Andy Young says:
Whereas more residential mortgagors appear to opt for variable rates (4 out of 5 in Q1 2010 according to John Charcol), professional landlords running tightly controlled businesses are just as inclined to fix their expenses, demonstrated by the near 50/50 split in Q1 2010 between fixed rates and tracker rate applications.
"News of higher than expected inflation figures and some speculation that the US Treasury will increase interest rates may have influenced this decision. The more even split between fixed rates (52%) and tracker rates (48%) is a dramatic change to the previous quarter when 70% of applications were for trackers.
This is an interesting trend as rates over the last three quarters have fallen consistently, with the average tracker rate offered over 0.75% cheaper than the average fixed rate, but the tracker rate has the added risk of rising beyond the fixed rate if interest rates rise.
"The increases in inflation have brought into question the Bank of Englands policy of keeping base rates low and there is now strong speculation that interest rates may have to rise next year to counter the inflationary pressure.
Purchases still dominate but remortgages may return
Purchases continue to dominate the lending in the Buy to Let mortgage market; 59% of all Buy to Let applications received by TBMC in Q1 2010 were for purchases. However this is a fall from the 69% and 66% in the previous two quarters, suggesting that we may yet see growth in the remortgage market due to lenders increasing their SVRs and the prospect of interest rate rises in general.
Applications for trackers more likely to succeed
It is interesting to compare the product type split from application through to offer. 56% of offers were for trackers compared with only 48% of applications which indicates that more applications for tracker rates are reaching offer stage.
It is likely that a greater proportion of those remortgaging are opting for the security of a fixed rate even though it may be slightly higher, whereas a larger proportion of purchasers are looking to borrow as much as possible which requires applying for the products with the most achievable rental calculations.
"In Q1 more remortgage applications were for fixed rates (57%) whereas more purchase applications were for trackers (52%). Therefore if more trackers are affordable which they have been in the last quarter, and therefore fit the lenders rental requirements more easily, the propensity for applications for trackers to be successful is greater.
Property speculators retreat from the Buy to Let market
In any industry where gearing is available at rates cheaper than the current return, entrepreneurs will seek higher levels of funding to increase levels of profit. Therefore it is not surprising that the largest band of landlords (32%) is seeking 70-75% LTV, but the majority (68%) require much less.
"This indicates that there are now fewer property speculators in the Buy to Let market looking for a get-rich-quick scheme, and who almost certainly contributed to the poor Buy to Let arrears rate reported last year, but that the majority of the UKs residential property investors are professional landlords looking at longer term investment and with a much lower LTV across their portfolios.
"This is good news and will help to ensure the availability of good quality rental accommodation and promote stability in the Buy to Let market.
The problem of down-valuations is abating
Following the pick-up in the housing market and the recent increases in house prices, we have seen average loan sizes for Buy to Let mortgages increase. We have also experienced fewer down-valuations in the last quarter which suggests a more stable housing market.
Women continue to see Buy to Let as a worthy investment
It is encouraging to see that the number of women investing in Buy to Let property remains high and appears to be on the increase with 44% of offers being made to female applicants, up from 39% and 41% in the previous two quarters.
"The NLA Property Women Awards has been running for a few years now, helping to raise the profile of Buy to Let property investment opportunities and recognising the achievements of women in this sector. It is too early to say whether this is a continuing trend, but we will keep our eye on it and report again after the next quarters results.
Buy to Let mortgage market still lacks competition
The number of lenders in the Buy to Let mortgage market remained fairly static in the last quarter with two lenders accounting for over 80% of Buy to Let applications through TBMC. This means that there is still very little competition in the market and it will take the return of some key specialist Buy to Let lenders with an appetite to lend to help stimulate growth and product innovation.
Buy to Let appeals to the younger generation
During the early years in the Buy to Let market, it was widely held that the average landlord was male and over 40. While this demographic still defines the majority of landlords, the profile of a typical landlord now has a much wider spectrum and our latest survey results indicate that a growing number of younger landlords have entered the market.
"33% of applications in Q1 2010 were from people under the age of 40 which is a slight increase on the previous quarters at 26% and 27%.
It remains to be seen whether
