14 Nov London Buy to Let Mortgages
Have you had a look at London property prices and the rental yields recently? I did last week and was surprised by the results (although I shouldn’t have been). The reason I did look was due to the surge in buy to let applications that we have been working on recently.
Since the credit crunch has bitten, property transactions have fallen. However, London is still a busy place, with a lot of people and a static number or properties. So the demand has moved from buying property to renting property. (Due to lending constrictions and so forth).
Lots of demand on rental property leads to competition and increasing rental prices. Ask anyone who has tried to rent a property recently. It is frenetic!
So whilst London property prices are probably around or below their 2007 peak, rental prices have surged, which in itself leads to an increase in rental yields.
The final part of the equation is lending. With Bank of England Base rate at 0.50%, and predicted to remain low for quite a while, buy to let mortgages have followed downwards.
The Buy-To-Let sector has long been seen as the market of choice for most lenders. Some reasons behind this:
1. It’s a high margin business (rates & fees).
2. A high deposit is required, giving additional security to the lender.
3. Its a lower volume business, meaning lenders can control their restricted lending facilitys.
For example, Woolwich last week launched 3.88% 2 year fixed buy to let rate (£1999 arrangement fee, 4.10% APR).
So if you can find a rental yield of more than 4.10% you should in theory be in a positive cash flow situation. With lower property prices and higher yields, this is not as difficult as it once was. Which as I said, surprised me, even though it shouldn’t have. We do, after all, believe in the attached clock.
London’s Buy to Let mortgages will be big news in 2012 and beyond…
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