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Some Good News for Buy to Let Investors

Figures released at the end of last week demonstrate the growth potential for new and existing buy to let investors across the UK.  Any lingering doubts about the benefits and risks of using buy to let property as part of an investment strategy are beginning to recede as landlords and letting agents see an increase in the number of tenants searching for property. There are growing waiting lists in most regions and the Association of Residential Letting Agents (ARLA) reports that 70% of its members have more potential tenants registered than they have properties available. This is an increase of 11% from the last financial quarter and a huge increase from the figures in September 2009 when just 24% of letting agents were facing this problem.
Other figures from the past week show that average rental income has increased over the past five consecutive months and is now on a par with their highest level recorded in November 2008.  By any measurable standard these figures are substantial and represent good news for residential landlords.
The scarcity of rental properties will be the driving factor for continuing rental price increases. A spokesperson for ARLA said “The spring period would usually see a rise in rental properties coming onto the market ............ the supply and demand of homes to buy is also swinging out of kilter - making the prospect of a severe rental housing shortage ever more likely.”
Following the recent Budget there have been fears about the changes to the housing benefit system but whilst this can be complicated it has mostly been exaggerated – for example only those claiming Job Seekers Allowance will have their benefit reduced, many tenants are claiming income support or disability allowance and have no obligation to find work within 12 months.  Therefore most tenants will continue to receive full payment toward their rent.
Most commentators seem to agree that the returns for landlords will continue to rise and produce a very favourable yield compared to other investment strategies. However the current economic climate will probably make both buy to let investors and mortgage lenders nervous for the foreseeable future - there are no guarantees that a buy to let property will be profitable in every area or for each individual and a wise investor will take this into account.
Despite the previous Governments backing for low cost buying schemes and affordable housing, there is little doubt that the new coalition government will be introducing cutbacks in its financial support as well as reducing tax breaks for housing developers who have been co-operating with mortgage lenders to provide these homes.
It is sensible to assume that without these subsidies fewer first time buyers will be able to afford a mortgage resulting in stable or increasing demand for rental properties from tenants who are in full time work and looking for suitable accommodation. The mortgage lending industry needs to address these issues and provide affordable products for both buyers and landlords.
Good news though from Leeds Building Society who have announced a new fixed rate buy to let mortgage starting at just 4.89%. It is worth noting that there are lower headline rates appearing on web sites but these products may have a high percentage based arrangement fee, sometimes up to 3.5% of the mortgage loan amount. This new Leeds Building Society product charges £999 for arrangement and product fees.
A spokesperson from the Leeds also commented that they doubt whether the Bank of England Base rate will remain low for very much longer, one member of the Committee voted for an increase at the last meeting and the Society suggests that now may be a good time to secure a fixed deal.
Other lenders continue to offer buy to let mortgages and by shopping around you can reduce both your set up costs and you mortgage interest rate. If you have a larger deposit that you are prepared to invest then you will of course benefit from the lowest charges and interest rates.
There has been some heated debates about the increasing number of buy to let landlords and the effect this may have had on rising house prices but without doubt there will always be people who, for a variety of reasons, choose not to buy (current climate, lack of job security, distrust of banks etc.) but becoming a landlord or property investor can still be part of a good long term financial plan for many people.

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