Buy to let for Contractors comes of age

The recent credit crunch has brought a great deal of uncertainty to the mortgage market but as is always the case, regardless of financial climate, there are always winners and losers.

With mortgage lenders tightening their underwriting criteria, it is becoming ever harder for first time buyers to secure the necessary funds to get onto the property ladder. In contrast the buy to let market goes from strength to strength with the value of buy to let and other non residential loans rising to £7.8bn last month alone.

The Association of Rental and Letting Agents has carried out a study which suggests that rents are at an all time high and tenant demand is increasing. In our role as Independent Mortgage Advisers we are increasingly seeing investors cashing in on the inability of first time buyers to get into the housing market and contractors with the necessary 10% deposit required for a buy to let mortgage, seem to be able to count on an ever increasing army of tenants who are eager to rent.

The number of first time buyers has plummeted, in July the number decreased by 7% compared to the previous month, yet we have had our busiest month ever for investment property lending.

From a mortgage providers perspective buy to let is considered lower risk than first time buyer, self cert or adverse credit lending and we have seen lenders grabbing market share by offering very attractive schemes.

Whereas in the past 12 months rising interest rates have restricted the repayment versus rental cover that ultimately determines the size of buy to let loan that can be raised, in recent weeks we have seen some very accomodating schemes come to market - eg Alliance and Leicester have just launched a tracker scheme at 0.16 below base rate.

In a bizarre twist to this story we have also found that First Time Buyers are clearly deciding that 'if you cant beat the buy to let investors you might as well join them'. First timers are increasingly getting on the housing ladder via the investment property route and in reality are getting a tenant to pay their mortgage on a more substantial property whilst renting a cheaper property or staying with parents themselves.

So demand for buy to let looks to be increasingly self perpetuating as we return to the era of the private landlord.

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