Blindingly Good Returns on BTL Encourages Investors

Britain’s biggest property listings website today said investors were piling into buy-to-let for “blindingly good returns” after the government’s efforts to bolster lending had created an “arbitrage of immediate return”.

Rightmove said its research showed that rents are delivering average gross yields of “5.9 per cent”.

Its monthly house price report stated: “With some remortgage finance available at lowest ever levels, from as little as 2 per cent for a two year fixed rate and 2.7 per cent for a five year fixed rate, there is the possibility of a straight arbitrage of immediate return on money borrowed against your main residence.”

This could, in theory, be borrowing against your home to release equity that could go toward a buy to let purchase, possibly as a deposit. Lenders, however, normally require borrowers to have buy-let-mortgages, which come with higher rates than residential mortgages.

The Government’s Funding for Lending Scheme (FLS), launched last summer, has offered £80bn of loans to banks at rates as low as 0.25pc. This has helped pushed down mortgage – and savings – best buy deals.

“With the prospect of capital growth in future years if you buy the right property, you can see why investors are piling in to the rental market – why wouldn’t they when it can offer a much better return than money in the bank?”

The number of Britons with buy-to-let mortgages has soared in recent years, to nearly 1.5 million, with savers facing record low interest rates turning to alternative assets for income.

Rightmove also said sellers had lifted asking prices on homes by 1.7pc in the past month, in a further sign of confidence for the property market in 2013.

The rise, to an average £239,710, exceeded the previous record high for March, in 2008.

Homes are also shifting more quickly with the average time on the market now 80 days compared to 90 this time last year.

While the volume of new sellers coming to market has increased by 12pc month-on-month, the amount of unsold homes has stayed broadly the same, suggesting that the number of properties for which sales are being agreed is growing.

The website, whose house price study has been running for more than a decade, found that the number of home-movers who believe that prices are set to increase this year is double those who believe it is set for a dip.

Almost one quarter (23 per cent) of people moving house believe prices are set to edge higher, compared with 11pc who are expecting decreases. The majority believe that prices will hold steady.

The month-on-month increases was strongest in the South East, up by 4.2pc to an average £309,439. London saw a 1.9pc rise but values are 9pc higher that a year ago, at £496,298.

The West Midlands was the only region across England and Wales to see a month-on-month dip, with a 0.5pc decrease taking prices to £185,942 on average, although they are 2.2pc higher than last year.

Prices in Wales were up by 1.5pc month-on-month to reach £163,772, but they remain flat on an annual basis.

Rightmove’s findings add to evidence that the market is gathering momentum, with the Council of Mortgage Lenders (CML) reporting last week that mortgage lending to home buyers has got off to its best start to the year since 2008.

The number of mortgages on the market has increased by around one third since the Government launched its Funding for Lending scheme (FLS) last August, which gives lenders access to cheap finance in order to help borrowers.

More than 3,000 homes have also been reserved under a Government scheme called NewBuy, which was launched last spring and allows people to buy a new-build home with a 5pc deposit.

The website said the Government should go further to generate a “feelgood factor” in this week’s Budget, including reintroducing stamp duty concessions for first-time buyers.

Rightmove’s Mr Shipside said: “More houses need to be built to meet growing household numbers, and the activity it creates is a great boost to the economy.

“If new initiatives spur the resale market as well as new build sector, then the Government could generate a welcome feelgood factor that it may judge to be timely with just over two years to the next election.”

Campbell Robb, chief executive of Shelter, said that even small price rises are “pushing the dream of home ownership” out of many people’s reach.

He said: “We hope the Chancellor will use this week’s Budget to boost house building and get more homes built.

“This is the only way to make sure that this generation, and the next, aren’t priced out of a place to call home.”

Source: The Telegraph

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