Buy-to-let in Notting Hill


There are quite a few changes afoot in the rental sector at the moment. Rents are rising steadily – up by 0.8% in March and by 3.4% annually (source: Homelet). However, according to new research by Nationwide, the rental market might be about to get a major boost. 40% of the tenants they interviewed from the private rental sector are now considering moving home. That’s compared to 32% of homeowners with a mortgage, suggesting rental demand could soon surpass the unprecedented levels currently being experienced in the sales market.


At the same time, buy-to-let lender, Paragon, has revealed average yields on BTL properties had risen to 6% in the first three months of this year. That’s up 0.2% when compared to the final quarter of 2020, which could well encourage some further investment in BTL properties.


It’s not all good news for landlords, though, there is yet more legislation they now have to contend with. The government’s new ‘Breathing Space’ initiative kicked off on 4th May. The scheme aims to give those who have gotten into financial difficulties time to get advice and organise an action plan to deal with their debt/s. Charges, fees and interest on debts will then be frozen for up to 60 days. Landlords will be notified by The Insolvency Service if one of their tenants is put onto the scheme and, during that period, landlords will have to put any eviction proceedings on hold. Landlords must also now include details of the scheme in their documentation when they seeking to regain possession or the eviction could be rejected. Although the legislation is well-intended, the new scheme is likely to leave landlords having to deal with ever more paperwork and intractable rental arrears.


What may also soon have an effect on demand in both the sales and rental sectors is the government’s much heralded Mortgage Guarantee Scheme, which kicked off last month. 95% mortgages had almost completely disappeared from the market as lenders tried to minimise their exposure to high value loans during the height of the pandemic. Many first-time buyers were effectively locked out of the sales marketunless they were able to raise at least a 10% deposit.


The scheme aims to give them a leg-up onto the property ladder. Under it, the government is guaranteeing lenders the proportion of the mortgage that’s over 80%. For a 95% mortgage, for example, that means they are guaranteeing 15% (5% is the deposit). Both first-time buyers and home movers are eligible. It’s exclusively for repayment mortgages of between 91% LTV and 95%LTV. Unlike some previous schemes, it can be used for the purchase of both new and existing homes.


Already, it has led to a large number of high street lenders launching new 95%LTV products. Amongst them are Barclays, Halifax, HSBC, Lloyds Bank, NatWest and Royal Bank of Scotland and Santander. Rates are, typically, a little higher than they are for those with larger deposits, hovering around the 4% to 4.5% mark.


It’s too early to see how popular the scheme will be. If take-up is high, it could provide a significant boost to the sales marketbut at the same time, take some of the heat out of the rental market.