News Review: Advice
Brokers must help first time landlords
by Ben Thompson, MD, Legal & General Mortgage Club
intermediaries cannot have failed to have noticed that while a lot of the mortgage market has been tricky during the downturn buy- to-let has notably corrected itself and appears to be in rude health. in fact in contrast to other aspects of the industry the picture for buy-to-let investors in the uK has appeared relatively rosy. rental yields have remained strong making a buy-to-let investment seem like a very sensible decision for many in the fortunate position to be able to take the plunge. as a result several have. Some 12.6% of overall lending so far in 2011 can be traced back to buy-to-let products the same as its peak in 2007.
Cause and effect So what is driving this? Firstly a significant lack of mortgage financing overall especially for first-time buyers, has meant that many wishing to own a home have found themselves trapped between a rock and hard place and therefore locked in the rental sector for the foreseeable future. When this additional demand is added to a woeful lack of supply in social housing it is clear to see that private landlords are needed to step in and service this need. good news for those with a buy-to-let portfolio. However,
this situation
cannot continue indefinitely. it’s up to the mortgage market
to provide more and more innovative and inclusive products to help people realise their dreams of home ownership. recent figures from the
Halifax also reveal that it is now £100 a month cheaper to buy a property than rent in the long term, with just 9.4% of average income being spent on mortgages; the lowest since records began. there is little doubt that the housing market feels like a tough place to be right now if you are trying to get on the property ladder as it’s noticeably more difficult to get a mortgage than it has been in previous years.
Innovation it’s vital therefore that the industry does its best to provide innovative and inclusive products that help reliable first-time borrowers to realise their dreams of home ownership. our recent launch with aldermore of our Family guarantee mortgage is an attempt to give first- time buyers another option. obtainable via a simple online application process the product will be available up to 100% of the purchase price or property valuation (whichever is lower) and secured against the residential property of an immediate family member. With the ‘rewards’ for getting on the ladder at the moment all too apparent, considering such options is sensible practice for all first-time buyers. the fact that first timers
now also face the prospect of missing out on the government’s two year stamp duty holiday for first-
10 mortgage introducer DECEMBER 2011
time buyers in relation to properties under £250,000 if they do not act before the march 2012 means that the issue is all the more important. With this tax break potentially worth up to £2,500 it is not to be scoffed at especially in such a tough economic climate. Providers should be doing all we can to help first-time buyers to take advantage ahead of the deadline. our offering with aldermore is one way in which we are trying to do that.
“A small portfolio built quickly can help in minimising rental voids, spread risk and increase yields”
Flipside there is another side to this coin though. While many will bemoan the issues above for some they present an opportunity. the lack of affordable rented accommodation might suggest that those of us that can should start our own buy- to-let portfolios. However, it’s not a leap to be taken lightly and needs to be approached as a business decision. Buy- to-let landlords have to be able to commit a lot of time and effort into making their venture a success. understandably, this can be daunting for first timers, but help is at hand via the broking community, estate agents and lenders. this support is absolutely crucial to the novice landlord entering the market. it’s important that we as an industry impress on clients that this is a business transaction and so they should fully understand all the
financials before committing to the first purchase.
Focus advice When planning a portfolio for a client, consider all the options but try to focus on a just a few quality products rather than a wider, extensive range. a small portfolio built quickly can help in minimising rental voids, spread risk and increase yields. it is important to explain the capital required if further properties are to be acquired as this may influence your client’s initial investment in the first property. advise them to look
carefully at managing tenancy agreements as they near maturity to minimise rental voids and maximise rental incomes. it is also worth mentioning for first timers that insurance can protect against accidental damage, loss of rental income from specific causes, third party liability and buildings and contents insurance for furnished lets. also picking the right
mortgage product is vital. Some lenders such as the mortgage Works have specific products tailored for first time landlords. they have an exclusive First time Landlord range and include incentives such as £1,000 cash-back or free standard valuations and legal fees. While one part of the market may well be buoyant and the other less so it’s clear that intermediaries and lenders alike have an important role to play in guiding clients through what are uncertain times whatever end of the market you are working with.
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