Buy-to-let investors confirmed as prudent

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by Lin Freestone

ARLA, the Association of Residential Letting Agents, has issued its quarterly survey of 444 letting agents and 289 residential landlords.

The survey reveals that, despite the fall in house prices, buy to let landlords are increasingly resolved to maintain their portfolios of residential investment property. Only a minority of 1.3% of those surveyed expects to sell because of current market conditions.

Investment landlords say that they expect to hold their residential property investments for the best part of two decades, up to an average of 17.2 years, up from 16.7 years in the previous quarter.

Four out of ten expect to increase their portfolios during the coming twelve months, and 7.3% may alter their let portfolios.

The latest figures show a lower Loan to Value ratio than generally reported and an increase in the length of time investment landlords expect to hold their properties. ARLA points out that it is only the individual buy to let landlords who are investing in housing at the moment.

Investment landlords are reporting generally low Loan to Value ratios. Four out of ten have borrowings of less than 50%. A further 37% report their loans remain between 51% and 75%. Less than 2% have borrowings in excess of 90% of the value of their investments.

The ARLA Quarterly Survey of Landlords and the ARLA Review and Index Review shows a rate of return on investment from the cash purchase of investment property of 10.82%, averaged across all regions, and for a geared purchase, the rate of return is 20.86%. The minimum period of time that such an investment is viable is over a five-year period, and these figures include both capital appreciation and rental yield.

When looking for a buy to let mortgage lender, personal research ranks highest among investors. More than half of the investors surveyed look for previous experience of their lender, while slightly less than half seek a lender that is well established in the market. 60% prefer to arrange buy to let mortgages through a mortgage broker, while 20% go directly to their lender of choice.

When choosing a mortgage product, the initial interest rate is the most important factor, at 54%, followed by the true cost of the mortgage at 33% and the rental calculation at 31%.

ARLA’s Head of Operations, Ian Potter, stated that the survey shows that buy to let landlords are confirmed as prudent investors for the long term. These investors understand the realities of the investment market they have chosen.

Ian Potter thinks that this understanding would appear to be far greater than that shown by investors in many other markets and is proving to be a bonus for the nation’s housing problems. No one else is investing in residential housing at the moment.

Published at the end of June, the Review and Index is supported by the ARLA Group of Mortgage Lenders, Bank of Ireland Mortgages, Cheltenham & Gloucester, GMAC RFC, Mortgage Express, NatWest and Paragon Mortgages.