For 
fees free processing please remember to quote 'student landlord'
Parents and Student buy to let
It has now been a while since the introduction of the parent/student buy to let mortgage, products and criteria that were available to a robust and buoyant market that, seemingly, would go on forever. However now that we are nearly a year into the credit crunch, criteria, products and loan to values have changed dramatically. In April of 2007 there were 2,990 buy-to-let mortgage products available, with an average rate of 5.23%, in April 2008 there were 597 products, with an average rate of 6.75 per cent. Some of the more recognised specialist lenders, including Mortgage Trust and Paragon, have stopped offering buy-to-let mortgage products altogether, thousands of existing landlords also face huge increases in the cost of remortgaging. So has the era of the amateur landlord all but ended, with banks and building societies effectively refusing to lend to new entrants to the buy-to-let market. Any mortgage broker worth their salt will also advise, albeit a non regulated product, that buy to let in mid 2008 is not for the feint hearted. On the 1st of August 2007 First Mortgage Trust published an article 'Does Buy to let still add up'.
In 2007 lenders would advance up to 90 per cent of a buy-to-let property’s
value (LTV), but most landlords now need to raise a more substantial deposit
to obtain a 'competitive' mortgage. Landlords have also been hit by lenders’
demands for increased rental cover (stricter criteria), that being the amount
of rent that covers the mortgage. Last autumn landlords only needed a minimum
of 100 per cent rental cover but lenders are now insisting on between 125 or
even up to 150 per cent. Average rents in the private rented sector have risen
by an average of 4% for houses and 2% for flats to end February quarter (Dec,Jan,Feb)
boosted by a 9% rise in Prime Central London and a 5% rise away from the South
East. Rents received improved by well over £3,000 a year for renting a
house and £1,500 for renting a flat in Prime Central London. Rents have
also risen in the rest of the country too, from an average of £931 to
£981 for houses and £619 to £664 for flats.
So where does this leave the parent still with some commitment and interest in entering the buy to let sector and is it a good time to buy? With property values being downvalued 10>15% and arguably at 2005 prices and with some highly geared late entrants to the market subsidising mortgage payments it may well be an excellent time to stop dipping the toe in the water and take the plunge. The CML (Council of Mortgage Lenders) stated at the time that mulitple occupation legislation was not in the public interest, thereafter the HMO legislation took on a postcode lottery scenario re: our post in February 2007 ' Effects of HMO licensing on buy to let '. HMO licence fees ranged from £60 per year in Hillingdon to £1,100 per year in Newcastle, with varying licences of 1,3 and 5 years.
One thread that runs through the parent, opportunist and investors mind alike, armed with a substantial deposit, is with property prices potentially 'bottomed out' and rents and rental demand remaining strong is there not a better time to consider buying an HMO property. With the licence in place and accredited by the local authority and some tenants and agreements in place the rental yield could well buck the trend.
Whether you consider yourself high or low risk other matters to factor in would
be managing the property, a letting agent would typically charge between 10>12%
of monthly rental + VAT, a fully managed property at around 15-20 per cent.
Around a third of rental properties are fully managed by an agent!! Tenant deposit
schemes, getting all tenants under one assured Shorthold Tenancy Agreement (As
preferred by lenders), whether to buy the property jointly and split the ownership
(then enter into a formal profit-sharing agreement), whether to buy as a guarantor,
rental allocation to son/daughter, rent-a-room relief (first £4,250 of
rental income is tax-free) careful planning can cut capital-gains tax (CGT)
when you come to sell.
First Mortgage Trust offer a web
resource for personal finance information along with an extensive collection
of mortgage related calculators. For any further queries please use our contact
form on our dedicated secure server selecting 'buy to let' from the drop
down while also remembering to mention 'studentlandlord'. First
Mortgage Trust have also designed an innovative buy
to let mortgage calculator to take the guesswork out of your investment
property purchase.
