand.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of landlord information.
I’m David Lawrenson, a landlord and property investor myself for over 25 years, and author of “Successful Property Letting” – which has been the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector

Primarily I am a consultant to banks, local authorities, social housing providers and other organisations – helping them with their landlord facing or buy to let product strategies and services.
For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.)
I also write for property websites and am regularly quoted by the broadcast media.

Services for Private Landlords

For private landlords and other investors in the private rented sector, we now do just two London seminars each year.
We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased buy to let advice on either a one-to-one mentoring / coaching basis or through our occasional group seminars.
With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it.
We also show you how to manage tenants properly.
Coaching can be done over the phone.

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Copyright of Blog: David Lawrenson 2009. This blog is updated roughly once a week usually on a Monday or Tuesday.

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