26% of landlords plan to buy HMOs

Further expansion in the buy-to-let market looks set to take place in the first half of 2013, with 55 per cent of landlords planning to increase their property portfolios over the next six months, according to research by a specialist mortgage broker.

The research by Mortgages for Business, which polled 218 investors, suggested landlords are particularly keen on what are known as ‘vanilla’ (residential) investments.

High gross yields on residential property – which stand at 6.7 per cent – are encouraging landlords to expand their portfolios further.

Of those investors who intend to expand their portfolios this year, almost nine in ten (88 per cent) plan on buying more residential property.

Investment in complex property was less popular, although more landlords plan to purchase HMOs (26 per cent) and multi-unit freehold blocks (11 per cent).

Fewer investors plan to buy semi-commercial property (11 per cent) and commercial property (seven per cent).

Encouragingly, just 6 per cent of landlords say they are planning to trim their portfolios over the next six months, the same proportion as six months ago.

Two-thirds of landlords planning to purchase more property say they will need to refinance in order to do so.

In total, 43 per cent of landlords say they will look to remortgage in the first half of 2013, up from 36 per cent from six months ago, suggesting high yields – particularly on residential property – are encouraging more landlords to refinance.

And even though 45 per cent of landlords don’t envisage growing their portfolio in the first half of 2013, a quarter of them still plan to remortgage.

However, 11 per cent of the landlords who want to expand their portfolios over the next six months won’t be able to refinance because of lack of equity and the difficulty in securing a mortgage with an LTV of more than 75 per cent.

Landlords clearly feel not enough is being done by lenders to support property investors, with 76 per cent saying lenders should be doing more to help them get the finance they need.

The biggest issue for landlords was lending criteria, with 45 per cent of them feeling criteria should be eased, with more preference given to experienced landlords and a greater willingness to lend on more complex property types.

But there is little incentive for lenders to ease their criteria while the high demand for buy-to-let mortgages more than meets their on-going lending targets.

The second most suggested improvement, with 27 per cent of investors, was to reduce rates, with some landlords proposing buy-to-let rates should become similar to residential mortgage rates.

The research also found, perhaps surprisingly, that four in ten (39 per cent) investors rely entirely on rental income, which illustrates the rise of the professional property investor who has no other income other than rent.

This is despite most buy-to-let lenders stipulating landlords must have an additional annual income of around £20,000 to £25,000 in order to obtain finance.

David Whittaker, Managing Director at Mortgages for Business, explained: “Tenant demand for residential property is ballooning thanks to the lack of mortgages available to first-time buyers. Every month more and more would-be buyers are being forced to rent, and this is pushing up demand to astronomical levels, producing very attractive gross yields for landlords as a result. Not surprising, then, that well over half of investors want to expand their portfolios to take advantage of these high yields. The first half of 2013 will see a spate of purchasing and remortgaging as landlords try to put themselves in a position to take full advantage of a buy-to-let sector which is in very good health.”

Article courtesy of Bridging & Commercial Distributor

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