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Let to Buy

Over recent years, Let to Buy has become a popular consideration for homeowners who either choose not to, or perhaps have struggled to, sell their existing property when they decide to purchase a new home.

It allows those looking to move up the property ladder a chance to retain their existing property as a long term investment.  Provided there is sufficient equity, many also choose to release funds to use as a deposit on their new home.

An increase in the number of ‘accidental landlords’ over the last few years has meant that some lenders are reluctant to lend on a let-to-buy basis, and borrowers can therefore find their choice of mortgage slightly more limited.

As with all mortgages, lending criteria is strict, and most lenders will also want to see evidence of the onward purchase to ensure borrowers are not simply attempting to bypass normal affordability checks.  Speaking to an experienced mortgage broker is a useful way of finding the most appropriate way forward.

After deciding to do exactly this, our clients approached the mortgage service for the Guild of Professional Estate Agents looking for advice on both the remortgage of their existing property to a Buy to Let mortgage and also on the new purchase.

The property our clients had chosen to buy required some modernisation, but with significant equity in their current home, they had chosen to raise additional funds as part of the remortgage and put down a 40% deposit on the new property, thereby freeing up their own savings for home improvements.

Our clients’ mortgage adviser placed the remortgage application with a subsidiary of a major lender, to secure a competitive 2 year fixed rate. The anticipated rental income was confirmed during the property valuation and was sufficient to cover the mortgage payments and meet the lender’s criteria.

For the new purchase, a separate high street bank was used to secure a standard mortgage, also on a fixed rate, that would allow the clients to review both mortgages in 2 years time. Both mortgages completed on the same day, allowing the clients to settle in to their new home whilst also becoming landlords of their old property.


Guild Mortgage Service, Provided by London & Country Mortgages


The FCA does not regulate most buy to let mortgages


How much deposit for a buy to let property?

We’ve seen more competition in the buy to let market with lenders keen to pick up business from a sector that now accounts for more than 20% of all new mortgages in the UK. Whilst initially the competition was mainly on price at the lower loan to value end of the spectrum, we have started to see lenders improve criteria to encourage business, which should make it easier for people looking to invest in property.

Whereas previously it was pretty much set in stone that you’d need at least a 25% deposit, there are now options available for investors with a 20% or even 15% deposit. The rates and fees can, however, be quite high and the qualifying criteria a bit tighter than for those with a larger deposit. It’s also worth pointing out that the rental requirements for these deals tend to be higher than the options at 60% and 75%.

Undoubtedly this increased availability, in what is a very busy sector of the market, is good news for those looking to invest in property; reducing the deposit needed can allow potential landlords to potentially purchase 2 properties rather than 1 and build portfolios more quickly.

It’s worth pointing out that in some cases obtaining a buy to let mortgage can still be difficult, particularly for any first time buyers or those who don’t currently own a residential property. In addition certain types of property can be more difficult to finance such as flats over shops and HMOs (house in multiple occupation). However, as we see criteria improving, it’s not unforeseeable that more options will become available to those currently on the fringes.


Guild Mortgage Service, Provided by London & Country Mortgages


The FCA does not regulate most buy to let mortgages


LAND REGISTRY DATA: APRIL 2015 (released 1 June 2015)

The April 2015 Land Registry data show a rise of 0.9 per cent in house prices across England and Wales as a whole, compared to a fall of minus 0.8 per cent in March. London saw a monthly price increase of 2.3 per cent but Yorkshire & The Humber experienced a higher increase of 2.7 per cent; other regions saw increases of between 0.2 and 2.1 per cent except for the North East and Wales, which experienced falls of minus 0.5 and minus 1.1 per cent respectively.

On an annual basis, the increase for London was 10.9 per cent, followed by the South East region at 8.8 per cent, while the North East saw the only fall at minus 0.6 per cent. The overall annual growth in prices dropped for the seventh month in a row to 5.1 per cent making the average house price in England & Wales £179,817 and £474,544 in London. By property type, semi-detached properties continued to show the highest annual increase at 5.6 per cent.

In greater detail, 16 counties and unitary authorities saw an annual price fall, four fewer than in March, the greatest being Middlesbrough at minus 7.6 per cent, while Slough showed the highest annual rise at 13.7 per cent. Hartlepool experienced the strongest monthly growth with an increase of 4.1 per cent, while Ceredigion saw the most significant monthly fall with a movement of minus 6.1 per cent.

Trafford remained the metropolitan district showing the largest annual price rise at 9.8 per cent, while Bolton again experienced the greatest annual fall at minus 4.9 per cent. Barnsley saw the highest monthly price increase at 2.1 per cent, while Rochdale and Salford had the greatest monthly fall at minus 1.3 per cent.

