Mark Alexander, managing director of The Money Centre, revisits some of the tactics investors have been using to make the most of market conditions and looks at how they can continue to maximise returns from the property market throughout 2006.
As 2005 came to an end, the buy to let property market took a healthy upturn. Figures released from the high street banks show lending in autumn 2005 reached its highest level since the property boom in July 2004. The mortgage market has been resilient in what is typically a period of lower demand in the winter months, with around £1.75 billion in total lent in October 2005, which is a 16 per cent increase from the same time last year. The average loan approved to buy a house in October 2005 was £129,500.
So in what ways have buy-to-let investors been financing the expansion of their portfolios in this increasingly buoyant property market? Mark Alexander comments: “For over 15 years, The Money Centre has been providing guidance to literally thousands of clients, helping them to build their property portfolio, minimise risk and maximise returns. It has been great to come face to face with so many buy-to-let investors during 2005 as we have visited all four corners of the country with our series of free seminars.”
“Investors have had to be savvy in their financing. The Bank of England cut the base rate to 4.5 per cent in August, which encouraged more competitive mortgage rates to appear on the market. Investors were given more options to finance existing properties in their portfolios, release equity, and obtain competitive mortgage terms for additional properties. If the Bank Of England cuts the base rate further, it would be another welcome boost to investors and will encourage additional portfolio expansion.”
“Further indications that the property market is following an upward curve are higher house prices. Confidence has returned to the market now after a slower summer. With sustainable prices and a fall in interest rates, buyers and sellers are now more confident to strike a good deal. This means the average stay for a house on the market is also falling, showing investors are moving rapidly to get the best property deals around. The average property is selling two days more quickly than before and staying on the market for just 79 days. Investors increasingly appreciate the fast nature of the buy-to-let market and know they have to obtain the best financing deals available quickly, to snap up bargain properties and add them to their portfolios.”
So with more competitive products available than ever before, landlords are thoroughly seeking out the best loan terms possible, which will allow them to borrow the maximum available and invest minimum amounts of personal finance. This, says Alexander, is the best way to approach buy-to-let investment, and is what he has been telling new and existing portfolio landlords at their nationwide seminars. And it appears this guidance has really sunk in. In a recent landlord survey commissioned by The Money Centre, it showed landlords on average geared up to 52%. This is a 5% increase on the previous year’s survey figure, which stood at 47%. This looks set to increase even further as landlords are given the opportunity to gear up to the maximum 85%.
“It makes sense that landlords are looking to borrow more loan to value than last year. It is tax efficient and with the BOE base rate remaining low, and predicted to decrease further, it makes wise investment sense to borrow as much as you can and make returns on other people’s money.”
“Remortgaging to release equity has also been a popular financing technique by savvy buy-to-let investors this year. Even the penalties imposed by lenders for moving mortgages are not putting investors off. The more competitive loan terms available on newer mortgages mean it makes better investment sense for landlords to incur the penalties than pay for a premium flexible mortgage.”
“Overall, landlords continue to have a bright outlook for the future of buy-to-let. We are expecting an even bigger increase in activity this year. Landlords are confident the property market will continue to reap healthy rewards for the security of their financial future. In our latest survey, 84% of landlords were confident property values and rental returns would increase over the course of the year compared to 62% in the 2004 survey. Not one landlord questioned in our survey predicted value or rent decreases in the next twelve months. We expect this confidence to continue and look forward to helping investors make the most of market conditions and their buy-to-let portfolio throughout 2006.”
The Money Centre’s tour of free buy-to-let seminars has helped hundreds of new and existing buy-to-let investors make the most out of property market conditions.
If you would like to be notified of the nearest seminar to you in 2006, visit www.themoneycentre.co.uk to register your interest or call 01603 428500 to
speak to a consultant.
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