Great expectations from the private rental market.

12/11/2013 By Mark Long

The private rental market is in good health with confidence around business expectations for the UK Financial Market running five times higher than this time in 2012.

The BVA BDRC Landlords Panel Survey, which canvasses the views of more than 1,000 private landlords, suggested that a general sense of wellbeing and optimism has developed in the sector, indicated by a growing number of landlords who had expanded or were planning to expand their portfolio.

One in seven had bought a property in the last three months, and nearly a quarter were planning to increase their stock in the next 12 months.

The main reasons for investing in letting properties are to supplement income, a pension, or simply because investors want a better return than that offered by the stock market. But strong rental demand is really helping to drive the continuing expansion of the BTL sector, as are improved borrowing conditions.

But how are landlords funding this expansion? BVA BDRC’s study has revealed that two in three landlords in the market for an additional property were planning to use a BTL loan to fund the purchase. Regarding properties already in their portfolios, 41% of landlords owned property on a BTL mortgage. A quarter had a portfolio containing some property owned outright and some via a BTL mortgage.

The study also investigated the typical ammount borrowed, type of morgtage held and mortgage channel used by landlords.

The majority of mortgagees borrowed between £50,000 and £150,000 to purchase a letting property. The average amount borrowed is £148,698, although 4% took out a BTL mortgage worth more than £500k to buy their last property. While just one in ten landlords only borrowed using capital repayment mortgages, 72% possessed solely interest-only mortgages. The remainder held a mix of both mortgage types.

By far the most popular route for borrowing was through a broker or intermediary, with seven in ten landlords arranging finance in this way. Almost one third have elected to go to their lender direct, in branch, over the phone or online.

The key indicators highlighted by BVA BDRC’s research all suggest that the private rental sector is set for continued growth. With almost a quarter of landlords planning to add to their portfolio over the coming year, lenders, brokers and intermediaries look set for a busy period.