Buy To Let Mortgages : The Story, The Headlines And The Facts

In UK, the buy to let market experience a boom in last few years, from almost extinction on late 80s. I intend to explore the why, the story behind headlines, what can go wrong, when can go right.
One the most important days for Buy to let market was the day the Housing Act 1988 passed on parliament. Until then the rules for letting were very rigid, making potential investors run away from buy to let. The Housing Act 1988 brought more flexible rules providing a fairer legal framework to both landlords and tenants.
This law came at the right time as since Edwardian time (where 90% of all housing was rented) the rental market was diminishing year by year until reach the rock bottom in 1989 at only 7 percent of the housing market. However since then the market has recover to some 11% and is forecasted to growth further.
The buy to let is very important, moreover in times of recession and modern living. In times the recession, the buy to let private sector can help fill the gap that local authorities and social landlords leave as they are unable to respond effectively to the jump in demand for renting accommodation from families loosing homes due to the fact they cannot meet the mortgage payments as recession bites throughout economy (sharp rise in unemployment) and first time buyers that cannot step into the property ladder. Also, private letting is very important as our modern living where employment takes a primary part of our lives, many of us need to move quickly between jobs and opportunities or the need to rent when working far from home.
However the rental market only start to attract more investment when the first buy to let mortgages started in 1996 with a buy to let scheme between ARLA and a panel of Lenders. Before that the lenders would charge commercial rates for buy to let properties and potential rental income was not taken into account for servicing the loans. With buy to let mortgages, the lenders that subscribed the scheme devised the buy to let mortgages with similar interest rates as the rates for owner occupation and took rental income into account.
With the property boom from 2003 to 2006 and buy to let mortgages easily accessible with several lenders offering buy to let mortgages products, the buy to let market exploded, everyone wanted a buy to let property to profit from the property market. At one stage the buy to let mortgages available achieve the thousands.
With the hungry for buy to let mortgage business, the lenders started to relax their criteria, so relax that even people without income could have one. When 2007 the credit crunch started then the properties were not selling and credit dried, so the buy to let mortgages too. That created serious problems, as many inexperience landlords did not know what to expect and the responsibilities that comes with a buy to let property. Some though they could buy properties to dispose short after by selling it, for the quick profit, they did not understand buy to let investment is very good one, with good returns, if the investor looks at it as medium/long term investment. The landlords that bought properties without researching properly or looking as short-term investment started to get in arrears and house being repossessed or loose a great deal of money.
Buy to let mortgages are now seen as a risky business by the lenders and independent commissions. Its actually unfair as the mortgage arrears and repossession are considerably lower on buy to let mortgages that residential mortgages. If lenders criteria is right the buy to let is very good business for them. The only lenders that had problems on buy to let were the same ones with criteria way to relax.
Buy to let mortgages have changing from limited products and lenders to thousands products, at its peak even 90%Loan To Value (LTV) buy to let mortgages were available. The buy to let rates are and always will be a little higher than the leading residential mortgages and will unfortunately carry higher arrangement fees to offset the risk by the lender. You can have buy to let mortgages with fixed rate, tracker rate, discount, etc, products with same characteristics as the residential mortgages. However the lenders will take into account the rental income of around 110 to 150 percent of the mortgage payments, as well lenders may take into account the applicant income if rental income is not enough for the lenders rental requirements. The loan to value of the buy to let mortgages are up to 75% at the moment but in coming months when house prices have stabilize, lenders shall launch buy to let mortgages with LTV up to 85%.
Buy to let mortgages revolutionised the buy to let market and are here to stay. Please remember you can still find many good buy to let mortgages, buy to let is a great investment if you look at medium/long term and if you do a good research.