High mortgage rates hampering landlords from buying properties

High mortgage rates are preventing buy to let landlords from investing in residential properties as only 10 percent of them have confirmed plans to purchase during the first quarter of 2010.

This was the finding in research by Paragon Mortgages’ Trends. It said that buy to let mortgage finance is the main constraint among landlords to expand their portfolios. Majority of landlords are putting off their purchasing plans.

Paragon Mortgages’ managing director John Heron said, “It is encouraging that landlords are still active in the market and are looking to expand their portfolios. With tenant demand at such strong levels and soft house prices presenting the opportunity for bargains, it is easy to see why. But investors continue to be frustrated by a lack of choice and competition in the buy-to-let mortgage market, which is dominated by just two lenders. Landlords have told us that it was more difficult to source mortgage finance in the fourth quarter than in the third, and we see nothing to suggest that the situation will improve quickly.”

The study reveals that 10 percent of landlords want to expand their portfolio in the first three months of 2010. Of those looking to purchase, terraced housing is by far the most popular choice of property.

An estimated 65 percent of those surveyed said they would look to purchase a terraced property, followed by semi-detached houses (25%), flats (20%) and detached property (10%). Terraced housing has traditionally been a popular choice with professional property investors because it is well-constructed, preferred by a wide range of tenant types and can generate strong rental yields.  

But mortgage finance is a major factor that is holding off investments in the residential property sector as the mortgage conditions worsened in the last quarter of 2009. Landlords admitted they had difficulty securing mortgage finance during the fourth quarter than in the previous three months.

A majority of landlords or 67 percent said it was more difficult to secure a mortgage in the fourth quarter of 2009 than in the third quarter. Some 26 percent said that there was no difference, with seven percent stating that they found it easier to secure mortgage finance between the two quarters.

Heron added, “Most buy-to-let lenders currently active in the market employ aggregate or maximum lending levels, placing a ceiling on the number of properties they will lend against, which makes it difficult for professional landlords to expand portfolios because they are usually already at those lending levels. It is ironic that the criteria employed by most lenders favours inexperienced landlords over those with proven track records in residential property investment and management.”