Buy-to-let market set to expand in first half of 2013

Around 55% of landlords are planning to expand their portfolios in the next six months according to research by Mortgages for Business.

Of these the research shows that two-thirds will need to refinance. However three quarters of landlords say mortgage lenders aren’t doing enough to support property investors.

The research, which polled 218 investors, suggests landlord appetite for more purchases stems from the attractive yields available on vanilla (residential) investments. High gross yields on residential property – which currently stand at 6.7% – are encouraging landlords to expand their portfolios even further.

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

Investment in complex property was less popular, although more landlords plan to purchase Houses in Multiple Occupation (26%) and Multi-Unit Freehold Blocks (16%). Fewer investors plan to buy semi-commercial property (11%) and commercial property (7%).

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

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

And even though 45% of landlords don’t envisage growing their portfolio in the first half of 2013 a quarter of them still plan to re-mortgage.

However 11% 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%.

Landlords clearly feel not enough is being done by lenders to support property investors. Over three quarters of investors (76%) say lenders should be doing more to help them get the finance they need.

The biggest issue for landlords was lending criteria - 45% of them felt 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 (27%) was to reduce rates with some landlords proposing buy-to-let rates should become similar to residential mortgage rates.

The research also found that four in ten (39%) investors have 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 get finance

Peter Lawrence of Lawrence Rand said: “Demand for rental property is at very strong levels, producing very attractive gross yields for landlords as a result.

“It is therefore not surprising that well over half of investors want to expand their portfolios to take advantage of these high yields.

“The first half of 2013 will therefore likely see a spate of purchasing and re-mortgaging 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.”