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Mortgage broker sees surge in let to buy lending

Independent mortgage advisors John Charcol also point out that it helps mitigate the problems of chains, enables borrowers to sell a property at a time that suits them, and is increasingly used as an opportunity to bolster retirement income.

The firm saw the proportion of clients using let to buy increase by 40% in 2012 and the trend is continuing into 2013. It has also see a rise in the number of expats buying one or more investment properties in the UK.

‘Our experience is that the popularity of let to buy has been progressively increasing since the nadir of the buy to let sector in 2009. I think this is primarily attributable to home owners' renewed confidence in the housing market, coupled with the increasing demand for rental property,’ said Ray Boulger, senior technical manager at John Charcol.

‘Confidence in the buy to let market appears to be gaining more traction as a result of ongoing falls in mortgage rates coupled with steady or increasing rental values. Thus, even ignoring the possibility of a geared capital gain in due course when the property is sold, the annual return from an investment property has improved significantly over the last few years at a time when savings rates have fallen sharply. When John Charcol launched the very first buy to let mortgage in 1996 even we didn't foresee just how popular such mortgages would become,’ he explained.

‘Buy to let has been far and away the strongest sector of the mortgage market since the whole market reached its nadir for gross lending at £135.3 billion in 2010. When gross mortgage lending peaked at £362 billion in 2007, buy to let accounted for 12.3% of lending. However, it then fell away even more rapidly than mainstream lending and in 2009 was just 5.9% of the market,’ he added.

The firm believes that the buy to let market has been the driver of the recent modest increase in gross mortgage lending and from 2010 has increased steadily, culminating in gross lending of £16.4 billion in 2012, representing 11.5% of the total market.

Boulger said that although let to buy only accounts for a modest part of this increase some home owners obtain permission to let from their mortgage lender, thus retaining their existing residential mortgage, rather than remortgage to a buy to let deal. ‘Thus the total number of mortgages supporting the buy to let market will be in excess of the Council of Mortgage Lenders (CML) figures, primarily as a result of a proportion of home owners choosing to let to buy but retain their residential mortgage,’ he added.

The firm’s own data shows that its clients choosing let to buy when they were moving home fell year on year by 37% in 2009, the same year that buy to let lending generally hit rock bottom. However, the subsequent bounce back has been even more pronounced than in the buy to let market generally. It saw an increase of 45% in let to buy lending in 2010, modest growth of only 10% in 2011 and then a further surge last year with an increase of 40%.

‘Let to buy really is providing a great option for many borrowers at a time when the market can hardly be described as fluid. But it is primarily the preserve of those borrowers who have an independent mortgage adviser on their side. Typically, if you visit a high street lender, due to the somewhat prescriptive way most enquiries are dealt with, there is very little chance that this option would even be discussed, let alone explored with any degree of seriousness,’ explained Boulger.

‘Yet, if you are looking to improve your buying power, limit your stress, take control of when you sell and/or boost your retirement income, then for some people let to buy is a genuinely compelling solution,’ he said.

‘The vast majority of our let to buy clients are choosing either a mortgage with no early repayment charges, giving them complete flexibility on marketing the property and the timing of the sale, or a two year fixed rate. The former particularly suits those who are specifically using let to buy as a form of chain breaker where they have been let down by a purchaser or have seen a property they are keen to buy but can't sell their existing home quickly enough to be confident of securing the purchase. The latter suits those who want to test out being a landlord before being committed long term,’ he added.

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