UCB Home Loans has warned consumers that the buy-to-let market may be attractive, but research is the key to a successful purchase.
UCB, a subsidiary of the Nationwide, has released its six monthly report on the housing market, which backs up the fact that those entering the market just to make a fast buck may be disappointed.
The rental market continues to see increased void periods, or periods without tenants when landlords receive no rent but continue to pay the mortgage.
Charles Reed, managing director of UCB Home Loans said: “The picture varies greatly from location to location and a number of areas are showing healthy returns from the buy-to-let market. But rents have been falling in parts of London, where strong buy-to-let lending has combined with a decrease in the number of corporate lets to bring about a situation where too many landlords are chasing too few tenants.”
Reed said apart from asking a lot of questions before purchasing buy-to-let, people should also keep at least three months mortgage payments put aside in a savings account in case the rental market turns. Potential buy-to-letters should also be looking at this as a long-term investment of somewhere in the region of 7 to10 years, said Reed.
Figures released by estate agents FBDSavills show average net rental yields standing at 6.2 per cent. The figures show that yields are lowest where the average house prices are highest, for example, in Greater London, the average net yield is currently 5.5 whereas in prime central London it is 3.1 per cent.
Reed said: “The total value of buy-to-let loans grew by a staggering 62 per cent last year.
“Of the 184,900 buy-to-let mortgages outstanding at the end of December 2001, over 41,000 were taken out in just the last six months of the year. The value of loans outstanding went up from 9.1 billion at the beginning of the year, to £14.7 billion at the year-end, but growth at this rate cannot be sustained for much longer.”
The average buy-to-let purchase price for the six months to June was £156,114 and the average loan size £89,611, giving an LTV of 57 per cent.
Meanwhile, according to the Nationwide, house prices rose by 3.3 per cent in June raising the annual increase up to 19.8 per cent. The average price of a UK house now rests at £106,693.
