The Mortgage Works will tomorrow be launching a new set of products geared towards helping landlords finance deals that in modern times most mainstream buy-to-let lenders have shied away from. These include houses in multiple occupation (HMO) and a range of buy to let tracker mortgages which allow borrowers to switch on to a fixed rate at any time without incurring an early repayment penalty.

The new range being introduced tomorrow will also include buy-to-let mortgages for Limited Companies as well as changes to buy-to-let, let-to-buy and light refurbishment products. Some existing products will see rates improved by nearly 0.3%.

The Mortgage Works head of Products, Tracy Pearce commented,

‘The Mortgage Works is committed to considering the challenges that landlords face now and in the future and continually looks for ways to offer them greater choice and common sense alternatives. The HMO, Limited Company and Switch to Fix propositions are designed to give customers flexibility over their borrowing, which means giving them more control and more chance of finding the perfect product for their needs.’

Our experiences with the Mortgage Works have been very positive since the start of the credit crunch, which can rarely be said for many of the other lenders out there. Their application process is relatively simple and their behaviour is generally consistent across the board and over time. If this remains true with the introduction of these new products then this should open the door for many investors to prosper, in particular with the HMO products being introduced.

Landlord confidence grows in buy-to-let market

A majority (64%) of UK landlords feel more confident about the buy-to-let market as 2010 begins, according to the latest rental confidence index from Upad. The figure represents a 6% increase from the same survey in December. (Mortgage Solutions 13/1)

Landlords enjoy a much healthier 2009

Landlords enjoyed a 7.6% annual return on their investments by the end of December 2009, according to the latest index from LSL Property Services. The value of their properties rose 3% in the year while rental income added a further 4.6%. This means in 2009, a typical landlord made a return of £12,740. By contrast, in 2008, a typical landlord would have lost 8.8% or £15,100. Arrears performed very well in 2009. On average 11.7% of rent was unpaid by the date it was due, down from 14.5% in 2008.
(Mortgage Solutions 15/1)

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Ah – the eternal investor’s dilemma is as relevant as ever. With the Bank of England (BoE) base rate steadily nailed at 0.5%, one would expect tracker mortgages to be hovering at 2- 3% and fixed rate ones around the 4% mark. Yet they’re not. At 75% loan-to-value, we struggle to get below 4.5% on trackers and 5 – 5.5% on fixed.  This makes for a tough call.

Going on a tracker produces a better cash-flow, but one vulnerable to rate hikes, which seem increasingly likely as we recover from the crisis. There certainly isn’t much leeway for further rate cuts…  For the sake of 0.5% or 1% difference, it is tempting to fix a rate, lock in a respectable return, and put our minds to rest.

Yet although we are soldiering our way up the road of recovery, interest rates are probably going to remain below 1% until the tail-end of the year, if not longer. The BoE is considering phasing out its some of its crisis policies such quantitative easing (i.e injecting money into the economy), but the requisite for low interest rates remains essential to revitalise consumption, business lending as well as the property sector.

So where does that leave us? It is obviously a matter of personal preference but we tend to recommend 1 year trackers around 4.3% at the moment as this is worthwhile as long as the base rate stays round 0.5-1% for the next 8 months or so. Even if it rises to say 1.5% towards the end of the year, the savings made on the repayments until then will more than compensate for the later ones, as the average yearly repayment is still lower than that of fixed rate mortgages. Another advantage is that going on a 1 year product avoids paying an early repayment charge (typically 2.5 – 5%) should you decide to sell or refinance in 2011.

Our conclusion is that for 1 year products, tracker rates at least 0.5% lower than fixed rates look like the more appealing proposition at present.

For investors wishing to sit on a property for over 18 months are probably better off fixing the rate to stabilise the cash-flow whilst plotting their next move.

25th November 2009

According to Moneyfacts, the average interest on a 2 year fixed rate mortgage has fallen below 5%.  This is largely the result of the easing of inter-bank credit supply as well as revived competition between mortgage lenders as new (or returning) lenders come into the market. This is good news for borrowers as it is also leading to an easing of the general lending crieria attached to mortgages (e.g minimum income, arrangement fees, rental coverage…etc).