Welcome to today’s email and we start with the weekly round-up on the mortgage front from ‘Mr Mortgages’, Peter Faulker. Over to Peter…
Bank of England figures released recently reveal a significant increase in BTL (buy-to-let) lending. BTL mortgages accounted for 14 per cent of all mortgage advances in Q1 2014, up 16 per cent on same period in 2013. The big surprise is the amount of lending, up 65 per cent over the period from £4.1 billion in 2013 to £6.8 billion in 2014
The buy-to-let market sector is going from strength to strength. Investors are turning away from poor rates on savings accounts and turning to property. Lenders are now offering cheaper mortgages with easier criteria, (other than rental cover calculations for more responsible lending, which is actually good news)
Returns on traditional savings and investments are very poor. Investors are looking for alternative investments. There are many alternative investments out there that, whilst offering high potential returns, carry with them high levels of risk. Investment property offers a higher degree of security (lower risks) than most other alternative strategies.
Investment in property is not a liquid investment, there are entry costs (purchase costs) and exit costs, (selling costs) and it can take months to exit if the money is needed. The key benefit is the investor not only benefits from higher returns over the long-term but also retains control of the asset. Property is a long term investment and with sensible gearing can provide excellent returns on own money invested.
A number of our clients are re-mortgaging to release enough for deposits and costs to acquire investment property and intend to refinance the investment property in years to come to then pay back their residential mortgage. Not a strategy for the feint hearted but, with solid advice and careful investment property selection, this can work very well.
My secret squirrel tells me that a main mortgage lender is about to launch an auction finance product with a built-in route to convert to standard buy –to-let. This will be exciting – once we know more, rates, costs etc, I will let you know. Or email back to find out more.
New research from Savills reveals that the prime sector of the market in Scotland is currently the hottest in terms of activity. ‘Prime’ in Scotland is any property over £400,000 and sales are up 32 per cent year-on-year to end Q1 2014. That compares to 20 per cent across Scotland as a whole. ‘Strong sales are being driven by the hubs of Edinburgh, the Aberdeen area and Greater Glasgow. The Tayside region, which includes the counties of Angus, Perthshire and Kinross, has benefited from the strength of the Aberdeen market, with a 36 per cent annual increase in sales.’
‘Prime values across Scotland are rising, especially in the hotspots of Edinburgh and Glasgow due to the reduction in stock following the rise in prime sales. The rebalancing of supply and demand has begun in the country locations including Tayside where values have stabilised. The prime Tayside market is being led by the lower end of the market up to £500,000 where values have increased. The upper end of the regional country house market remains challenging as there is currently a high supply of stock at this level.’ More to come.
Just read a headline, ‘Tenants are facing increasing competition for rental property with 59 per cent of letting agents reporting more would-be tenants than properties available, according to the latest Association of Residential Letting Agents’ report for for Q2 2014.’ It set me thinking. I often chat with new and experienced BTL investors and am sometimes amazed at their selection criteria when it comes to choosing their next purchase. ‘It just felt good’, ‘it’s local’, ‘I like the look of it’ and ‘It kind of just smelled right’ are a few of the recent comments made. No mention of rents, mortgage payments, voids, yields and capital growth and so on. No facts and figures, nor much research (let alone visiting in some cases).
One of the first steps I take when looking at a would-be BTL purchase is to call local letting agents. What is the supply-demand mix like? Which way is it going? What about rents? Which way are they going? Where are the best places to buy? And the worst? I then make similar calls to estate agents- we want growth, not just yield. I then call the local council, and so on.
This all seems like too much work for some investors; I regularly take ‘help’ calls and receive emails from investors who bought into, say, a Sunderland readymade BTL deal – a ‘give us some money and leave the rest to us’ type offer. Even if someone is doing this, that and the other, does it not make sense to at least do some basic due diligence? Otherwise, how do you know? It smells right? It smells of something – and it’s not the sweet smell of success.
All for now, see you on Thursday with some more property news and views.