Bank of England kept base rate on hold at 5.5 per cent.


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including City AM.

The mortgage market got a stay of execution last week when the Bank of England kept base rate on hold at 5.5 per cent. Most experts are still predicting another rise later in the summer to keep inflation under control so we’re not out of the woods yet. And anyone whose current fixed or discount rate deal is set to expire this year is still in for a severe payment shock.

Today’s best-buy rates are already well above those charged in 2002 when there were great five year deals on offer. Current rates are also higher than in 2004 and 2005 when borrowers got some equally good three and two year deals. And today’s variable rates are far higher than any of the old best-buys. If you leave it too late to apply for a new deal when your existing offer ends then you’ll end up paying your lender’s standard rate. That can easily double the payments on one of the best of the old deals that expire this summer. So get a move on.

In the past many people have waited till around 6 weeks before their old deals ended before shopping around for something new. But that was before payment shocks became so intense. Today I’d call my broker as much as three months before my expiry dates to make sure we start the search in time. There will be a lot of people trying to remortgage the good deals they got since 2002 when Bank of England base rate has been as low as 3.5 per cent. I don’t want my applications to be at the back of the queue when they all start looking for something new.

ONE other difference between now and 2004 and 2005 is also worth noting: experienced landlords can probably borrow a lot more of their properties’ values. Research from financial statistics firm Moneyfacts show how quickly maximum loan to value figures have edged up. In 1999 the firm says the maximum was pretty much 75 per cent. By 2001 it was 80 per cent and last year it was 85 per cent. Now up to a dozen lenders will go as high as 90 per cent for certain borrowers. Rates and fees on these deals are likely to be higher. But if you want to squeeze one of your properties to buy something new then now could be the time to try.

The good news in the market is that rent rises seem to be getting easier to push through – according to Paragon Mortgages at least. In the lender’s latest survey of the market it says average rents are up 6.5 per cent in the past three months, though the regional breakdown shows the picture is incredibly patchy. But the fact that some rents are rising has helped overall yields stay at 6.1 per cent for the third month in a row, which is hardly the nightmare scenario painted by buy-to-let critics for this year.

Equally good news for investors comes in the well publicised research showing that homes will cost ten times salary by 2026. The story led the television news at the end of last week and was based on figures from the National Housing and Planning Advice Unit showing that the number of people looking for property in Britain shows no sign of abating. Single people, divorces, students, new arrivals – everyone wants a home of their own and anyone who can’t afford to buy will be forced to rent. No wonder Alliance & Leicester is predicting that the buy-to-let market will increase by 20 per cent in the next decade.

THE final piece of news that caught my eye this week could give sociologists something to think about: the rising number of landlords who are younger than their tenants.

On in five landlords now falls into the ‘professional’ category, loosely defined as collecting rent worth more than the national average wage. These professionals tend to own investment property worth at least £1 million, to have at least six buy-to-lets and to have been in the game for at least two years. According to A&L they also tend to be a lot younger than the average ‘single property’ or small time buy-to-let investor.

Years ago I remember being amazed at how young some buy-to-let investors were when I chatted to people at property shows around the country. Many were fearless. With no memories of past housing slumps they scooped up homes when older, supposedly wiser investors stood back. And the bravery has paid off. Buy-to-let has been a brilliant breeding ground for entrepreneurship. Lets hope Gordon Brown’s successor as Chancellor remembers this if anyone calls for any of today’s property tax breaks to be reduced.