More buy-to-let borrowers choosing fixed rate mortgages

More buy-to-let borrowers choosing fixed rate mortgages

More buy-to-let landlords are choosing fixed-deal mortgages, says specialist firm TBMC. Landlord borrowers are also going for slightly higher-quantity loans, and their favourite properties are terrace houses and flats.

The firm says that nearly half (48%) of landlords are opting for fixed-rate mortgages. Their average loan size in the first quarter of this year was £163,265, up from £156,661 in the last quarter of 2012. The average loan to value (LTV) is just under 75%.

TBMC says there has been a good selection of mortgages available at 80% LTV, with lenders including Kent Reliance, the Mortgage Works, Aldermore, Leeds Building Society, Kensington and Precise. Kent Reliance remains the only lender offering 85% LTV products to the buy-to-let market.

The 75% LTV bracket has, however, been very competitive with a choice of fixed and variable rates for investors to choose from. Landlords are clearly taking advantage of the improved market conditions to employ higher gearing in their properties, as the average LTV for mortgage offers processed by TBMC in Q1 was up to 74.84% and the average loan size was £155,654.
The type of rental property that landlords choose can make a significant difference to the expected rental yield, void periods and return on investment. Buy-to-let investors clearly favour terrace houses and flats, representing 39% and 28% of applications received by TBMC in the first quarter of this year. 

This indicates that the tenant demand for these types of properties is high and also correlates with over 90% of landlords in Q1 2013 expecting to rent their buy-to-let property to either a family or professionals.

The location of the property is also crucial in determining the likely rental yield, says the firm. Major cities are often a good bet as demand is high, although on average London falls behind on expected rental yield due to the high prices of properties. Liverpool and Bristol both generated above average yields in Q1 2013 at 7.43% and 7.02% respectively.
Llandudno, the largest seaside resort in North Wales, is also proving to be a popular hotspot for buy-to-let property, and on average expected rental yields were 7.18% in Q1 2013.

TBMC concluded: “Conditions in the buy-to-let mortgage market are continuing to improve in 2013, providing excellent opportunities for brokers and their landlord clients. Product pricing is increasingly competitive, evidenced by the availability of lower rates and higher levels of lending.”