Annual BTL Returns Hit 10%!

Rental arrears are falling and landlords are getting an average of almost 10 per cent in annual yields, making the buy-to-let sector an attractive proposition according to The Online Letting Agents.

There is little sign of the buy-to-let rush abating with 45 per cent more mortgages on offer now compared with a year ago. At the same time, the latest buy-to-let index from property services group LSL, showed total annual returns from rent and capital gains on an average landlord property rose to 9.7 per cent in the year to February. This is up from 9 per cent in January and from just 5.4 per cent in February last year.

Eleanor Carroll, Director of The Online Letting Agents commented:

“The key to a successful buy-to-let can be as simple as a decent mortgage rate and a carefully selected property location. Buying somewhere which will appeal to your target market and is in an area that has a ready supply of that type of tenant will help limit any voids.

“It’s important to know and understand your tenant market. For example, is there a good transport network for those looking to commute, or good leisure facilities for families who want to settle.

“Many landlords like the idea of fixing the mortgage rate, for much the same reason as residential mortgage borrowers.  Rising rates will eat into a landlord’s margins and rental income is not guaranteed to follow suit, so fixing rates can at least provide some certainty on outgoings.

“Buy-to-let mortgage rates have remained stable in recent months despite the residential rates rising, following the withdrawal of the Funding for Lending scheme and the possibility of increased interest rates. Paragon predicts returns in the sector will grow at 11.3 per cent per year for the next decade for mortgaged investors, and 6.3 per cent for those not using mortgages.”

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Confidence among landlords has also been boosted by rental arrears falling to their second lowest level of 6.9 per cent, according to property services business LSL. The number of tenants in severe arrears in the first quarter of 2014 was 68,000, down from 105,000 in the same period last year, LSL’s tenant arrears tracker showed.

The best buy-to-let mortgages

Some of the best buy-to-let deals available are listed below (based on interest-only monthly payments). It is important to bear in mind that buy-to-let mortgage arrangement fees should be able to be offset against tax as an allowable expense. Also remember that buy-to-let mortgages carry different requirements on rent-to-mortgage payments, age limits, and borrower’s own personal earnings, this affects which is best for you personally.

Two-year fixed rates

Leeds Building Society has a two-year fixed rate at 2.89 per cent with a £999 fee for a 40 per cent deposit. A 25-year £150,000 mortgage at this rate would cost £9,669 over two years. This lower fees means it actually works out cheaper than the lowest rate on the market from The Mortgage Works.

The Mortgage Works has a rate of 2.49 per cent for a 40 per cent deposit, but comes with a whopping 2.5 per cent fee.That fee on a 25-year £150,000 mortgage would cost £3,750, giving a total cost of £11,220 over two years.

Alternatively, Post Office Mortgages is offering landlords with a 40 per cent deposit a rate of 2.98 per cent for two years at 2.98 per cent with a £1,495 fee. A 25-year £150,000 mortgage would cost £10,423 over two years when you include the fee.

For a 25 per cent deposit, The Mortgage Works again boasts a low rate of 2.99 per cent but the cost of the mortgage is pushed up by a 2.5 per cent fee. The total cost of the £150,000 mortgage would be £12,702 over two years,

Accord offers a rate of 2.84 per cent for a 25 per cent deposit, with a 2.5 per cent fee. The same mortgage scenario would cost £12,270 over two years.

However, the Post Office again dominates this market with a two-year fixed rate of 3.29 per cent and a £1,495 fee. The total cost over two years would be £11,369.

Five-year fixed rates

Landlords with a 40 per cent deposit could get a five-year fixed rate from Post Office Mortgages at 3.98 per cent with a £1,495 fee. The total cost over five years would be £31,345 based on the £150,000 mortgage.

Virgin Money has a slightly higher rate at 3.99 per cent with a £1,500 fee. The 25-year £150,000 mortgage would cost £31,425 over five years.

Alternatively, for a fiver less, Santander offers a five-year fixed rate for a 40 per cent deposit at the same rate with a £1,495 fee.The 25-year £150,000 mortgage would cost £31,420 over five years.

Hinckley & Rugby offers a five-year fixed deal for a 25 per cent deposit at 3.69 per cent through a broker. It has a 2.5 per cent fee. The total cost of the same mortgage scenario would be £31,425.

The Online Letting Agents offer landlords full management, tenant find and referencing services and advertises properties on all the major UK property websites. For further information, visit or call 03300 883 973.

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