Bond 2 Let (Bond) is a rental protection product designed by Opus Mortgages and backed by major lending companies. This means that when an investor takes out a B2L mortgage they can now also take out a Bond, which offers them protection for their investment.
Bond delivers up to six months’ mortgage payments in the event of a property remaining unoccupied for a protracted period – or if a tenant defaults or is late making a payment. It also covers an investor in the event of an increase in Bank of England base rates, enabling Bondholders to draw on funds to compensate for higher mortgage repayments.
So how does it work? A Bond is lodged at the outset by taking six months’ mortgage payments upfront and placing the funds in an interest-bearing account. These are available to a Bondholder at any stage. Investors also have the ability to top up their Bond, should they ever need to. All funds left within the Bond when the B2L mortgage matures, or is redeemed, are repaid in full to the investor. This includes all interest.
The scheme, which wrote £140 million of business during 2002, will be of major interest to brokers attending Expo who have B2L clients. Why? Because all the UK’s 375,000 B2L landlords and investors face significant financial exposure should their Buy-To-Let (B2L) property portfolios be unoccupied for lengthy periods. Research conducted by Opus reveals that in 2003, “voids” – periods when properties are not tenanted – could cost B2L investors £1.125 billion in lost income.
“We’re confident that Bond 2 Let meets a real need in the Buy-To-Let sector,” commented Lockhart Bruce, finance and marketing director of Opus.
“There is a lot of risk associated with the B2L market these days. The supply of properties outstrips demand from tenants – and it’s a fact that Landlords experience periods when their properties are vacant. In London and the South East in particular, this can cost them a lot of money if they are not protected.”
Figures released recently by the Association of Residential Letting Agents (ARLA) reveal that 58 per cent of its members recorded annual “voids” of more than five weeks in “Prime” London locations. In the South East of England this figure stood at 38 per cent, while 33 per cent of ARLA members elsewhere reported a similar state of affairs.
And the problem of rental “void” is unlikely to go away. The Council of Mortgage Lenders (CML), the trade association for lenders, stated in September that the 375,000 Buy-To-Let mortgages in existence in the UK is a record for the sector. According to the CML, there is no evidence to suggest a slowdown in the number of B2L mortgages being taken out by investors.
The size of the “void” problem is emphasised when the average annual rental loss per B2L property is analysed. For ARLA says that the average house records a rental void of £3,246 annually, while the average flat suffers an average “void” of £1,764.
