Investment Mortgages
Have Investment Mortgages For Landlords Passed The Sell-By Date?
There are two prevailing viewpoints on investment mortgages. The first is that things have never been better, with more and more people taking out investment mortgages and getting involved in buy to let. The second is that the bubble has burst for investment mortgages and that landlords should prepare to tighten their belts. So which view is a landlord to believe? Strange as it may seem, there is truth in both viewpoints.
Landlords who bought their properties some time ago are sitting pretty with investment mortgages. They will have seen their properties rise in value, without too much effort on their part. Paragon Mortgages recently released figures that showed that landlords' properties earned an average of £10,000 in rental income in 2006. They also earned some £7,000 pounds in capital appreciation. By anyone's standards, those investments were definitely a success.
At the same time, figures from the Council of Mortgage Lenders (CML) show increased take up of BTL mortgages. In response to this, lenders have increased the range of investment mortgages available, while rental cover requirements fall and maximum loan to value rises. This all contributes to a positive outlook for investment mortgages, as the Association of Residential Letting Agents (ARLA) points out. The BTL market has been inundated by private investors looking for a good return by investing in property. This has been driven by several factors, such as the potential to boost retirement income.
Outlook Good for BTL
Figures from the Treasury also contribute to a good outlook for investment mortgages. With thousands of inward migrants expected from new members of the European Union, buy to let investors are gleeful and are on the lookout for investment mortgages. This is because many of the migrants will rent for long periods, making the future for buy to let look quite rosy.
All of this makes the future of BTL mortgages seem healthy, so why is there concern? Well, there are changes afoot in the buy to let mortgage and many new investors are being tempted to take out mortgages with very low initial rates. However, many financial pundits are warning that landlords could find themselves in a crunch when the low rates run out on these deals. A recent study of the residential investment market shows that many landlords have been in the market for less than a year and falling prices or low rents could leave them vulnerable.
The research suggests that not many landlords would sell under these circumstances, raising the question of how they intend to make interest payments on their BTL mortgages. With many mortgages rising by a couple of percentage points after an initial low rate, this could be of great concern. Buy to let mortgages continue to be a popular alternative to traditional savings or pension plans, so this fact alone does not mean that the bubble has burst. What it does mean is that landlords have to be careful about the properties they choose to invest in, since rental income can rise and fall. A little care at the start means they should still be able to make a profit on their investment mortgages.
