Long-term renting: a new challenge for the mortgage industry
The increasing popularity of buy-to-let property investment doesn’t look set to wane any time soon.
Figures from the Council of Mortgage Lenders show that in the first quarter of 2013 buy-to-let lending accounted for 13.4% of total outstanding mortgage lending in the UK – up from 13% the previous quarter and 12.9% at the end of the first quarter of 2012.
With property prices increasing and the average age of a first-time home-buyer now at 35, it is no surprise that property investors are looking towards buy-to-let as an investment option. In 2010 the Chartered Institute of Housing forecast that by 2020 a fifth of UK homes would be privately rented. Some predict that larger cities in the UK could become like New York, where only 31% of homes are owned.
With more people renting, driven in part by increased house prices, a new trend of renting for the long-term looks set to grow in the UK. Across Europe, long-term renting is the norm. According to figures from Eurostat, in 2011, 13.3% of people in the UK privately rented properties, compared to 51% in Switzerland and 40% in Germany.
With more people renting, and looking for security over the long-term, there is debate about whether the current system can adapt to this change. Many landlords will be very familiar with Assured Shorthold Tenancy Agreements which are the norm for most residential properties. Typically the length of rental contracts is twelve months, which according to some in the industry actively discourages tenants from staying in properties for the long-term.
But one of the real challenges for landlords looking to take advantage of new demand for long-term renting is getting a mortgage that allows them to create rental contracts longer than a year. Many mortgage lenders impose a 12 month restriction on tenancy agreements. However, a study by the National Landlords Association published last year showed that more than half (54%) of tenancies in the UK last between two and three years, and that almost a third (32%) last in excess of four years. While some lenders, like Blemain Finance and Lancashire Mortgage Corporation, are more flexible on terms, the majority will insist on rental contracts of not less than 6 months and not more than 12 months.
If this trend continues, those in the property industry that fail to adapt could be left out in the cold. If an increasing number of renters are looking for longer contacts, landlords will need to consider lengthier agreements, mortgage lenders may have to introduce more flexible terms and conditions, and brokers must be able to advise those looking for buy-to-let mortgages on the options available for those wanting to rent over the long-term.
Article courtesy of Financial Reporter