John Charcol has reported a “significant” increase in let-to-buy activity in 2012 and says this growth is continuing in 2013.
Let-to-buy, where a borrower keeps their existing home to rent out and buys a new main residence, helps mitigate the problems of chains, enables borrowers to sell a property at a time that suits them, and is increasingly used as an opportunity to bolster retirement income.
Ray Boulger, senior technical manager at John Charcol, said: “Our experience is that the popularity of let-to-buy has been progressively increasing since the nadir of the buy-to-let sector in 2009. I think this is primarily attributable to home owners’ renewed confidence in the housing market, coupled with the increasing demand for rental property. This view is supported by another trend we have seen over the last few months – an increasing number of expats buying one or more investment properties in the UK.
“Confidence in the buy-to-let market appears to be gaining more traction as a result of ongoing falls in mortgage rates coupled with steady or increasing rental values. Thus, even ignoring the possibility of a geared capital gain in due course when the property is sold, the annual return from an investment property has improved significantly over the last few years at a time when savings rates have fallen sharply. When John Charcol launched the very first buy-to-let mortgage in 1996 even we didn’t foresee just how popular such mortgages would become.
“Buy-to-let has been far and away the strongest sector of the mortgage market since the whole market reached its nadir for gross lending at £135.3bn in 2010. When gross mortgage lending peaked at £362bn in 2007, BTL accounted for 12.3% of lending. However, it then fell away even more rapidly than mainstream lending and in 2009 was just 5.9% of the market.
“We believe the main reasons for this were the national and global economic situation and in particular lack of confidence in the housing market, coupled with a particularly severe squeeze on buy-to-let mortgage availability. In 2009 we estimate that just two lenders accounted for 80% of all buy-to-let lending, as many lenders withdrew from the market.”
Boulger added: “Let-to-buy really is providing a great option for many borrowers at a time when the market can hardly be described as fluid. But it is primarily the preserve of those borrowers who have an independent mortgage adviser on their side. Typically, if you visit a high street lender, due to the somewhat prescriptive way most enquiries are dealt with, there is very little chance that this option would even be discussed, let alone explored with any degree of seriousness. Yet, if you are looking to improve your buying power, limit your stress, take control of when you sell and/or boost your retirement income, then for some people let to buy is a genuinely compelling solution.
“The vast majority of our let-to-buy clients are choosing either a mortgage with no early repayment charges, giving them complete flexibility on marketing the property and the timing of the sale, or a two-year fixed rate. The former particularly suits those who are specifically using let-to-buy as a form of chain breaker where they have been let down by a purchaser or have seen a property they are keen to buy but can’t sell their existing home quickly enough to be confident of securing the purchase. The latter suits those who want to test out being a landlord before being committed long term.”