Of the London boroughs, Newham maintained the highest annual price rise at 17.2 per cent, while Kensington & Chelsea continued to experience the lowest annual growth for the fifth month running at 4.4 per cent. On a monthly basis, Hackney again showed the highest increase at 2.1 per cent, while Waltham Forest had the greatest monthly fall at minus 1.8 per cent.

The volume of properties sold in February 2015 was 17 per cent lower than in February 2014 in England and Wales and 24 per cent lower in London; similarly, properties sold for more than £1 million fell by 18 per cent in England and Wales and by 20 per cent in London over the same period.

Month on month, the total number of properties sold across England and Wales increased by 1.8 per cent from 53,168 in January 2015 to 54,103 in February 2015, compared to a fall of nearly 25 per cent between December 2014 and January 2015. The overall increase was due to a rise in transactions at the lower end of the market, while the number sold for more than £1 million fell by 13 per cent. The number of property transactions from November 2014 to February 2015 averaged 64,196 per month, compared to 73,156 over the same period a year earlier.


Weak lending in April, but signs of recovery


The latest figures released by the Bank of England show total mortgage lending in April was £15.8bn – down a little from the £16.1bn we saw in March, and around 5% lower than April last year.

£10bn of that lending was for house purchase which again was lower than March and shows an even bigger drop – over 7% - compared to last year.

This bears out the broader, puzzling, pattern of 2015 so far. Mortgage lending for homebuyers in the first 3 months of the year was the lowest quarterly figure since Q2 2013, as indeed was lending overall. While the first quarter is normally the weakest in a year (not least since it’s the end point of lower activity in the run-up to Christmas) the annual decline wasn’t anticipated, and is hard to explain.

The mortgage market feels much better than those numbers suggest: confidence is probably the best it’s been since the credit crunch; house prices broadly seem to be holding up or growing gently; lenders continue to improve their offering and new record-low rates are launched seemingly every week. On top of that we are awash with government initiatives to help homebuyers.

Yet somehow this doesn’t seem to be feeding through into increased lending.

But every cloud has a silver lining. The subdued figures are almost certainly responsible for lenders continuing to slash interest rates (the current rate-war has been going since last October) and a mortgage lender desperate for business usually spells good things for prospective borrowers.

There is some hope in the approval (mortgage offer) figures. While Q1 overall was no less disappointing (the lowest quarterly approvals in two years) that disguised a significant improvement in March, and April was higher again.

Perhaps the corner has been turned.


Guild Mortgage Service, Provided by London & Country Mortgages





In April, The Office for National Statistics (ONS) revealed that economic growth for the three months to the end of March 2015 was 0.3 per cent, largely due to a fall of 1.6 per cent in construction output. Some blame for the slump in construction was laid at the door of the then impending general election, which may have resulted in the delay of spending decisions and commitment to building projects.

The Markit/CIPS UK Construction Purchasing Managers’ Index for April also reported a fall in the pace of construction growth, including in the residential building sub-sector, which has driven industry-wide growth for the past two years. Nevertheless, the survey concluded that the construction industry was still seeing ‘solid overall expansion’. Similar Markit surveys for other sectors of the economy in April suggested growth in manufacturing had slowed, while the services sector saw its fastest growth in eight months. Taken together, the Markit chief economist, Chris Williamson, believes the surveys suggest that ‘the economy is showing robust growth momentum, expanding at a rate of 0.8 per cent at the start of the second quarter’.

In the wake of its general election win, the Conservative party is expected to pursue its main pledges with respect to housing. This will include the new Help to Buy ISA’s for first-time buyers as announced in the Budget, which came on top of the Help to Buy scheme launched in 2013. In the run up to the election, the Prime Minister promised that if the Conservatives stayed in power, the Help to Buy scheme would be extended until 2020 and provide 200,000 new homes for first-time buyers under 40 at a 20 per cent discount. Other policy intentions include the creation of a £1 billion brown field regeneration fund to unlock sites for 400,000 homes, and extending the ‘Right to Buy’ to 1.3 million housing association homes in England.

The Bank of England’s Monetary Policy Committee, which met on the 7th and 8th of May during the course of the general election, voted to maintain the Bank Rate at 0.5 per cent and the bond-buying stimulus programme at the £375bn already spent. It also agreed to publish an open letter to the Chancellor of the Exchequer concerning the release of data for the March Consumer Prices Index (CPI) of zero per cent. The largest downward contributions to the inflation rate were falls in the prices of clothing and gas, although these were offset by a rise in the price of motor fuels and by smaller upward contributions from a variety of other products such as food.