Press Article
METRO - 28 April, 2011
Buy-to-let investors competing with first time buyers
By Jo Eccles
It has been widely reported that strict bank lending criteria is making it harder than ever before for first time buyers to step on to the property ladder. A recent report by HSBC stated that in ‘normal’ market conditions, there is an average of 500,000 first time buyers in the UK each year, but for the past three years, the average has been just 200,000.
It is therefore not surprising that more and more would-be-buyers are now looking to rent, and stepping in to their place are buy-to-let investors who are making the most of the buoyant lettings market. Many investors are favouring property as an attractive and stable asset versus cash or shares, but their more active role is creating competition for first time buyers, when property in London is already in limited supply.
Assetz, the property investment specialist, recently reported that the number of buy-to-let mortgages they’ve dealt with has doubled in the last year. In the current market, it tends to be easier for buy-to-let investors to secure mortgage deals because they often have higher deposits than first time buyers, as well as other assets to borrow against. Assetz’s report stated that, on average, buy-to-let investors have 25-40% deposits, whereas first time buyers usually require a 90% loan-to-value mortgage. Higher deposits and established credit ratings are more attractive to risk-adverse lenders.
Although it is good news that more private landlords are coming to the market to cater for the increasing number of people looking to rent, there is a risk that first time buyers could be frozen out, especially if the increased demand for buy-to-let properties causes house prices to inflate even further. There are some schemes available to first time buyers, such as the Firstbuy Scheme announced in the recent budget. Firstbuy is a shared equity arrangement where the government and the house builder provide an interest free loan for 5 years (equivalent to 20% of the purchase price of the property), to help first time buyers who are buying a new build home, to raise a deposit. The buyer then only needs to contribute a minimum cash deposit of 5% themselves. The overall effect is that the size of the mortgage required by the buyer is reduced to 75%, which makes borrowing easier.