After a fairly lack lustre time over the last 20 years or so, the UK Buy To Let market has really taken of over the last few years as everybody vies for maximum exposure to the buoyant UK property market. So how does it work, and what is on offer?
As the housing price “bubble” continues to grow bigger and bigger, so the buy to let area of the market is attracting a whole new host of financing companies, looking to take a slice of this lucrative market and the growing interest from business people and home owners alike.
The buy to let market currently accounts for some 8% of total outstanding mortgages in the UK, and outstanding loans currently stand at over £83 billion and rising. While the UK market is predominately based upon home ownership, the rental market has slowly picked up over the last few years fed by a mixture of consumer demand and businesses looking to accommodate staff on short term housing agreements. The increasing number of immigrants visiting the UK has also fed further demand for short term rental arrangements.
As demand has picked up, this has fed into the market place with ever more competitive agents joining the buy to let loans market. Currently it is possible to receive a 90% buy to let loan against a house purchase, with only 10% required by the buyer as a deposit. The historical rental cover figure of 120%+ (i. e. rental income must be 120% of your monthly loan repayments) is under pressure, with some of the more competitive lenders offering rates as low as 100%, i. e. rental income must be equal to monthly interest payments, with no surplus required.
While many buy to let investors are making a useful second income when taking monthly loan repayments from rental income, the real benefit is currently coming from the ever increasing value of housing stock in the UK. While all buy to let investments should be viewed on a long term basis, there are many investors who are in a position to bank useful profits after the recent rise in house prices. As interest rates continue to tick higher, and the buffer zone between rental income and loan repayments reduces, we may see an increasing amount of buy to let housing coming onto the market.
While this area of the market can be very lucrative on a long term basis, with the added potential for a short term increase in asset values, caution is still the watch word. As interest rates push higher, and loan payments increase, there is the potential for some buy to let investors to over extend themselves.
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