Buying to Let may be attractive in 2009

Buy to Let was one of the drivers of the housing market during the period of massive house price growth between 2000 and 2007.  Investors bought into the sector in search of income and capital growth.  Over the longer term house prices tend to grow more quickly than cash savings.

 

Since late 2007 new entries into the buy to let market have reduced proportionately with the rest of the housing sector.  The number of house purchases has reduced by more than 50% over the last 12 months.

 

For an adventurous and definitely long-term investor, buying to let could be more attractive in 2009.  I am sure that the buy to let market would be more buoyant if mortgage availability was as it was in 2007.  At that time you required only a 10% deposit, no proof of income, no experience and the rent simply had to cover the mortgage payment (interest-only). 

 

Lenders have tightened their belts and are somewhat scared of continued house price falls.  To that end they are restricting the availability of mortgages.  The criteria in 2009 to be eligible for buy to let mortgages is; 25% deposit, minimum £30,000 per annum personal income, rental coverage at least 130% of the mortgage payment (interest only) and a preference for an experienced landlord.  The lenders are also charging typically 2% of the loan amount as arrangement fees.

 

There are fewer individuals who can meet the enhanced criteria and to that end there are significant barriers to entry to the buy to let market compared to 2007.  The barriers also make it more difficult to justify the purchase but if you can see a profit even after paying high interest rates, high arrangement fees and you can meet the criteria then the purchase is likely to be a good investment over the longer term. 

 

There is some good news for potential landlords.  House prices have fallen by close to 20% since their high point in late 2007 and buyers are definitely in the box seat.  The savvy investor with a keen eye could snap up a bargain property.  Many properties have been repossessed and there are inevitably going to be those who need to sell irrespective of the losses they may incur.

 

If you are considering entering the buy to let market and would like to further discuss your options you should consult an Independent Financial Adviser (IFA).  The adviser will explain the pros and cons of the investment and be able to find the most appropriate lender. 

 

Kieron Bassett Financial Services have two IFAs and we are open six days a week.  Contact the office on (01524) 832057 or via e-mail adam@kieronbassett.com to arrange an appointment.

 

Adam Elkin CertPFS

10^th May 2009