Creative Property News

The latest landlord research from specialist buy-to-let mortgage lender Paragon Mortgages has revealed landlords prefer to source buy-to-let finance via intermediaries.

The lender’s Private Rented Sector Trends survey, which has been tracking landlord confidence and views on the buy-to-let market for 20 years now, reported more than a third (36%) of landlords in Q4 preferred to source buy-to-let finance exclusively via intermediaries. This is a 6% increase over the past three months, up from 30% of landlords in Q3.
In comparison, 23% of landlords in the last quarter of 2014 preferred to source buy-to-let finance directly from lenders, and 23% sourced through a mix of intermediaries and lenders, which reduced from 28% in Q3.
Large-scale landlords – those with five or more properties, were more likely to prefer to source all their buy-to-let finance via intermediaries – 40% compared with 23% of small-scale landlords (those with up to five properties). Small-scale landlords on the other hand were almost twice as likely to source buy-to-let finance directly through a lender – 35% compared with 19% of large-scale landlords.
Some 60% of landlords agreed that intermediaries provide a valuable service in finding the best buy-to-let deals, in comparison with only 6% who disagreed. Additionally, more than four out of 10 landlords (42%) surveyed said that sourcing directly though a lender is only suitable for the more simple buy-to-let propositions.
John Heron, managing director of Paragon Mortgages, said: “Although the market has seen strong growth this year, many landlords remain cautious, particularly in view of interest rate expectations, the weaker conditions that we have seen in the housing market and the disruption we are likely to see around the general election in 2015. When combined with the positive benefits that professional mortgage advice can bring, it is no surprise to see landlords turning more to the intermediary sector in less certain times.
“Landlords, especially those newer to the market, recognise the benefits of using a trusted, experienced and knowledgeable broker to help source their finance. Brokers have always been key to the buy-to-let mortgage market and will continue to be, going by this research, for as far ahead as we can see.”

Stamp duty changes

How will the new system be different?

From midnight on 3rd December, the new rates of stamp duty will only apply to the amount of the purchase price that falls within the particular duty band, making it more like income tax.

In other words, someone buying a house for £200,000 will pay nothing on the first £125,000, and then 2% of the next £75,000, giving them a bill of £1500. Previously they would have paid 1% on the total purchase price, giving them a bill of £2,000. Thus although the percentage rates appear higher in some cases, the overall charge will mostly be lower.

The new rates will be

  • Up to £125,000 : 0%
  • £125,001 to £250,000 : 2%
  • £250,001 to £925,000 : 5%
  • £925,001 to £1.5m : 10%
  • Above £1.5m : 12%
  •  

Someone buying an family home for an average price in England and Wales will now pay £4,500 less in stamp duty. The new system will also smooth out the steps – or sudden jumps – in existing stamp duty thresholds.

  Now is a great time to review your mortgage

      House prices (at least in London) seem to have hit a turning point.

In spring, prices went wild as buyers lost their heads. 

In the summer, the market slowed down as new rules hit lending.

Now prices are starting to fall.


This is long overdue. 

London prices need to drop by at least 15-20% before they are approaching being affordable.


Yet a new report suggests that the Bank of England is confident that interest rates can go higher without causing too much pain.


We think they’re wrong.

Here’s why, and how to protect yourself…

Low interest rates created the house price boom


British house prices recovered surprisingly quickly from the brief but significant crash of 2008.

Why? The answer is simple – the lowest interest rates in the history of the Bank of England.

The base rate is sitting at 0.5%, and has been for more than five years.


This has fuelled the market in two ways. 

Firstly, it has kept mortgage costs low.

The ratio of house prices to average earnings has never been higher.

But the proportion of average income going on mortgage payments is only slightly above average.


Secondly, low rates have also reduced the returns that investors can get from other, less risky investments.

So anyone with a lot of cash, on the hunt for income, has been tempted to invest in property for the rental yield.


If rates start to rise, the risk is that this could all go into reverse.

Mortgage payments would rise, making high prices harder to afford.

Investors would also find the sector less attractive if better, lower-risk returns became available elsewhere.


However, the Bank of England apparently isn’t too worried about this. It reckons it could raise rates without too much pain, according to a recent report.


How does it reach this comforting conclusion? Survey data suggests that most households have actually been quite responsible in recent years.

