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Landlords Focus on the Cheaper End of Buy-to-Let Market

There's been a lot of news floating around in regards to the buy to let market at the moment, and...

There’s been a lot of news floating around in regards to the buy to let market at the moment, and now, it turns out that landlords are now opting to buy homes from the cheaper end of the market as low rates encourage buying but incoming regulation means that not many people are looking to buy houses with higher costs.

Those with the prospect of becoming a landlord are moving away from the more expensive properties, to those that are valued below £150,000, according to research that has tracked over 250,000 monthly mortgage product services carried out through price comparison websites.

This data, produced by the Broker Mortgage Advice Bureau, may cause some concern for housing policy makers who have warned of the height of competition between first time buyers and prospective buy-to-let landlords for affordable houses.

Since 2012, the buy-to-let market has grown rapidly – gross mortgage lending for the market was recorded as 16.4bn but has now sky-rocketed to nearly £31bn in three years.

Two Sides of the Coin

Searches through price comparison websites for homes valued under £150,000 stood at 21% of all searches last year, but by September of this year, that percentage has risen to 35%, showing just how quickly the interest in lower valued houses has grown.

On the other side of the coin, searches for properties valued between £250,000 and £499,000 has dropped from 44% to 24% since last year.

“As rental demand remains strong nationwide, opting for a cheaper property can result in more attractive yields. It appears many landlords are looking to invest in areas outside the south of England, where property prices won’t hold them back from making a profit”, said Brian Murphy, who is the head of lending at the Mortgage Advice Bureau, after noticing the surge in buy-to-let landlords looking for mortgages on lower priced houses.

Advantage: Landlords

Some landlords are taking advantage of low mortgage rates and rising values on their existing properties to take out equity in their portfolio and thus use it as a deposit for further additions.

A landlord buying a home for the same £150,000 three years ago would have normally borrowed at a loan-to-value of 75%. But because of the average annual house price appreciation of 5 to 9% in recent years, they could have seen a 25% rise in value, reducing the effective loan-to-value of their mortgage to about 50% - or even less.

Another factor affecting all of this is the recent moves by George Osbourne, who has limited the mortgage interest tax relief available to landlords. This is set to come in from 2017 but is already being factored in by borrowers.

Because of this new direction taken by prospective landlords, many borrowers are switching from the previous hotspots of London and the Southeast to other parts of the country where rents remain relatively high but prices significantly lower.

If you’re a landlord and are looking at renting a property birmingham or you’re looking for a new home, we can help! We’re one of the UK’s top real estate agents and can help you find what you’re looking for. For more information, contact us on 0121 212 0122 and a member of our friendly team will be happy to help.

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