Experts defend Buy To Let

First Time Buyers lose out to Buy To Let Landlords

Record House Prices and high property inflation is making life difficult for the 20 to 39 year olds. According to the Joseph Rowntree Foundation the ‘would be’ First Time Buyers are struggling to get onto the housing ladder.

The gap between the price of a house and the average income has now widened to be on a par with the peak of the last housing boom. This news does not necessarily spell trouble for the landlord; the general lack of supply of property and the influx of good Eastern European workers fuelling the UK economy can only help to keep house prices high.

Mortgage Companies continue to offer the very best Buy To Let Mortgages, a sign that profit must exist in the Buy To Let Mortgage industry. Mortgage Companies such as BM Solutions, Northern Rock and Mortgage Express remain confident despite the marginal increase in Buy To Let Mortgage arrears. In fact, we now have over 2000 Buy To Let Mortgages to offer our landlord clients, with one of our traditional Buy To Let lenders ‘Capital Home Loans’ offering six times the number of products they offered only 5 years ago.

Today’s market is no different than yesterdays. The recent RICS survey showed that over 60% of landlords expected to stay in the residential rental market for at least 10 years.

The UK economy has seen low interest rates and low inflation for over 10 years. According to some pundits the increase in house prices is primarily the result of a one-off adjustment; the one-off adjustment being sustained by an ongoing environment of low interest rates and low inflation. Up until 1992 the Bank of England base rate had been volatile as the Exchange Rate Mechanism (ERM) allowed interest rates to take big swings up and down. In the autumn of 1992 the ERM was scrapped and now we have an environment of low interest rates.

Not many can deny that the single biggest factor effecting house prices is interest rates. As the Bank of England raise interest rates the homebuyers affordability and enthusiasm will inevitably dampen. But according to some pundits house prices will not go into reverse unless the Bank of England base rate hits 6%. And even if the rate does hit 6% any reversals are likely to be localised.

What is important is the rate at which interest rates climb. Regular, small increases in the cost of borrowing will help the homeowner to adjust.

Some quick statistics: -

According to one leading Buy To Let Mortgage Company the average Buy To Let Property in September 2006 was £171,352, this was up from £152,834 in January 2005. Furthermore for the same periods the average rental income for 2006 was £10,377 per a year and for 2005 was £10,297. The rental yields had therefore dropped from 6.4% to 6.06%.

Interest Rate History

It is fascinating to look at past interest rates:-

May 6^th 1997 6.25%

June 6^th 1997 6.50%

July 10^th 1997 6.75%

Aug 7^th 1997 7.00%

Nov 6^th 1997 7.25%

June 4^th 1998 7.50%

Oct 8^th 1998 7.25%

Nov 5^th 1998 6.75%

Dec 10^th 1998 6.25%

Jan 7^th 1999 6.00%

Feb 4^th 1999 5.50%

Apr 8^th 1999 5.25%

Jun 10^th 1999 5.00%

Sep 8^th 1999 5.25%

Nov 4^th 1999 5.50%

Jan 13^th 2000 5.75%

Feb 10^th 2000 6.00%

Feb 8^th 2001 5.75%

Apr 5^th 2001 5.50%

May 10^th 2001 5.25%

Aug 2^nd 2001 5.00%

Sep 18^th 2001 4.75%

Oct 4^th 2001 4.50%

Nov 8^th 2001 4.00%

Feb 6^th 2003 3.75%

Jul 10^th 2003 3.50%

Nov 6^th 2003 3.75%

Feb 5^th 2004 4.00%

May 6^th 2004 4.25%

Jun 10^th 2004 4.50%

Aug 5^th 2004 4.75%

Aug 4^th 2005 4.50%

Aug 3^rd 2006 4.75%

Nov 9^th 2006 5.00%

Jan 12^th 2007 5.25%