Rather than go on a spending spree, they’ve used the money saved on their mortgage bills to reduce their debts.


Only 4% of households spend more than 40% of their monthly income on mortgage payments.

That’s the level at which the Bank of England thinks there’s a real risk of falling into arrears, or even defaulting.

This percentage has also been falling for the past three years.


Similarly, only 14% of people say that they have trouble paying for accommodation.

That might sound like a lot (it’s more than one in eight, after all) – but in fact it’s the lowest level since the survey began in 1991.


So the bank is quite sanguine, it reckons a small rise in rates would only increase the percentage of people in the danger zone to 6%.

They note that most people expect rates to rise in the coming years, so it shouldn’t come as a big shock when they do.


There are a few caveats, but the overall message is clear: the Bank can raise rates without the world ending.


Higher interest rates could hit the housing market hard


We wouldn’t be so sure.

It’s fair to say that a repeat of the 1989-92 crash is not on the cards.

Back then, rapidly surging interest rates and a subsequent recession forced many people to sell up, putting a lot of pressure on prices.


But the threat of repossessions can’t just be ignored.

The problem with relying on surveys is that people tend to be too optimistic about their financial situation.

A lot of people are probably underestimating the proportion of income they spend on mortgage payments and many also assume that they will be able to work extra hours when and if mortgage bills start rising – not something that can always be taken for granted.


The Bank also makes one crucial assumption that looks a bit dubious – the idea that household incomes are going to jump by 10% over the next few years.

It admits that if incomes grow more slowly than that, far more households will be in trouble.


Perhaps more to the point, if rates go up, it will make current prices even less affordable for new buyers.

So even if forced sellers don’t reach the levels buy soma canadian pharmacy seen in the early 1990s, those who do sell will find it very hard to offload their home without cutting prices.


Higher rates are coming – take action now


Whatever happens, the Bank’s report – and the confident tone – makes it pretty clear that the plan is for rates to go up at some point in 2015.

The autumn looks most likely at the moment, according to City forecasts.

But the Bank might even be laying the groundwork now for a rise in the summer.


This means that if you own a home, or are buying one, it makes a lot of sense to lock in low interest rates now, by getting a fixed-rate mortgage.

In the summer this year, I took a look at the some of the longer deals, including some ten-year mortgages.

There have been some changes in the market since I wrote the piece, but you can still find a good deal at a historically very low rate.

Contact us NOW to arrange a free no obligation review of your mortgage

Why you should choose us

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Donec sed odio dui. Duis mollis, est non commodo luctus, nisi erat porttitor ligula, eget lacinia odio sem nec elit. Sed posuere consectetur est at lobortis. Nulla vitae elit libero, a pharetra augue. Donec ullamcorper nulla non metus auctor fringilla. Donec id elit non mi porta gravida at eget metus. Fusce dapibus, tellus ac cursus commodo, tortor mauris condimentum nibh, ut fermentum massa justo sit amet. Donec sed odio dui. Duis mollis, est non commodo luctus, nisi erat porttitor ligula, eget lacinia odio sem nec elit. Sed posuere consectetur est at lobortis. Nulla vitae elit libero, a pharetra augue. Donec ullamcorper nulla non metus auctor fringilla. Donec id elit non mi porta gravida at eget metus. Fusce dapibus, tellus ac cursus commodo, tortor mauris condimentum nibh, ut fermentum massa justo sit amet.
Donec sed odio dui. Duis mollis, est non commodo luctus, nisi erat porttitor ligula, eget lacinia odio sem nec elit. Sed posuere consectetur est at lobortis. Nulla vitae elit libero, a pharetra augue. Donec ullamcorper nulla non metus auctor fringilla. Donec id elit non mi porta gravida at eget metus. Fusce dapibus, tellus ac cursus commodo, tortor mauris condimentum nibh, ut fermentum massa justo sit amet. Donec sed odio dui. Duis mollis, est non commodo luctus, nisi erat porttitor ligula, eget lacinia odio sem nec elit. Sed posuere consectetur est at lobortis. Nulla vitae elit libero, a pharetra augue. Donec ullamcorper nulla non metus auctor fringilla. Donec id elit non mi porta gravida at eget metus. Fusce dapibus, tellus ac cursus commodo, tortor mauris condimentum nibh, ut fermentum massa justo sit amet.