Lenders flocking back to buy-to-let

One lender has returned to the buy-to-let market, with a handful of others promising to launch this year. Why are they so keen?

When the credit crunch hit, many took great pleasure from the fact that the ‘get rich quick’ property investors and the ‘evil’ buy-to-let landlords  were suffering. However, that particular form of schadenfreude ignored the vitally important role that the private rented sector plays, particularly with property prices making it rather difficult for many to buy their own home.

However, the buy-to-let market has shown encouraging signs of recovery of late, and last week saw an old lender return to the fray.

Return of the Skipton

Skipton Building Society has returned to the buy-to-let market, having taken a step back from the market since 2009. And the reason for its return? The ‘burgeoning demand’ from landlords for finance.

The mutual has launched initially with two mortgages, a two and three-year fixed rate deal. And while the lender requires a large deposit – in both cases, 40% - the rates are at least competitive, particularly on the two-year deal which boasts an interest rate of 4.49%. The three-year fixed rate has an interest rate of 5.49%.

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What’s more, the product fee is ‘only’ £1,495. Now I know that’s a lot for most of us, but as the tables below demonstrate, with buy-to-let mortgages the fees are often astonishingly high.

Not alone

What’s more, Skipton is not alone in spotting an opportunity for lending in the buy-to-let market. 2010 saw the return of two of the most important buy-to-let lenders before the credit crunch, in Paragon Mortgages and Kensington, as well as new players like Precise Mortgages.

And a number of other lenders have now stated their intention to enter the market in the coming months. Santander and Yorkshire Building Society have already made clear their intention to launch products for landlords in 2011, while the newly-launched Metro Bank has also pinpointed the sector as one it wants to be involved with.

Burgeoning demand

So what is this ‘burgeoning demand’ that is prompting so many lenders to want a piece of the buy-to-let pie?

Some research by a part of Skipton’s estate agent subsidiary, Connells, provides a clue. According to Sequence Lettings, the Northern and Central regions of the nation have caught up with the South as ‘hotbeds’ of rental demand.

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It’s no surprise that the rental market is booming in the South – traditionally, houses cost more to buy in the South so many people have little option but to rent. However, demand to rent in the rest of the country is also rocketing. Sequence reported that the number of people looking to rent in the Northern region has increased by 22%, while in the Eastern and Central region it has jumped by a whopping 31%.

It’s not just Sequence that has seen this massive growth in rental demand – according to the Government’s own figures, the number of tenants has grown by an incredible one million people since 2005-06, to the point that one in six households now rent privately. And where there is such demand, there’s the opportunity to make some money.

Expanding portfolios

In truth, these massive levels of demand are not really new – demand has far outstripped supply for some time. However, one thing has been holding back landlords from expanding their portfolios, and addressing that demand – money.

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When the credit crunch hit, buy to let was one area many lenders were quick to ditch, viewing it as too high risk. As a result, only a handful of lenders were willing to lend, leaving landlords with little choice, and a range of uncompetitive deals to pick from. That’s why, when Paragon Mortgages surveyed landlords in Q1, just 19% reported finance as being either widely or reasonably available. And that’s even with the return of old lenders and new ones taking their first steps into buy to let.

The private rental sector has a hugely important role to play in the UK housing market in the coming years, so it’s important that landlord finance becomes more widely available. Hopefully those other lenders looking to enter the market do so soon, and with truly competitive deals.

20 tremendous buy-to-let deals

Lender

Term

Interest rate

Maximum loan-to-value

Fee

Platform

Two-year tracker

3.79% (base rate)

70%

2.5% of advance

Principality BS

Two-year tracker

3.89% (base rate + 3.39%)

60%

£999

The Mortgage Works

Two-year tracker

3.99% (base rate + 3.49%)

75%

2.5% of advance

Nottingham BS

Two-year tracker

4.59% (base rate + 3.99%)

75%

£995

Nottingham BS

Three-year tracker

4.79% (base rate + 4.29%)

75%

£995

Vernon BS

Three-year variable

4.99% (tracks lender’s SVR)

70%

1% of advance

Bank of China

Lifetime tracker

3.88% (base rate + 3.38%)

75%

Between £1,895 and 0.5% of advance, depending on size of mortgage

Coventry BS

Lifetime tracker

3.99% (base rate + 3.49%)

65%

£1,249

Clydesdale Bank

Lifetime tracker

4.99% (base rate + 4.49%)

80%

£999

The Mortgage Works

Two-year fixed

3.99%

65%

3.5% of advance

Coventry BS

Two-year fixed

4.49%

60%

£1,249

Platform

Two-year fixed

4.69%

70%

2.5% of advance

Nottingham BS

Two-year fixed

4.99%

75%

£1,495

Coventry BS

Three-year fixed

4.75%

65%

£1,249

The Mortgage Works

Three-year fixed

4.99%

75%

3.5% of advance

Nottingham BS

Three-year fixed

5.19%

75%

£1,495

Aldermore

Five-year fixed

5.68%

65%

£1,999

Yorkshire Bank

Five-year fixed

5.99%

70%

£999

Post Office

Five-year fixed

6.29%

75%

£1,495

Clydesdale Bank

Five-year fixed

6.49%

80%

£999

More: Get a new life insurance policy | Landlords benefitting from our economic woes | Mortgages are dying out!

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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